In a short six or seven years, private banking has moved from being a personal, service orientated business – and in some ways a cottage ind...

In a short six or seven years, private banking has moved from being a personal, service orientated business – and in some ways a cottage industry - into an institutionalised business. This has been a mixed blessing to clients. More products, better information flow, the security of a big organisation has often come in tandem with poorer individual service, more jobsworth relationship managers and often less choice. Under the more disorganised world, if you had a good private banker you were made; and often he could become your best friend – or so he would like to think. However, you could often get a bad one and not really know it because it was hard to change institutions and people did not move or talk about their banks much. Clients could be roundly abused and they did not move – there was really not much competition. Today private banking managers have pared client lists down to those who make money; they have segmented service levels, so that you really can feel as if you’re in the small seats if you don’t have a big account. Managers have had to hire and train private bankers from other industries or even straight from university to meet the pace of demand as they realised that there were much larger numbers of HNWs about than previously recognised. Private banking has gone through a rapid evolution in the last few years. Even one year ago the headhunters were frantically looking for relationship managers – especially those with a book – or those prepared to say that they had a book. Clients were appearing out of the woodwork and could be acquired through personal relationship alone. Today it is all too different. We are now in the age of consolidation. Fees are being pared, clients are harder to come by – harder to poach and easier to leave. There is much competition and a range of investment instruments out there for private clients that would make even the most experienced institutional fund manager feel undecided. It is the dawn of a new strategy. The traditional private banking relationship manager will need to be experienced, grey haired, have a decent financial services heritage, and know the products, how the systems work, and be a pretty well-rounded individual. No surprise here, but it does go back to the relationship manager of five years ago, not the face of the hastily hired gun. Private banks will have to rely more on systems and systems that work. Clients will demand an internet link alongside their private banker. The back office has to be automated or outsourced to reduce costs. The conundrum is that human backup will still be needed to some extent especially in client facing operations. The pace of product development in the last five years has been extraordinary – the range of products is now too broad and few really understand them. At the end of the day, it might just be easier to go long an equity tracker as play around in more and more complex hedge fund and structured products. Keep it simple and understandable and clients will trust you if things go wrong. In general costs have to be reduced but this will be best done through management rather than reducing headcount or reducing the newspaper order. Private banks will need to manage the major levers of resources; people, systems, product and organisation. Look for the smiles on the faces of the specialist consultants.