PRIVATE BANKING: ALL IN ONE OR ONLY ONE?

AP Advisor Private | March-April 2021

The industry of Private Banking is currently experiencing a time of great change. It all started with the rates reduction and the subsequent increase of the asset management component in the portfolios of private clients, which led them in a world ruled by financial networks. Then, the pandemic broke out. 

The service model of financial networks has validated the adaptability of private services through their digitalization. Financial networks started investing in digital products a long time ago: as a result, today they have a competitive advantage of at least four years over traditional banks. 

The reduction of the margins forced the industry of private banking to revise its business model: in order to prosper, the old boutiques of private banking had to either reinvent themselves or to fuse together. 

Private clients are very demanding, very attentive to the quality of service. They generally make use of several bank services; therefore, they are able to better appreciate the quality of products/advices compared to market and affluent clients. 

The role of the Private Banker remains essential. Today, however, the Private Banker needs the support of banks/financial networks that guarantee cutting-edge operations and/or innovative solutions. 

That being said, recently two main models of private banking are gaining ground. 

The first model – “all in one” – is funded on large assets (at least 30-40 billion) that optimize any process and generate economies of scale. It is based on two cornerstones: the private banker and digitalization. 

Digitalization is fundamental not only in the relationship bank-client, but also in the relationship bank – private banker, allowing the latter to manage in the best way possible the highest number of clients. 

This model is characterized by a highly efficient and advanced consultancy service with an ongoing monitoring of investments both in terms of risk/performance/time horizon and in terms of product quality based on a rating system. 

The all-in-one model allows private bankers to offer each client tailored solutions without starting from scratch each time. 

There are several examples of this model of advanced consultancy which involve not only financial networks but also traditional banks. In fact, thanks to their ability to grant credit, banks can offer an all-in-one service which comprises the client’s complete assets. 

The second model – “only one” – is typical of instances with the DNA of a corporate investment bank. Rather than needing large assets or economies of scale, they are able to join specific competences and attract private assets.

This model focuses on tools such as club deals or equity clubs. It is characterized by the promotion of illiquid investments reserved for few selected clients (generally, HNWIs).

Of course, the two models can coexist, for example, within a banking group. Probably most banks and financial networks will take the field; in fact, many of them already did. 

Nicola Ronchetti

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