Is Private Banking Worthwhile?
Most people believe that there is value to be found in a private banking relationship. You are generally assigned your own banker, rather than having to deal with the bank's call centres and branches every time you need assistance.
It can be one reason that individuals remain loyal to a banking provider, believing that loyalty will bring rewarding interest rates or other benefits.
However, the role and demarcation of private banking, including its relationship to commercial banking, have changed substantially since the role was first introduced. With the increasing removal of actual bank branch shopfronts, private banking roles have changed in appearance and access.
Private Banking Access
The Big Four and other second-tier lenders have developed specialty branded departments such as ANZ Private, NAB Private, Bendigo Private, etc. These provide personalised, one-on-one service to qualifying customers. Access to a Private Banking relationship will generally require:
- Household Income of circa $500,000 per annum
- Minimum Borrowings of at least $3,000,000
This creates a natural barrier to entry, so only a defined group of customers will qualify. The typical customer profiles are either corporate employees or larger business owners.
Flexibility in Credit Policy
One of the key benefits of private banking is generally a less rigid interpretation of credit policy. This is not to say that an uncreditworthy application will be pushed through, but assessments are made by more experienced and senior bankers.
This deeper knowledge can result in a broader view of the customer's financial prospects and, consequently, better outcomes, especially when the credit proposal is presented by an experienced finance broker.
Better Credit Pricing?
There is often an assumption that the private banking relationship will result in improved lending terms and interest rates. There is some truth here in that banks do like bigger loans and typically offer larger pricing discounts as a result.
However, offsetting the possible perks are higher overheads. The value model in private banking is complex, as a large part of the revenue model is driven by financial planning services.
In short, while there is flexibility in credit assessment, don't expect any material arbitrage in terms of interest rates and terms.
Customer Service Levels
Private does not mean exclusive. Like the rest of the finance community, there have been challenges in meeting the expectations of borrowers, especially with the scrutiny of responsible lending, and private banking is not immune here.
As a result, there can be longer-than-expected turnaround times, especially for complex lending or SMSF lending. This is another area where an experienced finance broker can be an advantage.
Improving Technology
A challenge for the private banking model is ever-increasing technology, such as A.I.
As new tech develops, more of the traditional value-added one-on-one services may be replaced by automation. Technology will represent both a threat and an opportunity for this banking model moving forward.
Is Private Banking right for you?
MCP has Senior Finance Partners who specialise in managing Private Banking and Family Banking relationships between bankers and clients, including overarching business debt advisory. Contact us for more information or to discuss the merits of Private Banking for your scenario.
Contact MCP
1300 510 816 or your Finance Partner
enquiry@mcpfinancial.com.au