BusinessWeek Investor: Private Banking
Who Wants to Bank Like a Millionaire? (int'l edition)
More and more institutions are courting the merely affluent
You've got a good job as a highly paid executive based in Europe. But you still have a problem. As the old saying goes, you're too busy working to make money: You don't have time to figure out what to do with what you earn.
Now you can turn to one of a growing band of pros to take that problem off your hands, for a fee. Universal banks, investment banks, asset managers, financial planners, brokers, and insurers are all hoping to snare clients. Once, such services were reserved for the superrich and offered mainly by opulent private banks operating from oak-paneled offices. No longer. According to London consultancy Datamonitor, 26 million Europeans have investable assets between $100,000 and $1 million.FARM LEAGUE. So there's a rush to court what the money mavens call that "affluent" market. Citibank, for example, now offers both onshore accounts or an offshore service called international personal banking to those with upwards of $100,000 or so. Services include advice on a range of mutual funds, transactional brokerage services (but no advice), and some margin credit. Fees for these services are per transaction. Deutsche Bank is trying the same tack, as is UBS Warburg, which will roll out a range of services across Europe later this year. "It's the private banking equivalent of the Industrial Revolution," says Michael A. Maslinski of Maslinski Lawrence & Co., a London consultancy specialized in private banking.
But it's not just banks that provide investment advice. Independent financial advisers can scan the marketplace for top-performing products. In Britain, they may operate on a commission basis, getting some or all of the 3% to 5% or more up-front fees that clients pay to buy many funds, or on a fee basis, charging anywhere from $80 to $400 an hour.
Asset managers are another option. To those with more than $400,000 to invest, Merrill Lynch offers portfolio management services through its fund-management arm, London-based Mercury Asset Management Ltd. Those with less than $400,000 can go to Merrill's own brokerage operations. Merrill gives prospective clients a 20-question risk-assessment test and then advises on the basis of their risk profiles. Discount brokers such as Charles Schwab are also in this market.
But in any of these services, don't expect much individual handholding or bespoke advice. That doesn't matter as much as it once might have. The professionals say the new breed of clients is more active in managing its money. But that means to get the best out of the services with lower entry fees you'll certainly have to do some of the homework.
Some private banks have a sort of farm system to nurture clients until they're rich enough to step into the big leagues. Zurich-based Bank Julius Baer gives advice on a range of standardized mutual fund products. For clients with $150,000 to $800,000, Schroders will tailor its standard package to each client's needs for an all-inclusive fee of 1% to 1.5%. At both banks clients can transfer to the full-blown private banking service with $800,000 to $900,000 in assets.
Normally, though, you need to have at least $500,000 to $1 million in liquid assets just to get in the door at a private bank. Some institutions require even more. Morgan Stanley Dean Witter, for example, mainly accepts clients with at least $5 million in liquid assets. And others, such as Goldman Sachs, J.P. Morgan, and UBS Warburg, are also looking for the very wealthy but don't have strict minimums. What they want to see, says J.P. Morgan's Declan Sheehan, managing director and head of private banking outside the U.S., is "longer-term potential."
When it comes to private banking, costs vary according to the size of your portfolio. For asset management, the range is usually between 0.75% and 1.25% of assets. Commissions for brokerage and other services are ordinarily charged on top--though that's beginning to change. "Pricing is becoming more competitive," says Tim Taylor, managing director of British private banking at Merrill Lynch International Bank. "Customers realize they can negotiate, and if you're going to command a premium, they are asking for more service."
The services you get for your money vary. At traditional private banks such as Coutts & Co., an official purveyor to Queen Elizabeth, a client who has a minimum of $800,000 in liquid assets will have a dedicated private banker who will arrange things such as check-writing facilities, mortgages, tax planning and returns, portfolio management, and even meetings with external art experts. They'll deliver British currency to the hotel room of a harried foreigner, or money to the cottage of an elderly British woman who can't get out. At Julius Baer (minimum: about $900,000), private bankers will arrange air tickets and lifts from the airport.
Some less traditional European players also offer unusual services. Citibank Private Bank offers clients with $3 million or more an in-house art-advisory team in addition to a full range of banking services, global trust and estate planning, asset management, and loan facilities.
But not all private banks go to such lengths. Many, especially the U.S. investment banks, stick to what they think they do best--asset management, brokerage services, and an array of hedging and risk management products needed by executives who have much of their wealth tied up in stock options. "We compete more successfully on business that is more complex," says David H. Blair, European head of private wealth management at Morgan Stanley Dean Witter. "We are investment bankers to the private client." At this end of the industry you're likely to get tax and estate advice, too. And you may be offered trust fiduciary management: J.P. Morgan provides it, but Morgan Stanley doesn't.NET-FRIENDLY. Where you go depends on what you need. Recently, there has been a trend in favor of American institutions because of their innovative and aggressive styles of investment. But some clients believe that they're too concerned with sales and not enough with service. Maslinski suggests that some of the American firms are right for people who can look after themselves but wrong for those who don't want to be involved. European players tend to be stronger in service and long-term relationships.
Before you sign up with a bank, an asset management company, or a financial adviser, there are a few issues you shouldn't neglect. Your adviser's track record and solvency are obvious things to check. Moody's or Standard & Poor's ratings would be a starting point. Among financially sound companies, it's a question of which can best create the relationship you want. You have to have a good feeling about the team. Another consideration is how Internet-friendly an institution is. Most institutions are rushing to compete with services already on the Net and to include some amount of Net access in their own range of offerings.
Make sure that you, too, understand exactly what the product range is, as well as the pricing structure. Then check to see if you have access to the same services offered by the bank's competitors. Finally, make sure you understand the kinds of returns the bank believes it can achieve based on the degree of risk you are willing to take. After all, at the end of the day, that's what it is all about.By Heidi DawleyReturn to top