Private banks were the forefathers of the modern retail bank, providing services to rich families in the city states of Renaissance Italy.
Today they continue to be called private banks to distinguish themselves from retail banks although most investment banks, as well as some retail banks such as Emirates NBD and Abu Dhabi Islamic Bank in the UAE, offer these bespoke investment services.
Private banks chiefly differ from retail banks through the deep relationships they build with their clients that can span generations. It is not uncommon for private bankers to be treated like family members by clients, often being invited to social events such as weddings.
UBS is the biggest global private bank, according to the Scorpio Partnership Global Private Banking Benchmark 2013, with US$1.7 trillion of assets under management. It is followed by Bank of America, Wells Fargo, and Morgan Stanley, all of whom manage more than $1tn in assets. In all, the top 20 global private banks manage more than $11.2tn in assets.
The biggest offshore centre for private banking is Switzerland, followed by Hong Kong and Singapore.
The lines demarcating private banking and wealth management are somewhat blurred. Private bankers like to maintain their cachet and differentiate themselves from wealth managers, who are typically associated with retail banks and the “plain vanilla” services such as mutual funds. Private bankers typically deal with investors who have at least $1 million or more to invest.
Confidentiality for customers is of the utmost importance for private banks, although some of them, such as UBS, have had to pay hefty fines and disclose account information to governments chasing tax evaders. Whether you bank in Switzerland or Dubai, the levels of secrecy for clients is very similar, bankers say, although total anonymity is becoming increasingly difficult everywhere as governments clamp down on tax cheats. The main difference is Sharia in the UAE, which favours males over females when it comes to dividing inheritance. For that reason, many rich people here choose to bank abroad, or at least keep a portion of their wealth offshore.
However, there is increasingly a market for people with smaller amounts to invest, who should not expect the kind of high-class concierge services the very wealthy enjoy such as help to find a home close to where your child is studying overseas. For smaller amounts, clients typically get generic advice about how to invest money, at an annual fee that can be as high as more than 1 per cent of your assets. Usually, the larger amount you invest, the lower the management fees become, with amounts of more than $2m typically commanding less than 0.25 per cent of net asset value per year — although banks are increasingly using a variety of fee structures.
But the depth of a client’s pocket is relative.
“Big Swiss banks are trying to get rid of their small accounts because they are not profitable,” says Mario Camara, the chief executive of the private bank Swissquote.
“They talk about accounts of $1.5m and $2m. When I talk about large accounts, I talk about accounts of $25,000.
“They kind of laugh at me but we are the number one retail bank in Switzerland for Swiss nationals.”
mkassem@thenational.ae
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