Is Private Banking Worthwhile?
Okay, perhaps a strange headline. Who wouldn't want a private banking relationship, right?
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.
As asset values have grown, the role and demarcation of private banking, including its relationship to commercial banking, has changed.
Private Banking Criteria
There are, of course, conditions of entry. As a general rule, a PB relationship will 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 small group will really qualify. The typical customer profiles are either corporate employees or larger business owners.
All the major banks have a significant private banking presence, along with the second tier lenders.
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 assessors.
This can result in a broader view of the customer's financial prospects and consequently better outcomes.
Pricing
There is often an assumption that the PB relationship means lower interest rates. It is true that banks like bigger loans, and that larger pricing discounts are typically given as a result.
Offsetting this, is the higher overheads in PB. The value model in PB is also complex, as a large part of the revenue model is driven by financial planning services.
So, in short, don't expect any material arbitrage in terms of interest rates.
Service Levels
Like the rest of the finance community, there have been challenges in meeting the expectations of borrowers, especially with the scrutiny of responsible lending, which PB is not immune to.
This has led to longer than expected turnaround times. There does appear to be some intent to improve this in the medium term but challenges remain.
Technology
A challenge for the PB model is the threat of technology. As it develops, some of the traditional value-added services for customers may be replaced by automation.
More and more, this will represent both a threat and opportunity for this banking model moving forward.
For more information, or to discuss the merits of Private Bank, contact:
MCP Financial Services
E - enquiry@mcpgroup.com.au
P - (03) 9620 2001