Private Banking is a service offered to clients who have considerable assets and who, being characterised by financial needs that are not easily classifiable, turn to a bank (even a specialized bank or a non-banking intermediary) for a "tailor made" service that is built around the specific requirements that are called for¹. There are completely different logics behind private and retail banking: a private banker (or a personal banker who usually acts as a partner to an investor who qualifies with lower levels of capital) builds up a one-to-one relationship with the client, recommending solutions that fit the client’s profile (in respect to the band of assets held) and that are characterised by different levels of sophistication according to the specific needs shown. On the contrary, retail bankers work with well-defined types of clients -with differing needs and expectations- and to whom pre-packaged services (mass customization) are directed. A solution that is somewhat standardised can also be offered by a private banker in the initial phase of the relationship, if his/her counterpart has not already demonstrated a certain autonomy in evaluating his/her own financial needs. In general, clients who resort to intermediaries usually give an unconditional authorisation for the management of the assets entrusted (passive investors). This does not exclude the presence of "active investors", who still keep under control their investments; and of the so-called "self confidents", for whom a private banker is merely an executor of previously taken financial (or non-financial) decisions. Especially in the case of an "active investor", where the intermediary has to reach an agreement on the investment ideas that are proposed, the levels of professionalism and competence required of the employee who establishes contact with the client are considerably important. Owing to the variety of issues involved, normally intermediary banks that carry out this service (especially commercial banks who reserve a specialised area of business for this activity) or very big groups work through a product company. Even small or medium-sized intermediaries can provide a service. These normally look to external professionals to find solutions that they can then adopt to fulfil the requirements of their clients.
The very nature of private banking does not allow the exhaustive number of services that this business offers to be fully listed. There is usually a service that offers a management of financial investments and the related advice (a service typically provided by European banks). It can also include real estate management and advice in buying or selling works of art (as in America), and in markets characterised by a high cultural awareness in finance, they even go as far as to provide assistance with taxation issues, trusts and inheritance matters (carried out in off-shore centres). It is possible to divide the main services offered into two generic categories (even if incomplete):
a) Services that mostly include the management of financial or property assets and advice in matters of investments;
b) Secondary services that are offered in connection to those above and that include functions such as financial intermediaries, investing in foreign currencies, in commodities, advice in inheritance or fiscal matters and in the trading of works of art.
It is just as difficult to establish the target clients who could qualify for private banking if we need to give a clearer definition of "investors with considerable assets". Even if there is no apparent relationship between the sophistication of a client and the amount of assets he/she has, for obvious operational reasons, banks tend to associate the level of personalisation of the service offered to "how much" a client has. Providing a service means the bank has to create a structure and offer clients the numerous resourses it makes available. Given that a client with very small assets is unlikely to be interested in accessing services that are too highly specific, the "cost" of the service has to be taken into consideration. A segmentation of theses clients, with the related allocation of services, has to undoubtedly be made according to the amount of assets the client has, in such a way that the profit margins correspond to the resources put on offer.
Clients can be classified as follows:
- Ultra High Net Worth Individual (UHNWIs);
- High Net Worth Individual (HNWIs);
- Affluent.
The so-called "affluent" clients, who belong to the lowest quantitative band, generally have a " wealth" that exceeds one million dollars. These clients usually entrust the total of their savings to a single bank. "High Net Worth Individuals" usually have assets worth more than 10 million dollars but do not qualify for the 25 million dollar band, which is reserved for "Ultra High Net Worth Individuals". Both the "high" band categories of clients have a tendency to split their savings up between more than one private banker, also to obtain the best possible mix of investments from their financial resources. This characteristic is generally considered to be a stimulus for the intermediary to maximise the efficiency and service he/she provides in view of customer satisfaction. Another indication that helps in assigning the client to one of the above segments is the level of income of the potential investor. The quantitative bands are also formed by taking into account both the expected value of new wealth and the work done by the individual, which are used to measure the potential growth of this variable.
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¹Resti A., (2003), "Il Private Banking", Bancaria Editrice.
Editor: Mirko IORI
© 2009 ASSONEBB