The challenges and rewards of private banking in London

Read our article in the Cayman Financial Review Magazine, eversion 

To those who may think that the private bank is perhaps a modern
phenomenon that has only sprung up in the last couple of decades; think

Whilst it may seem that we have only been fascinated with the
lives of the rich and famous in fairly recent times, the fact is the
ultra wealthy and the institutions that service them have been around
for a very long time.

In the eighteenth century in Europe, and London particularly, wealthy families such as the Rothschilds, Coutts and Hoares started their private banking businesses largely to look after their own growing wealth. In each of these small institutions the key characteristics of privacy (verging on secrecy), personal service and a breadth of expertise in all areas of financial life were the accepted benchmark.

These forerunners of the modern family or private offices grew quickly, opening their businesses to friends and family, then business associates and trading partners and finally becoming the full blown private banks and wealth management firms that we know today.

Today private banking still retains those important characteristics of privacy, personal service and expertise. A successful private bank will have an enviable client list of wealthy individuals and their families and be known for having the utmost discretion in everything it does for those clients.

On top of this it must be able to demonstrate the ability to deliver all of the services that a larger, multi-national financial goliath can, and more. It should boast the best relationship managers, available day and night, to proactively look after these clients; anticipating their needs and tailoring services and offerings for them.

At a slightly more esoteric level private banks also have to work quite hard to dispel the myths and the general mystique (created largely by themselves) around what exactly it is that a private bank does, and what exactly can it do for clients.

On top of all this, the small private bank also has to contend with the same day to day pressures of the big banks – regulation, the world economy, fierce competition and, last but by no means least, returning a profit for its shareholders.

The competitive environment for banks has seldom been more intense. Continuing low interest rates has led to a topsy turvey world where major banks have some deposit accounts that are paying higher rates than they are charging on some of their mortgages products!

An increasing burden of regulation can be partially linked to this. Banks around the world are, by and large, well capitalised. However they are being asked to set aside more and more capital to support their operations which consequently affects their ability to lend money to clients. This in turn leads to a sometimes frantic scramble to bolster client deposits by offering ever higher interest rates to bridge the funding gap.

Challenging? Yes. An opportunity? Absolutely yes!
One of the true benefits of private banking is that the relationships managers know who the clients are. Not in an anti-money laundering sense where you photocopy a passport and a gas bill but in the sense that you really get to know everything about your client and their financial life and in turn, they know who you are too.

One of the outcomes from the financial meltdown of 2008 and the ongoing world economic issues was that private banking relationship managers had one great opportunity after another to pick up the phone to their clients, or drop them an email (whatever the client prefers), and let them know the latest developments or the bank’s view or sometimes just to soothe any anxieties. Contact, in any form that suits the client, is key.

I have a number of accounts with some of my larger peers and I guess I wasn’t surprised not to hear anything from them during the last couple of years. For my part, I have spoken to a large percentage of the Butterfield client base here in London and penned a number of letters and other communications over recent times.

Private clients are not always happy, even when you’re being proactive and calling them, but if you don’t talk to them, how will you ever know and how can you possibly resolve their issues.

Competing for potential clients’ attention is another challenge that faces small private banks. Big bank equals big marketing budget and it is difficult to get your voice heard and your message across. Advertising and PR will therefore only ever have limited success and new clients must be courted and encouraged in more traditional ways.

Strong, long-lasting relationships with existing clients are once again essential as they will be one of your key sources of new clients in the future. In fact relationships of all sorts, with professionals – such as lawyers and accountants, journalists and even some of your key competitors are all important to have and to spend some serious time maintaining and nurturing.

Networking is alive and well in private banking! This is certainly the case at Butterfield Private Bank.

So where does private banking see its future? Speaking from our offices, a stones throw from the Bank of England, I see an enormous opportunity and almost unlimited potential for private banks to grow their business.

There are so many wealthy individuals managing their own financial affairs whilst operating bank accounts and self select investment dealing facilities with the major high street banks. Of these there are any number who are dissatisfied with the level (or lack) of service that they receive and, sadly due to the air of mystery that has surrounded private banking over the years, are unaware of an alternative.

At this point, and in the interests of balance, I should point out that the vast majority of people have relatively straightforward banking and wealth management requirements and are more than ably served by their existing bank. Modern banking is such that the level of interaction necessary to conduct ones affairs can be as little or as much as one wants. Internet banking has become the norm for many, and the wealthy individual is no different.

However there are a growing number of clients who want more. They may not be old enough to remember when high street banks each had their own branch manager and you had a relationship with that person. But deep down, it’s what many of them want and, frankly need.

Our challenge, as private bankers is to dispel the mystery, meet these individuals and show them how it can be different – for the better.