The Wisdom of Choosing an Independent Private Bank
Over the centuries many wealthy individuals in Europe prefer to deal with private banks that will handle their banking, investing, and other needs instead of the traditional retail banking. With the present need in the market, various consumer banks and institutions offer these private banking services to high net-worth clients. However, not all private banks are created equal. Although most private banks offer the same luxury services, many banks differ in their approach in the management of a client’s assets.
Although the Europeans held a firm grip on the private banking industry for centuries in the past 10 years that grasp is loosening as some top banks set their eyes on Asia. One such example is Christophe Audergon of Crossinvest (Asia) who has European roots but soon realized that Asia is a solid market where he should be building a foundation. As it says on his website, Crossinvest (Asia) was established in 2005 when the Swiss founder realized Singapore’s potential to become a sound and strategic Asian banking hub. Today, Singapore is one of the world’s most sophisticated financial centers with an established infrastructure.
Private banking services offered by most consumer banks provide clients a concierge-style of service with a personal manager. But such perks become less attractive when one understands how the operational model of private banks affiliated with consumer banks is rife with conflicts of interest.
Because the asset manager is an employee of the bank, bias is present when the manager chooses which products to channel the money into. At the end of the day, the salary of the asset manager comes from the bank; hence, it is likely that these managers will put the bank’s interest above the client’s own. This happens when hard-earned wealth is placed in proprietary products sold by the bank or other affiliated institutions regardless of how the investment is faring.
Worse, the monies may be knowingly channeled in the bank’s under-performing investment products in order to boost the product’s profitability, at the client’s expense. On top of that, the banks earn by charging the client in multiple layers – fees for the private banking services including asset management, and another set of fees for investing in their products.
Another problem, which clients should consider when acquiring private banking services from consumer banks, is their lack of flexibility in using different investment vehicles. As these banks already have their own products to sell, they are less likely to put the client’s money in investment options from other banks that could possibly result in greater returns. When that happens, clients miss out on better deals because most banks have limited product offerings. Often, just one financial institution cannot address all of the client’s investing needs.
These abovementioned problems can be addressed by the entry of what is known as pure play private banks. These private banks are independent from any investment institutions. Hence, incidence of conflicts of interest is reduced. They do not stand to gain any incentive in choosing a particular investment product other than for the benefits it can give the client. Thus, their main agenda is to get their client the best possible deal. They are capable of working with different banks to present a diverse and higher-yielding portfolio. In case the client has a particular investment he is interested in, they can cater to his needs and can give proper guidance. When the client is discouraged from pursuing an investment, they can be certain that the advice given has his best interest at heart.
The business of private banking involves a great deal of trust and confidence in the asset manager. Entrusting this person with wealth is then a task not to be taken lightly.
Although the Europeans held a firm grip on the private banking industry for centuries in the past 10 years that grasp is loosening as some top banks set their eyes on Asia. One such example is Christophe Audergon of Crossinvest (Asia) who has European roots but soon realized that Asia is a solid market where he should be building a foundation. As it says on his website, Crossinvest (Asia) was established in 2005 when the Swiss founder realized Singapore’s potential to become a sound and strategic Asian banking hub. Today, Singapore is one of the world’s most sophisticated financial centers with an established infrastructure.
Private banking services offered by most consumer banks provide clients a concierge-style of service with a personal manager. But such perks become less attractive when one understands how the operational model of private banks affiliated with consumer banks is rife with conflicts of interest.
Because the asset manager is an employee of the bank, bias is present when the manager chooses which products to channel the money into. At the end of the day, the salary of the asset manager comes from the bank; hence, it is likely that these managers will put the bank’s interest above the client’s own. This happens when hard-earned wealth is placed in proprietary products sold by the bank or other affiliated institutions regardless of how the investment is faring.
Worse, the monies may be knowingly channeled in the bank’s under-performing investment products in order to boost the product’s profitability, at the client’s expense. On top of that, the banks earn by charging the client in multiple layers – fees for the private banking services including asset management, and another set of fees for investing in their products.
Another problem, which clients should consider when acquiring private banking services from consumer banks, is their lack of flexibility in using different investment vehicles. As these banks already have their own products to sell, they are less likely to put the client’s money in investment options from other banks that could possibly result in greater returns. When that happens, clients miss out on better deals because most banks have limited product offerings. Often, just one financial institution cannot address all of the client’s investing needs.
These abovementioned problems can be addressed by the entry of what is known as pure play private banks. These private banks are independent from any investment institutions. Hence, incidence of conflicts of interest is reduced. They do not stand to gain any incentive in choosing a particular investment product other than for the benefits it can give the client. Thus, their main agenda is to get their client the best possible deal. They are capable of working with different banks to present a diverse and higher-yielding portfolio. In case the client has a particular investment he is interested in, they can cater to his needs and can give proper guidance. When the client is discouraged from pursuing an investment, they can be certain that the advice given has his best interest at heart.
The business of private banking involves a great deal of trust and confidence in the asset manager. Entrusting this person with wealth is then a task not to be taken lightly.
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