7 Questions To Ask When Choosing A Private Bank

Personal Finance

7 Questions To Ask When Choosing A Private Bank

Looking for a private bank? Here are 7 crucial questions that you should ask before making your selection.

Published on 2 October 2017

Every investor’s personal finances could do with some professional help. While retail banks provide a host of services to their clients, they do not have the ability to cater to the needs of wealthy customers.

Those who have investible assets in excess of US$1 million are generally categorised as high net worth individuals (HNWIs). The requirements of these investors are met by private banks, which are financial institutions that provide personalised investment-related advice along with several other types of services.

How a private bank can help you

  • A private bank will provide you with investment advice that is tailored to your specific needs. A “relationship manager” will handle all your interactions with the bank.
  • Private banks pride themselves on their ability to keep your transactions confidential. Many HNWIs value this attribute very highly. You can be sure that your private bank will be absolutely discreet about your financial dealings.
  • If you require a loan or real estate financing, your private banker will provide you with the most suitable options and help you to finalise the transaction.
  • You will also receive help with your regular banking transactions. Additionally, your private banker can assist you with your tax planning and tax returns. In fact, many private bankers are quite willing to offer an entire range of finance-related services to ensure that your business remains with them.

But all private bankers do not offer similar products and services. Before signing up with a particular private bank, it is essential to do your homework, ask the right questions, and compare what different banks have to offer. Choosing a private bank is a high-stakes decision that will have a long-term impact on your finances – so make sure you invest a good amount of time and effort in this process.

Here are 7 questions that you should ask when selecting a private bank:


What is the bank’s investment strategy?

You will need to come to grips with the bank’s investment strategy. If you are looking for high returns, you will of course have to be willing to stomach a greater degree of risk.

You will need to enquire about the bank’s plans for your money, and the investment vehicles – active and passive – they intend to use­. If you want your investments to be deployed in overseas markets, ascertain whether the bank operates in other countries or if it has expertise in investing internationally.

You should get a specific answer about the average returns that you can expect – based on the bank’s past performance. Also, ask if your views will be sought prior to your money being invested.


What is the minimum investment required?

Each private bank has different rules regarding the minimum amount that you must invest to qualify for an account. In the recent past, several private banks have increased their minimum eligibility threshold – with some raising this as high as US$10 million. They have done this because the number of HNWIs is increasing.

Generally speaking, private bankers prefer clients who have a greater amount of investible assets – as this generates more profit for the bank.

If the amount that you plan to place through the bank is low, expect to receive less attention from your relationship manager. Although individual banks each have their own standards and practices, the number of clients that a relationship manager handles typically varies inversely with their customers’ net worth. For example, if you invest around US$1 million, your relationship manager would likely be overseeing about 100 accounts of a similar size.


What are the services on offer?

The private bank that you are considering must provide you with detailed information on the entire range of investment opportunities that they offer. Enquire if they can help you buy corporate or government bonds, equities in your home and foreign markets, and insurance.

Some bankers will try and convince you to buy different types of complicated financial products. Stay away from structured and leveraged products unless you completely understand the risks that they carry. If the private bank that you are planning to engage pushes these at your initial meeting, it may be advisable to look elsewhere.


What is the size of the bank?

Is it advisable to go with a bank that has a large volume of assets under management (AUM)? If you make your choice based on this criterion, it is possible that you will get access to in-house experts who have highly specialised knowledge. But given the large size of the bank, you may not receive the personalised attention and advice that you seek.

A smaller bank has several advantages. The most obvious is that you stand a much greater chance of getting individual attention. The bank will go out of its way to retain your business. It is also more likely that they will make a genuine effort to meet your requirements.


Is the bank profitable?

It makes sense to deal with a profit-making institution. If your private banker is making losses, you could experience frequently changing policies and lower levels of service.

Loss-making banks also may have higher employee turnover and you may see your relationship manager changing more often. If your enquiries reveal that the bank is financially unsound, do not do business with them.

Ascertain the total volume of assets that the bank manages. While a large amount is no guarantee that the bank will be a good fit, it does give you some idea about the bank’s standing in the industry.


How much will you have to pay?

You must get your private bank to tell you exactly how much they will charge for various services. As a general rule, you will need to pay a fee of between 0.5% and 1% per year of the sum that is managed for you. The percentage is lower for higher amounts of assets.

Keep in mind that fees can vary significantly and you should compare the rates of different banks.

Remember that the bank may also earn a commission on the investments that it makes on your behalf. This will boost their earnings, and may give you an opportunity to negotiate lower rates for yourself.


Does the bank offer wealth, tax, and succession planning?

Many HNWIs require these services. While your private banker may not have the expertise to help in every area, they should at least be able to guide you in selecting an expert.

The bottom line

Which private bank should you select? If you ask the above questions, you should have a fairly good idea of what each private bank has to offer, and whether it’s a good fit for you.

Finally, your choice will depend upon one other critical factor: you should be able to feel a certain level of comfort when dealing with the bank’s representatives. If during your initial interactions with them, the bank’s representatives seem to be too pushy or you find their selling techniques overly aggressive, it may be advisable to look for a different private bank.

It is imperative that you feel a sense of comfort and trust with the representatives at your private bank, as you will be hopefully cultivating a long-term, lucrative relationship together.