Consumer banks of all sizes have private banking divisions that offer enviable perks to high-net-worth individuals.
Private banking clients who bring their large accounts to a bank get great rates and a degree of service that guarantees they’ll never wait in line at the teller again.
“I always told (my clients), ‘Don’t go to the branch; I’m your teller. You need a check cashed? You need checks ordered? Call me,'” says Michael Baughman, who previously worked for a private banking division of consumer bank BB&T, based in Winston-Salem, N.C.
Banks pursue these wealthy clients because they generate a lot of money and repeat business. For customers, it’s a little like getting a suite comped by a Las Vegas casino floor manager: The casino serves up the high-roller treatment to keep you sitting at its tables.
“You have that one point of contact to call for anything that you need, whether it’s ordering checks or investing money or borrowing money,” Baughman says.
Perks of private banking
Private banking perks begin with concierge-style service for banking chores like opening CD accounts or managing checking accounts.
Scott Farber, senior vice president and wealth strategist with U.S. Trust, a wealth planning division of Charlotte, N.C.-based Bank of America, compares the private banking experience to eating out at a five-star restaurant.
“You expect a higher level of service,” he says.
Higher rates on deposit products like CDs and approval for that hard-to-get jumbo mortgage refinance become much easier to get, Farber says.
Baughman says that when he worked at BB&T, “everything was negotiable” for private banking customers, including the bank’s stated fees in terms of closing costs for mortgages, closing costs for home equity lines or retail loans.
“There were interest rates on CDs, checking accounts, depository accounts — those were all negotiable, and you had a wider range of negotiating power to go out and capture those folks,” Baughman says. “If you could make a case for it, the sky was the limit.”
Some private banking divisions acquire clients mainly by invitation, using information they come by during the course of normal lending activities, Baughman says.
“Banks have a unique advantage in targeting individual wealth management services because they’ve already got a lot of financial information on clients — folks that have taken out a personal loan or a business loan,” Baughman says, who is now a Certified Financial Planner with Abacus Planning Group in Columbia, S.C.
Because the bank can access tax returns and other personal documents, it’s “easy to figure out, ‘Hey, these folks have a million bucks sitting over at Merrill Lynch,'” Baughman says.
Banks also acquire clients through referrals from existing customers.
“The high-net-worth community is by definition not very large, and so when you do a good job for a client, they all talk to each other, so client referrals is one of our largest (sources of new clients),” says Farber.
As for who exactly the banks would target, “different banks drew the line at different places,” Baughman says. Some private banking divisions target what Baughman calls the “mass-affluent market” with investable assets of $250,000 to $1.5 million, either held at the bank itself or at other institutions.
Other banks set a higher bar for entry; U.S. Trust looks for clients in the range of $3 million to $10 million, Farber says.
Paying for the perks
What does the bank get in exchange for offering private banking perks?
For one thing, the promise of a large pool of cheap money in the form of wealthy clients’ sizable checking account balances, on which they often pay little to no interest.
Then, there’s the money the bank makes off the interest charged on the larger mortgage and business loans taken out by wealthy clients. And don’t forget about the real prize: a percentage of assets under management, which can add up quickly for high-net-worth clients.
However, private banking also comes with some drawbacks, Baughman says.
“There’s a lot of turnover in those roles at banks,” Baughman says. “You may build a relationship with Bobby, and then he’s gone, and then you get Suzy who comes in and who knows what your experience is going to be like? Banks aren’t that good at managing that transition, in my experience.”
Also, Baughman says, banks may end up being a jack of all trades, but a master of none.
“Banks can’t do everything great,” he says. “They’re not experts in everything, so the level of expertise in some areas is going to be less than if you went out and found a specialist in that area.”
Finally, remember that like many other types of financial institutions, depending on how they’re paid, a private banker ultimately is paid by the bank, not you.
“Their No. 1 responsibility is to their employer rather than the customer. Buyer beware in all instances when dealing with that,” Baughman says. “In the back of the mind — and I sat in that chair — you’re also thinking, ‘What fee is generated from this?'”