PRIVATE BANKING AND ASSET MANAGEMENT

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  • August 2, 2018
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Private banking

Private banking is an individualised and comprehensive system of financial services provided by a bank to affluent individual customers.
Private banking is a very profitable business for banks. It is also a strategic activity, as a large proportion of clients are management boards of companies serviced by the bank. Private banking thus creates an additional bond with the corporate client.
Private banking started in England in the 17th century. There, a narrow group of customers – aristocrats and landowners, as well as rich factory owners and merchants – used special individually prepared services of private banks. Another centre of this type of banking has become Geneva, where the best traditional banks, such as Julius Baer, Picted, etc., are still located today.

Check also: Private banking w polsce

CUSTOMER SEGMENTATION THE BASIS OF MODERN BANK OPERATIONS

The operation of a modern bank is based on a detailed segmentation of customers. Business lines are separated, focused on providing banking services to a selected customer segment. The most typical division concerns separate banking services for the group of the largest strategic enterprises, large enterprises (the so-called corporate banking lines), small and medium-sized enterprises (the so-called middle market lines), retail services for natural persons (the so-called retail banking, consumer banking), including, separately, banking services for wealthy natural persons (private banking).
Each of these business lines has specific, more or less autonomous organization, management, human resources, and product autonomy. Each of these lines is separately accountable for the effects of its operations.
The High Net Worth Individuals segment can be broken down according to the following criteria:
Due to the financial resources available (more and less affluent customers);
due to the sources of income, e.g.

business owners and other depositors;
due to its activity in searching for new investment opportunities on the financial market and its acceptance of certain levels of risk

PRIVATE BANKING CUSTOMERS WORLDWIDE

The number of affluent customers in developed countries of the world is large enough and grows fast enough to make banks interested in this new category of customers.
The increase in the level of wealth and the number of people with a high material status, especially in certain countries, is a well-known and interesting social process, with consequences that obviously go far beyond banking. Estimates of the size of the potential private banking market in the international financial market are also known.
In 2001, the groups of the world’s wealthiest clients with financial assets exceeding USD 1 million were estimated at over 7 million people, and the accumulated financial resources at over USD 26 trillion. This group is referred to as HNWI (high-net-worth-individuals).

SERVICES PROVIDED BY PRIVATE BANKING

In traditional private banks the services are addressed to a specially selected group of customers – mainly people from very rich families, where the source of wealth are fortune inherited from generation to generation. In these banks, in addition to having an adequate level of wealth, you must also have references of any of your existing clients and document your social background. The use of traditional private banks resembles joining an elite club. Asset management in traditional banks is also geared more to preserving the value of wealth than to multiplying it. Of course, the consequence of such behaviour of traditional banks is their relatively low turnover scale and market share. However, these banks are focused on niche activities – they focus mainly on elitism, advisory services and high unit margins.

We distinguish the following services provided by private banking:
Investment products:
– Equity;
– fixed income securities;
– hedge funds;
– structured products;

Risk management:
– products related to the portfolio diversification strategy;
– stock option strategies;

Traditional banking services:
– loans;
– mortgages;
– checking/saving accounts;
– business accounts;

Planning and consulting in the field of finance and real estate:
– tax planning;
– estate planning;
– trust administration;
– estate administration;
– insurance, assurance (insurance).

PRIVATE BANKING AND ASSET MANAGEMENT
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