Shaun Harris
Taking Stock
There is still an intimidating air about private banks. They service an exclusive ring of wealthy, often powerful clients who fall within the scope of that dreadful term, “high net-worth individuals”.
So are private banks really only for the filthy rich? Well yes, but not as exclusively as in the past. Rapid growth in the number of new players breaking into the private-banking market, coupled with shifting wealth-creation patterns in South Africa, is changing the rules of the game.
Traditionally, private banks in this country, like their older counterparts in England and Europe, concentrated on preserving the fortunes – often inherited money – of wealthy individuals and families. They still do, but the old-money market is probably shrinking while the number of private banks expands.
The end of the isolation years opened up South Africa to foreign banks, and while most activity focused on the corporate market, international banks also found rich pickings at the top end of the individual market, particularly as foreign exchange controls eased and wealthy people rushed to invest money offshore.
Coupled to this was the growth of a new, more entrepreneurial class in South Africa, typically fairly young and, while not necessarily richly endowed with assets, potentially capable of building fortunes through their high-income earning ability.
The purists among private banks may not admit it, but they are all targeting this developing market. It’s where the growth is and where tomorrow’s multimillionaires will be found.
Obviously it all comes down to an individual’s financial needs and circumstances, but in some cases there are distinct advantages in dealing with a private bank. And the criteria for becoming a private bank client are not as intimidating as might be imagined. In fact, most private banks don’t have entrance criteria as such, but will assess potential clients on the strength of their personal assets, their business and their future potential to create wealth. Others are more specific. Absa Private Bank will do business with individuals with a net asset value of at least R5-million, or assets of R2-million or more that can be invested.
The full-service private banks, who offer an individual-relationship banker to clients and services covering the full spectrum of banking, fiduciary and investment activities, are a little acerbic about newcomers to the market or private banks offering limited services. But there is certainly strong demand for these services, which go beyond anything offered by the large retail banks.
BoE Private Bank, for instance, offers a consolidated credit facility that allows clients access to funds they can borrow and repay at their convenience, at lower interest rates than that offered by retail banks. To qualify for the private banking facility, a client obviously needs a sound financial record, and a minimum borrowing requirement of at least R400 000. Other private banking facilities can be added to this.
Origin, the Rand Merchant Bank division most active in the younger, emerging business class, does not even call itself a private bank, but a merchant bank for individuals. It offers a single credit facility and, depending on an individual’s assets and liabilities, negotiates an agreed interest rate with clients ranging between 0,75% and 2,25% below the prime rate. The facility combines all types of personal debt – home loans, vehicle loans, overdrafts and credit cards – into one credit facility at one single, lower interest rate.
To qualify, an individual needs assets to support a R400 000 facility and a combined household income of at least R250 000 a year. Willie Miller, head of sales and marketing, says Origin’s aim is to advise individuals on how to intelligently use the strength of their balance sheet to reduce their cost of borrowing.
“We don’t only consider residential property as security against the facility, we consider other assets as well, such as listed share portfolios, unit trusts, surrender value of life policies or a combination of these,” he says.
Lower interest rates are awarded to clients according to the level of risk they represent. For instance, if a client has already repaid a large part of the bond on the house they use as security, they constitute a lower risk to Origin and could therefore qualify for a lower interest rate.
Some private banks are also unitising investment products to cater for a wider range of clients. Privately managed investment portfolios are expensive and administratively demanding to run – even most stockbroking firms will not consider private portfolios unless the clients has several million rand to invest.
Syfrets Private Bank, an arm of Nedcor Investment Bank (NIB), offers international multimanager unit trusts to its clients, and later this year plans to launch structured investment portfolios (direct equity portfolios run by chosen managers and actively monitored on performance).
Dave Macready, MD of Syfrets Private Bank says it is becoming more difficult for the individual investor to pick the correct stock – not only in South Africa but in the international environment, where the rule- of-thumb advice says at least 30% of investments should be.
“It is for this reason that discerning private investors are starting to include unit trusts and other unitised products as integral building blocks in their investment portfolios,” he says.
“The preferred approach internationally is the multimanager investment methodology whereby a dedicated financial adviser assembles a personalised unit trust portfolio, to suit a client’s specific needs and risk profile, from a variety of funds managed by specialist local and international fund managers.”
The two new funds, the NIB Altitude and NIB Horizon, require a minimum lump sum investment of R5 000 or a monthly debit order of at least R1 000.
But while an increasing number of private banking products are becoming more accessible, the industry is really about service and building a personal relationship with the client.
That’s still the preserve of the very wealthy – but what better way to start building and protecting wealth than taking advantage of what’s on offer from private banks, if it suits your personal needs. The next step is having your own relationship banker who calls on you, and being able to arrange any banking or investment transaction simply by picking up the phone.