WEALTH Essential Guide To Choosing A Private Bank

Investing

WEALTH Essential Guide To Choosing A Private Bank

Today, we look at Private Banks - Read on as we list the key factors you should consider when finding the right private bank, with some insight into the fees and services offered in the upper echelons of banking. We hope you find the guide useful.

Published on 29 June 2018

In this guide, you will learn:

 

  • What a private bank can do for you.
  • The key factors to consider when choosing a private bank.
  • The step-by-step process you should follow when choosing a private bank.

What can a private bank do for you?

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Private banks provide comprehensive and customized banking, investment, and other financial services for high net worth (HNW) individuals – those with sufficient assets to open an account with at least US$1 million.

Private banks offer their clients a wide range of facilities and services including:

  • Banking (including deposits, lending, credit cards)
  • Financial planning
  • Investment management
  • Trust services
  • Tax services
  • Philanthropic advisory services

Generally speaking, private banks aim to:

  • Provide a one-stop shop for all their clients’ financial needs including investment management, banking transactions, retirement planning, property loans, tax returns, and succession planning.
  • Deliver personalized investment advice and wealth management solutions.
  • Offer concierge-like customer service and exclusive perks for clients.
  • Ensure the highest standards of privacy for their clients by keeping their transactions and other dealings with the bank strictly confidential.
  • Establish and nurture long-term relationships with their clients.

If you sign up with a private bank, you will be assigned a relationship manager who will devise a complete, customized wealth management plan tailored especially for you and will handle all of your interactions with the bank, as well as an investment advisor who will oversee and manage your investment portfolio.

Key factors to consider when choosing a private bank

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Choosing a private bank is a high-stakes decision that will have a long-term impact on your finances. So, before making your selection, make sure you invest a good amount of time and effort in researching, reviewing, and comparing the various institutions out there to see which is best able to meet your individual needs.

Below are the key factors you should consider when evaluating prospective private banks:

Size

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Globally, there are thousands of private banks, which collectively oversee trillions of dollars in assets under management (AUM) for clients. From large to small, international to regional and boutique, there is a wealth of options to choose from.

Indeed, private banks vary widely in terms of the volume of their AUM – from small boutique firms with less than US$100 billion in AUM to international private banking giants such as UBS and Bank of America, which boasted AUM of US$2.06 trillion and US$1.97 trillion respectively in 2017.

Whether you opt to go with a smaller or bigger firm depends on your individual needs as a client.

Bigger private banks often can provide a wider range of services and access to a large team of in-house experts who have highly specialized knowledge across various areas. These banks also typically have the budget to invest more in offerings for their clients.

A smaller private bank, however, offers several advantages. The most obvious is that at a smaller private bank you stand a much better chance of getting individual attention and personalized service. Also, the bank will likely go out of its way to retain your business, making an extra effort to meet your requirements and provide bespoke solutions for your financial needs.

Whether you decide to sign up with a small boutique private bank or an established global brand, you should make sure that the institution you choose has a proven track record and sterling reputation in the industry. When you first meet with representatives of the private banks you are considering, you should ask them to provide you with data on their institution’s recent financial performance.

Range of services

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Different private banks have strengths in different areas – ­such as trust services, financial planning, philanthropy, and tax advisory – and you should select an institution that has the right expertise to meet your individual needs.

On the investment management front, the private banks that you are considering should provide you with detailed information on the entire range of investment opportunities they offer. For example, you may want to enquire if they can help you purchase corporate or government bonds, equities in your home and foreign markets, structured or leveraged products, and insurance.

Investment strategy and approach

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Before committing to a private bank, you should make sure that you have a complete understanding of the bank’s investment strategy, investment management approach, and past performance.

You should:

  • Ensure that the bank’s investment strategy is aligned with your own, and that you are comfortable with the balance of risk and returns that the bank is proposing for your investment portfolio. Generally speaking, if you are looking for high returns, you will have to be willing to stomach a greater degree of risk.
  • Ask for specific information on the bank’s plans for your money, and the suite of investment products 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.

Additionally, if you are interested in practicing “ethical” or “impact” investing  – where investments are made into companies, organizations, and funds with the intention of generating a positive social and environmental impact as well as a financial return – you should check whether the bank offers these types of investment vehicles.

