I'm your private banker

PORTFOLIO POINT: Investors with as little as $100,000 might be tempted to put themselves in the hands of a private banker. Be warned: their services come at a price.

Private banking might conjure up images of genteel discussions about unique investment opportunities in plush surrounds, but as financial institutions chase market share the reality is likely to be much more informal.

Far from being restricted to the ultra-rich, the industry is now targeting individuals with as little as $100,000 in savings and investments, although the price tag attached to their services is enough to make most investors think twice.

Private banking in Australia is dominated by the big four banks, which aim to serve as one-stop shops, with remarkably similar product offerings that combine premium banking with wealth management and investment services. These institutions generally advertise that a client requires at least $1–2.5 million in liquid assets apart from the home, or an annual income of more than $250,000 to join.

However, in some cases this can be an aspirational target. Adrian Hondros, the executive general manager of Commonwealth Private, says: "If we have a view that a client is likely to invest $2.5 million in the first two years then we would certainly become engaged and help them along with that. Our people are given the opportunity to make a commercial judgment."

Customers are matched with a banker, or relationship manager, who will be their primary point of call. They then work with their clients and direct them to relevant products, services and advisers.

How “personal” the service is all depends on how much capital you have invested with them. Entry level customers can expect to share their “private banker” with as many as 120 others. For investors with $20 million or more it may be as few as 10–20 other clients.

The costs involved and incentives offered depend on the level of investment and activity. Private banks offer better interest rates on big loans – negotiations start at about 60 basis points off the standard rate – and flexible debt servicing options.

On the wealth side, clients are usually charged an ongoing fee of 1% of assets under management – not exactly cheap by anyone’s standards – while an initial personalised financial plan could cost about $5000.

The banks will also provide access, where clients have the means, to a broad range of sophisticated investment opportunities including wholesale funds, structured and alternative assets, IPOs and the types of off-market capital raisings that are usually not available to retail investors.

Private arms of investment banks, such as Macquarie Private Bank and Credit Suisse Private Australia, supposedly focus more in this area.

Farrel Meltzer, chief executive of private investment firm The Wingate Group and former head of ANZ Private, says the large banks provide a good upper-end retail service. "But if people go there because they expect really good investment advice or product access, they will most of the time be disappointed," he says, speaking generally of clients with more than $10 million to invest.

Meltzer, whose firm admittedly is engaged in a similar space, recommends these higher-end investors enlist an independent private financial adviser who also have access to the deal flow. "To me, those are the true private bankers," he says. "They have no bias, no conflict because they're not selling any product."

Other options at the top end include Citi Private Bank, a boutique usually open to families with $50 million or more, and the Myer Family Office, which attracts investors with more than $30 million. Both offer highly specialised advice on investment, tax, and estate and succession planning, areas in which the big banks are also beginning to compete.

But you don't need to be a millionaire to enjoy premium banking. HSBC's Premier is open to anybody with either more than $200,000 in investments or a mortgage of more than $500,000. Those with as little as $100,000 invested with Citibank are eligible for the bank's Citigold program.

Both services offer access to a relationship manager, although you could reasonably expect to share them with many more clients than you would expect at some of the other institutions. This could be a deal-breaker for many investors who would expect fast access to advice and may find themselves at the bottom of their adviser’s to-do-list in a crisis.

The growing army of private banking outfits competing for your business are all at pains to emphasise the dual proposition of investment expertise combined with a personal touch. But a severe shortage of skilled private bankers, who tend to have backgrounds in wealth management or institutional and investment banking, has emerged in Australia, according to Alan Shields, research director of Retail Finance Intelligence.

Shields, whose firm partners with the Australian Private Banking Council (APBC), says that as long as the skill shortfall remains it is important that customers question their banks about the expertise of those they will be dealing with and enquire about the institution's staff retention strategy. Continuity is important in an industry built on relationships, he says.

As a guide on where to start searching, Shields points to the results of last year's APBC awards, as voted by 500 high net worth Australians. Commonwealth Private was judged best private bank in the $1–10 million bracket, while Westpac Private took out the $10 million-plus category. Staff from Macquarie, Westpac and NAB also picked up individual awards.

"The most important thing to do is to talk to the banks individually," Shields says. "It's quite a personal decision."

Meltzer says customers also should focus on how the banks link clients to bankers. "The best banks are the ones that have been very sophisticated about how they've segmented their client base, and how they've matched the specific service offering to that client base. Even more important is how they match the people delivering that service, the bankers, to their individual clients."

"It is important that they know where they fit in, in terms of how many clients per banker and where they will sit within the bank with their level of wealth and needs."

As to whether you really need the services of a private banker, we suggest you evaluate that yourself before asking the bank. In the words of the world’s greatest investor Warren Buffett, “Don’t ask your barber if you need a haircut.”