Private banking services are provided by banks which dedicate themselves to looking after the money of wealthy clients. Traditionally, they required their customers to be able to deposit very large sums of money, frequently over $1 million, and promised them a high level of secrecy. Swiss banks in particular were famous for being able to provide their customers with so-called numbered accounts: you did not have to even have your name on your bank account, it was that secret.
Fast forward to 2017, and all that has changed. Regulators around the world have cracked down on the secrecy shrouding wealth management. Scandals like the collapse of BCCI in 1991 and the Nazi gold inquest in Switzerland have forced private banks to revise the way they provide services to their customers. And private banking is now not just about serving the needs of wealthy customers, but those who are forced to deal with problems in their home countries and an increasingly volatile international political situation.
What does a private bank do?
Even 10 years ago you could ask a private banker how his firm defined itself, and he would probably tell you it was the level of tailored service his private bank could offer customers. But in many cases, investors would judge a bank on its ability to manage their money. This fund management was, and is, carried out by investing in mutual funds, either those managed internally by the bank, those managed by external fund managers, or a mix of both. The ability for banks to take your money and maintain its value, or grow it at a rate slightly above inflation, was what counted.
Within international private banking things have been changing in recent years. Around the world there are many investors who are worried about their finances: political instability, inflation, corrupt politicians and tax men, all are cause for concern. Investors are now seeking to place their money in stable, well-regulated jurisdictions where they can be confident the banks are well-regulated and policed effectively by the central bank and other financial regulators.
This is why financial centres like Switzerland and Luxembourg continue to attract money from investors all over the world, and why, despite the ongoing farce of the Brexit negotiations, London is also the home for dozens of private banks. Here, international customers come to visit the city and explore options for they money. We are seeing a trend for investors in many developing countries, as well as the Middle East and parts of Africa, moving assets into bank accounts in the UK. Here, private banks are tasked simply with maintaining the value of that money with perhaps some degree of limited upside.
Private banking for the global village
Investors with private banks are opting for USD, EUR, GBP and CHF bank accounts for the most part. Many investors like to leave some money in gold bullion as well. Their priority is to leave a secure nest egg abroad which they can be confident will not be plundered by their local authorities. Many wealthy individuals also follow their money, buying homes in London or Zurich and sending their children to local schools. We are living in an increasingly globalised community, and it is easy to run an international business from the UK, thanks to its flight connections and proximity to African, Middle Eastern and American time zones.
Later in this series on wealth management we will look at choosing a private bank, and who we rate among the many private banking and wealth management institutions, both onshore and offshore.