There’s private banking and private banking

AP Private | October – November 2020

What are the eligibility requirements for Private Banking? What’s the minimum balance required to be classified as Private Client?

The answer is not quite as simple: it depends on the bank and on the type of client. In fact, nobody will require a minimum balance from a young and promising startupper or the son or daughter of an important client. 

Generally speaking, the minimum amount required to be classified as a Private Client is around 1 million euros in financial assets. However, when it comes to HNW or UHNW clients, the situation is more complex: the minimum amount required from HNWIs is around 5 million euros, while UHNWIs are required approximately 30 million euros. 

Even then, the potential of a client also plays a key role. Recently, customer segments are going through a phase of convergence and this trend has not gone unnoticed. When it comes to Private Banking, we can hardly talk about a single service model: in fact, there are at least four service models targeting Private Clients with smaller assets, Private Clients with large assets, HNWIs and UHNWIs. Currently, however, the management of the Private customers segment is changing radically. 

Almost all banking groups that manage all customer segments – Mass-market, Affluent, Private, HNW, and UHNW clients – are in the process of rethinking their service model together with their internal organization, in the interest of rationalizing their structure. 

In particular, we are witnessing the convergence of different kinds of Private Clients and the consequent unification of the service models aimed at them: on the one hand, Private Clients holding financial assets with a value of about €1 million and Upper-Affluent Clients; on the other hand, Private Clients with a net worth of about €5 million and HNW Clients. 

The convergence and further segmentation of high-standing customers mirror an earlier change concerning the service model offered by banks reserved for affluent clients, once equated with mass-market clients.  

Moreover, the need to offer an adequate service differentiated by customer segment is a result of the loss in the competitive advantage of banks (private banks in particular), to the benefit of financial networks and highly digitalized banks.

In fact, the digitalization of banking services allowed for the industrialization of Private Banking services, making them available to financial networks. Thanks to the “human & digital” service model, consisting in a winning mix of human knowledge and digital platforms, financial networks are currently able to offer better assistance to high-standing clients than traditional banks. 

But how are traditional banks responding to these changes? Universal banks, especially the more responsive ones, are improving the service addressed to Upper-Affluent clients, for example by assigning them a dedicated manager. By doing so, banks are essentially extending a service once available only to Private Clients with smaller assets to Upper-Affluent clients.

The service model targeting HNW and UHNW clients is not based on proximity (which is characteristic of universal banks and their branches) or asset management (characteristic of financial networks); instead, it focuses on a range of exclusive services, such as club deal, private equity, corporate finance services. 

Resorting to high value-added services was a choice based on necessity for several of the most renowned private banks. Their choice was dictated by a reduction of the income from asset management products and by the difficulties in optimizing and digitalizing internal processes. So, when you can’t keep up with the fastest ones, it is wiser to change track.  

The competition between private banks and financial networks over the Upper Affluent and Low Private customer segments is quite uneven: indeed, private banks are chasing financial networks in a race with a predictable ending.  

For this reason, offering services other than asset management represents the last chance of surviving for many private banks. Indeed, the income from club deals, private equity investments and corporate finance services is still high and compensates for the reduction of the income from traditional banking services. 

This transformation has been accelerated further by the Covid-19 pandemic, when the traditional private and non-private banking model has shown all its weakness.  

We are clearly witnessing a veritable revolution triggered by the loss of the competitive advantage of traditional banks. Instead of keeping up with the change, banks are suffering the consequences. And instead of acting like banks, they are becoming something else. 

Nicola Ronchetti

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