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Is wealth management what is wanted?

Private banks are in danger of losing a grip on what makes them attractive to the wealthy

Will the term ‘private banking’ exist in five years’ time? Once the bastion of deposits of the world’s wealthy, and known for their secrecy and can-do attitude when it came to meeting clients’ demands, whatever the demands, the private banks are distancing themselves from any connotations that imply they are not transparent. Discreet? Yes. Private? Absolutely not, lest the regulators and their war on opacity come knocking. And do any of your clients get special treatment? Not at all, Mr Regulator.

Instead, the private banks are manoeuvring towards a homogeneous rebranding as ‘wealth managers’. High-net-worth individuals in today’s world want investment advice, asset allocation expertise and investment performance, say private bank executives, which is interesting as never in any research has that been what high-net-worth clients say they value most.

Banks want to focus on wealth management because by merging their asset management and private banking franchises they can lower costs. They have no choice when regulatory expenses are soaring and deposits have been yielding next to nothing for them, and ‘special service’ seem like dirty words.

But, the mass-marketing push on wealth management could all end rather badly. For a start, most asset allocations are the same. No one is reinventing the wheel or differentiating themselves from competitors. Secondly, those who do create stellar investment performance generally don’t work for large asset managers and certainly don’t work for private banks. And finally, rising interest rates are difficult for all investments, so any poor decisions and low-performing products are going to be exposed rather quickly when compared with returns on cash.

The danger is that executives are forgetting the core premise of private banking – service and relationships. Clients were made to feel unique, or at least special, rather than dropped into buckets of assets. It is a referrals business, and one can’t imagine wealthy individuals recommending their private banker based on a marginally finer allocation to equities over real estate, as opposed to helping secure a difficult loan or to get their child into Harvard.

For good or for bad, one benefit of being wealthy is that you can pay for special treatment. Maintaining that allure in the transparent, heavily regulated environment will be key. Those who shed their private banking mantle for wealth management could end up seeing clients opt for smaller boutique banks that still have an air of elitism.