Welcome to the wealth management club
Mention the terms ‘private bank’ or ‘wealth management’ and the image of a Gucci-clad high-flier speaking to their personal banker on their mobile from a private yacht might spring to mind.
While this may not be far from the truth for some of the most elite private banks and wealth management firms, such services are no longer the exclusive domain of the rich. With many consumers disillusioned by the state pension system or their work pension scheme, uncertain where to deposit their savings after the Northern Rock saga or just sick of poor service from their high street bank, more than ever before are turning to wealth management firms.
But wealth management and private banking can be a complex area and is not a suitable alternative for everyone. So, how do you know if these services – and the higher costs they can demand – are right for you?
What are they?
Wealth management and private banking services offer similar services. Private banks typically offer traditional banking services along with a tailored approach to looking after your finances that encompasses wealth management. They sell themselves on exclusivity and personal service.
Wealth management itself has no simple definition, as it means different things to different people. Put simply, it is the concept of helping an individual to manage their wealth to get the best out of it.
“At its most basic, wealth management is looking at how you manage wealth for a longer period,” says Bruce Weatherill, global private banking and wealth management leader at PricewaterhouseCoopers. “It’s actually managing wealth effectively from birth to death and through death to the next generation,” he says. Firms with a banking licence – generally the private banks, although specialist wealth managers have one too – offer everything vailable from a high street bank, but with access to a wider range of services and expertise and with more bells and whistles.
For those taking out a World Card with the private bank Coutts & Co, for example, additional benefits include access to a concierge service that can help book a table at a restaurant, or even charter a yacht. With the Queen among its customers, however, Coutts is at the most exclusive end of the market.
Beyond banking services, private banks and wealth management services provide services ranging from basic financial advice and planning to complete management of a customer’s financial affairs. They can offer retirement planning and pension services, advice on trusts and tax planning, oversight of insurance needs and investment opportunities that clients may struggle to grasp on their own. While not all firms offer all these services in-house, many will find the expertise for you.
However, services on offer from a firm operating under the wealth management banner can vary significantly, as Patrick Connolly, certified financial planner at Towry Law, explains. “There are many different firms, with different propositions, that purport to offer wealth management services,” he says.
Connolly says wealth management used to be offered almost exclusively by private banks and discretionary fund managers – which will manage your investments entirely, including taking investment decisions on your behalf.
“Today wealth management services could be offered by a private bank, stockbroker, fee-based financial planner or commission-based financial adviser. Indeed a one-man band sitting in his shed can claim to offer wealth management services.”
Research firm ComPeer’s UK Wealth Management Industry Report 2007 suggests growing numbers of firms are keen to get a slice of the wealth management pie, with IFAs increasingly branding themselves as such and life and pensions companies establishing wealth management divisions. ComPeer’s definition of wealth management has typically been those firms regulated to manage or administer a client’s money on their behalf.
Simon Pimblett, head of research and development at Route Group, a wealth management service aimed at high-earning City workers, suggests that, while specialist wealth managers tend to be independent free agents looking across the whole market, “banks tend to promote whatever they themselves are putting together”.
However, Weatherill believes this is changing, with ‘open architecture’ structures where banks offer a wider array of outside products.
Is it for you?
There is no doubt that the more money you have to invest, the better. While the big international private banks look for minimum investable assets between £5 million and £10 million, UK private banks are keen to appeal to a wider market and therefore may look to a minimum of £250,000 to £500,000.
Investable assets refers to the likes of funds in your pension pot, savings and ISAs, and stocks and shares, but not your main home.
But it’s not all bad news if you don’t have £250,000 lying around – you can access such services at much lower levels. Efforts have been made, particularly by high street banks, to offer services targeted at the “mass affluent”.
With around £50,000 you can get premier services with HSBC, while as little as £5,000 will get you through the door for the private banking services of Cater Allen, part of Santander Private Banking UK.
Brian Capon, head of media relations at the British Bankers’ Association, says consumers, particularly those with savings, are increasingly using add-on services to make more of their money. “More traditionally they might have relied on a state pension plus something else put into a building society or something like that,” he says.
“But I think people are much more aware now that they need to make that money work for them and that it may mean paying out to get that expertise. ”
Capon suggests there is a form of wealth management service or advice available for everyone, but believes the real benefits kick in when an individual has upwards of £50,000.
He says most banks will offer wealth management services of some kind – whether it be an add-on service provided by a high street bank or its private banking arm, or a private bank such as Coutts & Co, the private banking arm of the Royal Bank of Scotland Group.
On top of this, wealth management can also be provided by specialist firms, such as the Route Group, along with some IFAs, such as Towry Law, while some stockbroking firms also offer these services.
PwC’s Weatherill, however, suggests it is at the £250,000 mark that the services of wealth management firms and private banks come into their own. “When you have more than that you actually have different options,” he says.
James Thorpe, a spokesman for HSBC, describes private banking as “the top of the tree” when it comes to wealth management. People require around £2.5 million to £3 million of investable assets before they become eligible for HSBC’s private banking service. However, the bank does offer special services for those with considerably less to invest. As a guideline, customers with £50,000 or more to invest, or a salary of about £75,000 with a mortgage in the region of £250,000, would typically qualify for HSBC’s premier service. Thorpe says this service is particularly useful for those who spend a lot of time abroad and need to be able to move their banking services with them.
Premier customers with more than £100,000 have access to advice from IFAs that consider products from the whole of the market. Meanwhile, those with less would have access to HSBC’s financial planning managers, who are tied to HSBC, although they do have access to around six different fund managers.
Thorpe points to groups such as Britons living abroad, those who inherit, or anyone feeling the benefits of the house price boom as potential customers of its premier service. He says many people are not aware that services like these might be open to them. “They don’t really consider themselves wealthy - they’re self-made individuals,” Thorpe says.
The cost of private banks and wealth management services varies depending on the services used and the firm offering them.
Bruce Weatherill says the typical charge on assets under a firm’s management is around 1% a year, with various transaction costs on top.
“At much less than £200,000 it’s a little difficult, but above that you can get various tiered rates. The more money you have the cheaper it becomes,” he says.
But do they add any real value? Weatherill illustrates the benefits of a private bank or wealth manager with the analogy of taking your car to the garage, only to have the mechanic talk you through the inner workings of the carburettor, rather than just fixing it.
“They offer it all in one package. So rather than going wherever you would go for your various services, they offer it to you all in one,” he says.
Todd Davis, head of finance intelligence at research firm Mintel, says wealth managers can really add value for clients in providing “frontline informed advice” that is reflected in investment returns. “They’re very good in terms of maintaining a client and developing client loyalties and doing annual or biannual reviews where you collect every scrap of information on a client’s financial situation and provide them with detailed advice on estate planning, tax and investment planning,” he says.
“This is expensive advice, but you could employ your solicitor and accountant to do a great many hours of work, while a private bank can try and offer that advice a little more efficiently and cheaply.”
Others suggest it is the higher level of service – the personalised approach with a dedicated contact, along with, where applicable, having your money backed by a reputable global organisation – that makes private banking or wealth management worthwhile.
David Elms, chief executive of IFA Promotion, says: “You have to shop around. I think you have to look at corporate wealth managers’ offerings; you have to look at IFA offerings; you have to look at accountancy offerings and you have to pick which services are going to provide the best service for your particular needs.”
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.