Private banking deals dollars and discretion

Private banking on the European model -- which emphasises discretionary wealth management over generations and the "holistic" provision of any service a well-heeled client might require -- is available in Australia for high-net-worth investors, defined as those with investable assets (excluding the family home) of $US1million or more. But over the past decade, the term "private banking" has been appropriated for what are in effect high-end retail banking.

The big five banks, BankWest, Bank of Queensland and Bendigo & Adelaide Group's Private Banking Services all offer a suite of services they call "private banking", for which people usually qualified if they had a large mortgage with the bank.

"Virtually every bank has some kind of product that they call 'private banking'," says Paul Dowling, principal analyst at financial services research firm East & Partners.

"They will differentiate retail clients into a product that they call private banking, but they're really only offering a set of products that is really quite traditional commercial banking.

"For a long time it was merely based on a different chequebook, different credit card, a dedicated relationship manager they can ring.

"Now the retail banks are bundling together deposits, margin lending, mortgages, investments, credit cards, structured products, multi-currency accounts -- but even though it's high-end it's still a retail product, which really isn't private banking.

"Private banking is coalescing all of the bank's services into a bespoke arrangement: to be frank, the domestic Australian banks aren't there yet. In terms of their core product set, they are all capable of bundling those products into a specialised offering to a high-end client, but it's very different to what UBS or Merrill Lynch or even Macquarie will deliver to a so-called private banking client.

"I think they're all serious about this market, but actions aren't speaking louder than words at the moment. NAB is probably closest to that holistic model, it has highly specialised business units addressing that segment and has managed to integrate its wealth management offering much more closely to that core retail banking offering."

Both domestic and international banks are awake to the huge opportunity that exists in Australia for private and high-end retail banking, after 16 years of economic growth and a booming share market -- until 2007-08, that is.

But the wealth created by the commodities boom-driven stock market of recent years has created more rich people than one down year can counteract.

According to the Cap Gemini Consulting/Merrill Lynch World Wealth report, there are more than 160,000 people in Australia with investable assets of more than $US1 million. In 2007, another 11,000 Australians became millionaires, a rise of 7 per cent.

That means that about one in every 123 Australians can call themselves a millionaire, or a "high net worth individual' (HNWI), as they are technically called.

That is the market that both local and international banks are targeting, with high-end banking services -- whether these match the technical description private -- that don't necessarily involve mortgages.

Both HSBC and Citibank have launched private banking packages: Premier and Citigold, respectively. They have less stringent requirements than the local so-called private retail banks but are aimed squarely at the wealthy.

British banking group HBOS is also building its share of the local market through its BankWest brand, which is expanding on the east coast.

Meanwhile, Standard Chartered last July launched a private bank package targeting the 100,000 or so Australian expatriates working in Asia.

"We think there are close to 2 million affluent Australians," says Suvrat Saigal, director of wealth management for Citibank. "And for these affluent Australians in the market today, outside of Citigold and Premier, they do not have a product that caters to them -- unless they take a mortgage.

"We do not want a me-too service which builds on the mortgage. We want to take a fresh approach based on what these people are looking for."

Most private retail banks require an income of about $250,000 and/or $1 million in investable assets outside the family home. It usually costs up to $750 a year for the privilege.

"If anything, a lot of them have upped their minimum requirements for private banking," says Steven Anderson, head of research at financial services research firm Infochoice. "That suggests that they're getting a lot of business. They usually want $500,000 worth of lending, even $1 million with some."

HSBC Premier is open to anybody with either over $200,000 in investments or a mortgage of $500,000-plus. It costs $35 a month. Its online banking offers a world view of multi-currency accounts and borrowings on one screen and is available in some 35 countries.

CitiGold is open to anybody who has more than $100,000 invested. For that there are no fees on everyday transaction banking or using ATMs. Clients get a fee-free platinum card for one year, or totally without fees to those with over $1 million invested. No annual fee is charged: any cost is either built in to the product or product specific.

Andrew Hagger, executive general manager, private and institutional wealth, at National Australia Bank, says the bank's creation of the Private & Institutional Wealth division in April recognises that retail banks "have to offer more" in the high-net-worth space than they had previously.

The division combines a number of existing NAB businesses serving private wealth and institutional customers, including NAB Private Bank, National Custodian Services, investment consultancy JANA, National Australia Trustees, National Online Trading, NAB Financial Planning and Specialised Investments.

"It's interesting, because the statistics on wealthy individuals have received a lot of press, and there's probably a perception that the banks are reacting to that. But with us, it was the customer base saying that they wanted access to the sophistication of the wider bank group."

Hagger says bringing "institutional" into the title of the division recognises that many high-net-worth people are effectively "mini-institutions".

"In the sophistication of some of their needs, they are. They may have their family offices, private foundations and have their own internal stable of advisers, be they lawyers, accountants and so forth, to help handle their wealth. They interact in a very sophisticated way with various parts of the bank.

"We've organised ourselves to bring institutional-calibre solutions and approaches. It's still treating the individual as an individual, but bringing them the artillery and the strength of the institutional innovation, because they want to access institutional-quality approaches and solutions. We think that's where the market is heading, if you want to call yourself a private bank," Hagger says.

http://www.theaustralian.news.com.au/story/0,25197

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Private banking deals dollars and discretion