Got quite a few million to invest or an income of more than R30 000 a month? Then there are institutions out there just waiting to woo and win you with the ultimate status symbol: a private bank account.
Acknowledgement of your worth from a private bank can mean almost anything in South Africa, from having your chequebook delivered by someone in a miniskirt, to receiving a very discreet service covering most of your financial dealings.
Private banks will do everything, from lending you money (preferably in large amounts) to setting up an asset protection trust for you in an offshore financial centre such as Vanuatu in the Pacific.
Private banking used to be the preserve of small niche banks, but with more and more people falling into the two categories of "high net wealth" or "high income" (or both), the high street banks have woken up to the fact that they were letting a business opportunity slip by.
Where previously you had only Syfrets and BoE (both of which go back more than 150 years), you now have all the main commercial banks offering private banking facilities, either under their own brands, such as Absa, or under other specialised brands, such as First National Bank's Henry Ansbacher.
Now that exchange controls are being phased out, foreign banks have also started vying for the business of South Africa's wealthiest. And then there are the non-bank financial services companies, such as Citadel and Fairheads International Trust Company, which offer some of the services available from private banks, particularly in the realm of asset protection trusts and asset management.
What is private banking?
Christiaan Hattingh, managing director of Ansbacher Private Bank, says there are as many definitions of private banking as there are authors on the subject or institutions claiming to be private banks.
While the bottom line is certainly to help you accumulate and preserve wealth, he says it is probably easier to describe what private banking is not.
"Private banking is not just about providing the right products to a client. This is an approach carried over from the retail and mass market, both of which are transaction-orientated. Private banking is not prestige or status accounts with pretty chequebooks, guaranteed cheques, preferential rates and favourable hire purchase terms. Private banking is also not just about relationship banking."
Wilfred Robinson, of Absa, sums up private banking as "wealth management rather than retail banking".
"Private banking is about the discreet delivery of personalised, holistic, integrated financial and wealth management products to high net worth individuals and their families."
Some of the banks - particularly those that are linked with a large retail bank, such as Syfrets, which is in the Nedcor stable - do offer transactional services. But offering a credit card or chequebook service (and even hand-delivering a chequebook) is clearly not what private banking is really about.
A brief history of private banking
The history of private banking provides some clues to the nature of the modern service. Private banking started in the Middle Ages with very wealthy individuals (most of whose wealth lay in large tracts of land) hiring experts to help them administer their affairs. Some of these experts grew immensely wealthy and became bankers to kings.
Rothschild is one of the names that emerged from this era and has come to represent the ultimate in private banking.
Later, with Europe in a constant state of war over territory, power and religion, the Swiss saw a gap for a secret banking service that would protect and preserve the wealth of individuals. To this day, there are still some very small private bankers servicing a select few extremely wealthy people and Switzerland still dominates the private banking market. Nowadays, however, Swiss banks do not operate as freely as they did and they can no longer take money from the world's scoundrels and despots with impunity.
Absa's Robinson says there are three broad models of private banking:
* Swiss model: Having evolved from secret banking, this model is involved mainly in asset management on the basis of as much secrecy as the law allows;
* English model: From being concerned with financial administration and the creation of trusts, this model has moved into integrated financial administration, including transactional banking; and
* American model: This is based largely on providing trust services, financial and estate planning and credit facilities to clients.
The private banking services in South Africa follow the English model, providing a one-stop service for all your financial needs.
The private bank client
Peter Backwell, the general manager of Nedbank Retail, says today's private banking clients tend to be relatively young and are concerned with the wealth they have generated through their personal initiatives and business activities. They are sophisticated in their understanding of investment opportunities, and their desire to preserve wealth is mitigated by a willingness to accept some risk in their portfolio management.
Nedbank Syfrets Private Bank's typical affluent client is around the age of 40, earns a six-figure annual salary, has significant money for investment, but has little time to administer his or her personal finance needs. This newer, younger market still requires a high level of service but demands high performance of investments, too. The focus is still on value-added service, but on a timely basis at a cost-effective price.
Most of the banks set minimum entry points, which may be as low as R1 million in assets plus an income of R30 000 a month, or as high as R7 million in assets and an income of R60 000 a month.
If one uses the analogy of a frequent flyer, the normal retail banking client uses economy class, the up-and-coming businessman uses business class and the really wealthy use first class. Although there are significant differences in costs and services offered in the different classes, all passengers have to be at the airport at the same time and arrive at the destination at the same time. A true private banking client charters his or her own plane and flies when it suits him or her.
However, it is clear that not all the private banks in South Africa look for quite the same level of high-flying client. Most will accept first class passengers and a few business class passengers will sneak in too, particularly if it is likely that they will be extremely wealthy in the future.
Brian Bechet, managing executive of BoE Private Bank, says private banking is often built around the wealth of a family rather than an individual. Private bankers offer services that ensure the family wealth is properly managed in all its dimensions from generation to generation.
