Private banks try to become more exclusive

©Bloomberg

Private banks have begun a fresh cull of clients as they sharpen their focus on more profitable, high-net worth customers.

In recent months a number of private banks, which pride themselves on establishing personal relationships with their customers, have begun “managing out” clients with investment portfolios of hundreds of thousands of pounds.

“They are weeding out lower-margin clients,” says Stewart Richardson, partner with RMG Wealth Management. “They are being told that if you don’t like it, you’ll have to move on.”

Deutsche Bank Private Wealth Management recently gave a long-standing customer one month’s notice to close her £100,000 account, saying that “the current value of your account does not enable us to provide a cost-effective solution to your investment needs”.

“This came without any warning,” said Dilys Firn, 83. “Why wasn’t I told in person? I’d been with the same company for 30 years. I had no inkling the criteria had changed.”

The bank said that it had contacted Mrs Firn following a review of client portfolios: “We continually review our commercial position to take in to account the increasing complexity and operating costs of managing client assets.

“If this may lead to a client facing unnecessarily high fees relative to the balance of their account, we will provide them with sufficient notice so they can find a more cost effective solution to their investment needs.”

Even banks offering a full “white glove” service to clients with millions of pounds in investable assets have been conducting commercial reviews of their customer base.

Coutts, whose clients include the Queen, currently does business with clients who have less than £1m but said that in future “our focus for growth is clients with more than £1m”.

The reviews come as private banks focus their attention on annual fees rather than fees charged per transaction, which can be a more erratic source of revenue.

Investment advice for “mass affluent” individuals – the industry term for clients with £500,000 or less in investable assets – is becoming harder to obtain as firms, faced with increased regulatory costs, retreat from the market.

Earlier this year HSBC shut down its in-branch financial planning arm, resulting in the loss of 550 adviser jobs. The bank still offers investment advisory services for “Premier” customers with about £150,000 in investable assets.

This followed a similar move last year by Barclays, which withdrew branch-based investment advisers. The bank still offers wealth and investment management services to clients with about £500,000 in investable assets through its private banking arm.

“The banks are focusing more than ever on profitable clients and even the higher net-wealth clients are feeling it,” said Andrew Nolan, executive director with Stonehage, a wealth management adviser. “Loans for very high-net clients are becoming more difficult to get. Also at the smaller net-worth end the costs of capital are increasing. Banks are quietly exiting parts of the business that are not profitable.”