  • Find out whether the bank practices a discretionary or advisory investment management approach – or a combination of both. If you are a hands-on investor who would like your private banker to consult with you and provide investment strategy advice and guidance, but allow you to make the final buy-and-sell decisions, then the advisory approach would be better for you. If, on the other hand, you would rather hand over the reins of your investment portfolio to your private banker and let him or her make investment decisions, then the discretionary model would be more suitable for you.
  • Enquire about the past performance of the bank’s investment portfolio ­to get a sense of the average returns you can expect ­– keeping in mind that (as every seasoned investor knows) past performance is not necessarily an indicator of future results.

Profitability

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The private bank that you end up choosing should be a profit-making institution. If your private bank is racking up 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 open an account with them.

It is also important to note that just because a private bank more profitable in the past does not mean it necessarily will be better in terms of service quality and future investment performance.

Don’t be afraid to ask the private bank’s representatives during your initial meetings with them for information about the bank’s recent financial performance and standing, which can typically be found in annual reports.

Minimum investment amount

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Each private bank has different rules regarding the minimum amount you must invest to qualify for an account.

The minimum investment entry point varies dramatically from bank to bank, ranging from as low as US$1 million in account opening size to as high as US$10 million.

It is thus imperative that you determine how much you are able to invest and find out from each private bank what its minimum entry threshold is – to ensure you are eligible to open an account at that particular institution.

Also, you should be aware that ­– in most cases – the lower the amount you plan to invest is, the less personal attention you will receive from your relationship manager at the private bank. The number of clients that a relationship manager handles typically varies inversely with his or her 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.

Fees

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Before investing your money with a private bank, be sure that you have a thorough understanding of its fee structure and how much it charges for various services.

As a general rule, you will typically pay a flat fee of between 0.5% and 1.5% per annum on the assets under management (AUM), for discretionary or advisory management mandates. Some banks offer a lower fee for larger accounts.

Other fees and account charges to consider are trading commissions, custody fees and account servicing fees. Trading commissions, in particular, can vary significantly from bank to bank across asset classes, markets and your typical trade size & volume.

Ensure that the private banks you are considering give you a complete picture of their various fees ­­and account charges – as these seemingly minor sums can add up and take a big bite out of your returns over the years.

Equipped with this information on various private banks’ fee structures, you may even be able to negotiate more competitive rates for yourself or negotiate an all-in fee.

How to choose the right private bank for you

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Step 1: Define your financial needs and goals and determine the amount of assets you have to invest.

Step 2: Consider the key factors discussed above and define what you are looking for in a private bank.

Step 3: Explore the market to identify which private banks will be able to meet your needs.

  • Search via WEALTH – Asia’s leading online marketplace for investors – to compare private banks. The website’s recommendation engine will suggest 3-5 private banks that would be a good fit for you.
  • Research and learn more about these private banks. Visit their websites to get more information about their history, size, range of products and services, areas of expertise, fees, investment strategy and approach, and client requirements.
  • Speak with contacts in your personal and professional network to find out if they have had experiences with these private banks and get their feedback.

Step 4: Shortlist 2-3 private banks and schedule an appointment to meet with representatives from these institutions.

In the meeting, you should:

  • Share your financial needs and goals with them, and tell them what you are looking for in a private bank.
  • Ask them questions <insert link to guide to questions you should ask before signing up with a private bank> to learn more about their history, size, range of products and services, areas of expertise, fees, investment strategy and approach, and client requirements.
  • Ensure that you are able to feel a sense of comfort and trust with the bank’s representatives. Remember that you will be entering into a long-term business relationship with the bank you end up choosing, so it’s essential that you have a feeling of confidence and comfort even in your initial interactions with the bank’s representatives.

Step 5: Choose the private bank that you think is right for you.

The bottom line

Selecting a private bank is a major undertaking that requires a significant amount of time and effort. Failing to do your due diligence and making the wrong choice could result in a costly mistake.

Choosing the right private bank, however, will mark the start of a long-term, lucrative relationship – based on trust, communication, and service excellence. Your private banker will work closely with you to understand your financial needs and goals, and develop and implement a complete, customized plan to help you achieve lasting financial success and security.

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