Bechet says many clients who did not anticipate becoming private bank clients come into wealth because of a single event such as an inheritance, retirement, the maturity of share options, the sale of a business or a divorce settlement.
The demand for private banking services has increased with globalisation and as South Africans have developed increasingly complex family structures. For example, when children are being educated or are living abroad, issues of offshore investment and estate planning become more complicated, and wealthy people have to turn to the services of private banks to ensure proper financial structuring.
Of one thing you can be certain: In most cases it will be the bank that approaches you rather than the other way around.
The services
The services offered by private banks are extensive, but do vary from bank to bank. Many people who qualify for private banking may require only one or two of the services offered, such as asset management or estate planning to ensure the protection of their assets after they die.
Unlike retail banking, private banking is not branch or outlet-based. The private banker is the primary delivery channel.
Absa's Robinson acknowledges that no single financial institution has a mandate on the performance of its own products, "so a private bank should source the market, both locally and offshore, in constructing a solution for the client".
Alex Langen, director of Offshore Products and Services at Standard Bank, and who is charged with the development of the Personal Wealth Management services at the bank, says most services involve complex, high-advice products both here and abroad.
"With the gradual relaxation of exchange controls, offshore investments now form an integral part of a financial portfolio. And the range of products that is available locally must be available offshore too."
To achieve this, institutions that offer private banking services have moved rapidly to set up or purchase offshore operations or have sought out strategic alliances that enable them to meet the changing demands of their wealthy clients.
Robinson says services can be divided into wealth creation, wealth preservation and wealth maintenance.
Wealth creation includes:
* Investment advisory services, from analysis of a client's needs and risk profile in the formulation of an appropriate investment strategy, to management of the investments according to a mandate agreed with the client;
* Product provision, encompassing the full array of financial products, from collective investments such as unit trusts and mutual funds, to segregated portfolio management both locally and offshore; and
* Other services, including stockbroking, regular reporting to clients, management of corporate actions, such as share splits and collection of dividends, and lending, to enable participation in geared investments.
Wealth preservation covers:
* Financial advice ranging from counselling and estate planning to business and tax planning;
* Wealth protection, including life and disability assurance, income protection plans, and medical aid and insurance;
* Wills and executor services, including advice on wills, drafting of wills, estate planning, and executorship and administration of deceased estates; and
* Trust services, including the establishment of asset protection trusts both in South Africa and overseas, estate planning, the provision of trustees, administration and accounting, tax planning and wills for foreign countries.
Wealth maintenance includes:
* Transactional services, including the full range of current and deposit account facilities, credit cards and money market accounts;
* Loan facilities, including all types of borrowing from overdrafts, home loans, motor vehicle finance, guarantees, bridging finance and gearing finance;
* International banking facilities, which include all services available locally as well as foreign currency loans, secured credit on foreign assets, travellers' cheques and international payment services; and
* Other services, ranging from safe deposit boxes to internet and telephone banking.
In most cases, as a private client, you are assigned one person (who has a limited number of clients) to deal with all your financial needs. The private banker assigned to individuals is likely to be a well-qualified generalist supported by a team of experts.
As a private bank client, you can whistle for service 24 hours a day, all year round.
Discretion
Historically, private banking has had "utmost discretion and confidentiality" as its watchwords. It is no different today, BoE's Bechet says. "Even at a dinner party, no guest should be identified as being a client of the bank. We do not say who our clients are."
However, discretion does not mean total secrecy. Both internationally and in South Africa, private banking has become less opaque because of tough money laundering regulations, but you should be confident that your finances will be kept away from the eyes of those who wish you ill.
Costs
Most of the private banks are cagey about how much they charge for their one-on-one service. Absa is one of the few that will provide an outline of its fees. At Absa you can expect to pay a minimum banking relationship fee of R500 a month and a scaled fee for asset management based on the size of the investment. The minimum on the scale is 0.4 percent, with one percent as the maximum.
A lot depends not only on the range of services a client requires, but also on the level of individual service. Standard's Langen says the costs are a "very personal arrangement, where both the client and the bank will get value".
There are savings too. For example, private bank clients fall into the low-risk category and can expect to pay low rates of interest on borrowed money.
What you need to know
If you are in the market for a private banking facility, you need to be sure of a number of issues:
* Range of services: As some private banks offer limited services, you need to be sure that the services you require are available, both locally and abroad;
* Level of expertise: You need to be convinced that the service managers have the ability and the qualifications to provide the type of services you require, again both in South Africa and abroad;
* Level of service: You should be sure the bank can deliver the level of individual service you require. Someone once said that a private banker should be there to walk your dog. He probably would be E but it would cost you; and
* Costs: It is advisable to compare costs for the level of service you require. Costs are likely to include regular fees as well as charges for selective services such as asset management, which could involve a percentage of the amount you have invested.
This article was first published
in the January 2001 issue of Personal Finance magazine. See what's in our latest issue