Private banking: Articles

Private banking services are designed to suit the requirements of those wealthier-than-average individuals whom banks consider are worth investing more time in. This can vary widely from bank to bank, and will also depend to a large extent on how much business you as an individual can potentially bring a bank.

Private banks can offer you a wide range of services, from the basic components of retail banking like credit cards and deposit accounts, all the way up to finance for your business and offshore asset protection structures.

'Red carpet' retail banking

Some banks have successfully developed a 'premier' service for the international client who has slightly more sophisticated requirements than standard retail banking can provide. This is frequently the best place to start when looking for a decent private banking service, as you may find you get all you need from these. Your bank in your home country may not be willing to provide you with a service suited to your needs, and retail banks in your country of residence may not be prepared to let you open an account if you don't suit their criteria. Red-carpet retail banks could be the best choice for you.

Branch coverage by these major international players is now far more widespread than it used to be: you can now walk into an air-conditioned (or centrally-heated) bank branch in most capital cities, and frequently many other cities as well. These banks have also successfully upgraded many of the features they have been developing for domestic clients, and adapted them for use by others. If all you are really after is a higher standard of service, cheque book and debit card, and perhaps a couple of offshore savings accounts, these banks are more likely to be for you.

Classic private banking

The traditional private banks often claim they will not accept business from clients with less than $1 million in investable assets, but many will take your business for less. It really depends on how desperate they are for business. Be warned, however, that many of the smaller private banks can be notoriously fickle in their commitment to a given region. While they may have an office close to you today, this may not be the case next week. Ultimately, if head office requires them to close down for business reasons, they will do so, and you will be forced to either deal with someone on the phone in a far-off country, or look for another bank.

The wealthier you are, of course, the more likely someone will come to visit you, wherever you are.

Private banks should be judged on the level of service they give you: if you're not happy with this, change bank. They market themselves on the basis of the sound relationships they enjoy with their clients, and claim the level of service they can offer is one of the key factors that differentiate them from retail banks. If they are not delivering on this, close your account.

Private banking services

Private banks provide a broad range of services: you should be able to choose from a long menu, including access to hedge funds, legal and tax advice, estate planning facilities, and even more esoteric advice, like the best way to stock a wine cellar, or where to send your wife shopping in London. Private banks like to feel they can give their rich clients a personalised service, so don't be afraid to ask. Many of the topics and financial products covered on this site should be on offer via a private bank, and they are often a useful first port of call if you're considering diversifying into new areas of investment.

Portfolio management expertise is one of the core services of any private bank. They can tailor a portfolio to your specific risk requirements, be it simply maintaining value through volatile market conditions, or achieving a 12% annual return target. Nowadays they are also developing increasingly sophisticated structured products in order to build a level of predictability into a portfolio.

Many private banks maintain their own trust companies if you are interesting in establishing asset protection structures or more proactive estate planning. For more information on this, see the 'Trusts & Foundations' section of this site.

Banking secrecy

Banking secrecy and client confidentiality were once cherished axioms of the private banking industry, but a series of international initiatives have served to seriously undermine the banking confidentiality provisions in place in most offshore centres. A criminal investigation should pierce even the toughest client confidentiality regime. Similarly, tax authorities, if sufficiently well-organised, are finding it easier to access client records held by European Union and US passport holders. Although Switzerland has been steadfastly resisting European attempts to undermine its banking confidentiality regime, it is fighting a losing battle. Similarly, the days of numbered bank accounts are long gone.

Some of the less-reputable offshore centres try to promise banking confidentiality as part of their marketing package, but in reality this is far from watertight, and could be compared with the confidentiality you would enjoy as the customer of a standard onshore savings bank.

If you are not a European Union or American passport holder, then countries like Luxembourg, Liechtenstein, and Switzerland, with their tough confidentiality regimes, could still be an option. It remains a federal crime in Switzerland for bank employees to disclose client information, and the jurisdiction still plays home to a staggering US$1 trillion in private wealth. Its financial centres, like Geneva and Zurich, still play host to a large number of private banks, of all shapes and sizes.

Family offices

Family offices are established to service the banking and wealth management needs of a specific family. When families inherit money, or a share in a family business, it is frequently more secure and economic for all investment and estate planning activities to be coordinated from a central location, namely a family office. Some family offices manage the assets of more than one family. They are generally smaller than private banks, but specialise in the same range of products and services.

Private banks do create their own family offices, designed to manage the portfolios of their biggest family clients (usually with investable assets in excess of US$250m), but these are not family offices in the truest sense, more, in the words of one private banking consultant, "just a new marketing label."

Setting up your own bank

Of course, you can always set up your own bank. This is harder to do in a developed country, and most of the major offshore centres will only issue banking licenses to established names, but smaller offshore centres have granted banking licenses to entities which are, de facto, family offices. Major jurisdictions, like the G10 countries, are unhappy granting licenses to personally-held banks. You will need to look further afield, to smaller offshore jurisdictions like Gibraltar or Vanuatu.

Financial advisers

A much cheaper route, if you're interested in a personalised service, is simply to appoint a financial adviser to handle your investment activities. It is essential to choose a consultant who is properly regulated in a respectable jurisdiction. There are many advisers and brokers operating in countries that do not have proper regulations in place covering this profession, and consequently will argue there is no need for them to be regulated.

We recommend choosing an adviser who can not only demonstrate qualifications from a respected authority, but ideally an individual working for a larger firm that is properly regulated. Otherwise you do not have the reassurance that the broker's activities are being properly supervised. Even the largest firms of international advisers have been caught out selling unsuitable funds or financial products to their clients.

You may be approached by a 'tied agent', an adviser who is authorised only to sell the products on one financial services provider. He may be an employee of a respectable international bank, insurance company, or fund manager, but ultimately he cannot provide you with independent advice. He has to sell you the funds or policies of his employer. Wedding yourself to one firm's product range does not make sound financial sense. If you do go down this route, it is better to retain a second adviser as well.