Title page: Anyone with less than pounds 100,000 need not apply
Saturday 08 November 1997
Old wealth is being superseded by new. In the UK, there are now estimated to be more than 81,000 millionaires, up from just over 31,000 in 1991. A good part of this money is inherited, but not necessarily in the form of country houses and estates. The 1980s created a new class of very highly paid professionals, and loadsamoney entrepreneurs.
These are the new rich, in banking jargon "high net worth individuals", now targeted by private bankers. Gone is the nervous wait on a hard chair before the ordeal of having an overdraft declined over a cup of tepid tea. In its place there is "relationship management" and "understanding all elements of a client's wealth".
An insight into this world was given when the Duchess of York's overdraft with Coutts & Co, the Royal family's private bankers, was revealed to be more than pounds 1m, despite her apparent lack of means to pay this off. Budgie the Helicopter may have crashed, but since then Fergie has signed lucrative deals cashing in on her Royal connections, the latest as a celebrity columnist with Hello! magazine.
It's difficult to imagine your local high street branch manager granting an overdraft in the same circumstances, and this partly explains the rise of private banking. Major clearing banks operate on volume, charging consumers for low-risk credit arrangements. Branch managers have little discretion about how much they can lend to an individual. Limits are set for them by centrally issued guidelines, based on income, employment status and credit history.
Private client banks select clients on grounds of wealth, have fewer accounts, usually in credit, and lower overheads. They are also capable of taking calculated risks about the ultimate value of individual clients. Some, like Arbuthnot Latham, seek out "wealth creators" offering what amounts to a venture capital. Others, like Midland Private Banking, comb out better-off high street customers from their clearing bank arm.
The pressure on high street banks to cut costs, close branches and go direct is not felt in this sector. Instead, the emphasis is on a personalised service that bundles all your main financial planning problems under one umbrella.
There are persuasive reasons for buying this kind of service if you have the money. For example, take the managing director of a privately owned company who wishes to pass on assets to his children without paying undue amounts of inheritance tax. According to Simon Donohoe, director of Midland Private Banking: "Someone in this position may require advice which centrally relates a number of areas, including pension planning, making gifts to children, and setting up trusts which minimise inheritance tax."
Before the growth of private client banking, only the very rich could expect an integrated service of this kind.
Launched in 1994, Midland's service is open to anyone with free assets or annual income of pounds 100,000 or more. This is typical for most private banks. Midland has more than 8,000 clients and funds under management in excess of pounds 3bn. Charging an annual fee of pounds 150, it offers stockbroking services and a range of retail financial products.
Over at Coutts & Co, the most blue blooded of private banks, Emma Wheeler claims: "We invented customer relations." Coutts has been in the business for more than 300 years, providing a service to the aristocracy but also those who made money out of the City and Empire. It also retains a core of very rich foreign clients. Ms Wheeler says: "Our ideal new client is an entrepreneurial professional aged between 35 and 40, earning more than pounds 100,000 a year, with that and more to invest."
According to Ms Wheeler, Coutts takes a holistic approach to financial planning, making wider-based judgements than its competitors, and taking account of intangible factors in an individual's position. Could these have included Fergie's bankable Royal status? Ms Wheeler will not comment.
Could you afford Coutts? The charge for its Signia debit card is pounds 250 a year. On an account balance of less than pounds 3,000, you would pay pounds 45 a quarter in management fees. Above that, no charge. The management fee for investment advisory services is 1 per cent of the fund, plus VAT, with a minimum charge of pounds 10,000. So, no Tessas here.
She confirms that the old rich have capital, the new rich high income and points out why Coutts can benefit both: "We offer a one-stop service, covering all aspects of a wealthy individual's financial planning needs."
Unlike Midland, Coutts offers a global service, with branches in 16 national jurisdictions, including a number of tax havens. The bank is about to launch an art advisory service, which will help clients select and purchase works of art for their private collections.
Defending Coutts from accusations of elitism, Ms Wheeler says: "We have several top 10 pop artists as clients." Posh Spice, perhaps?
Another area where private banks can offer bespoke services lies in the provision of mortgage loans.
While most of us worry about Miras being phased out on home loans up to pounds 30,000, this is unlikely to concern clients of Harrods bank, which specialises in lending on "City lofts and warehouses, requiring substantial renovation where you buy the space then fit it out to your own requirements".
As a rough yardstick, you will know you are rich enough to enjoy a private banking service when you become a client rather than just a customer.
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