Private banks, which offer investment advice alongside current and savings accounts, have traditionally been the first port of call for the very wealthy. For that reason the concept has been adopted by big high-street banks eager to capture a slice of the lucrative business — Royal Bank of Scotland owns Coutts, Child & Co, Drummonds and Adam & Co, while Barclays and Lloyds TSB have their own versions.
Charges can be high. Lloyds TSB’s recently launched Investment Portfolio Service, for example, charges a management fee of up to 2%. However, performance and service records are often unimpressive.
The sector also has another problem. The profile of Britain’s richest inhabitants is changing, with new money overtaking established wealth. And the new rich seem harder to convince to pay for private- banking services.
Allan James of Arbuthnot Latham, a private bank, said: “Entrepreneurs and other people who have made their own fortunes tend to be quite demanding and unconventional. The more stodgy private banks are unable to provide the service they’re looking for.”
One private banking service proving unpopular with new- money clients is discretionary wealth management.
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James said: “People who have amassed their own wealth are more likely to want advisory, rather than discretionary, services because they like being in control of their finances. I think that private banks are going to have to offer both options to do well today.”
Many wealthy people are turning to specialist advisers for investment-management services instead.
James Anderson, chairman of Tru-est, an independent information provider to the wealth- management industry, said: “Niche, fee-based financial advisers such as John Scott & Partners and Bloomsbury Group are taking wealth-management business from private banks. Many private banks are acquiring advisers to try to stem the flow.”
Advisers say clients often complain of not receiving a suitably bespoke service from private banks.
Patrick Connolly of John Scott & Partners said: “We are gaining noticeably more clients from private banks, many of whom feel they are not getting good value. They are looking for a wealth-management service tailored to their individual requirements, but often feel they are being pigeon-holed into generic categories. So they are looking to us for investment-management needs.”
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Justin Modray of Bestinvest, an adviser, said: “You can invest in the best funds available for an annual fee of about 1.5%. Why pay more to a private bank with a questionable performance record?” Private banks are not the only ones losing out. So-called prestige credit cards are also becoming less popular with the very wealthy.
Stuart Glendinning of Moneysupermarket.com, a comparison website, said: “There was a time when carrying a prestige card was a sign of status. But pretty much anyone can get a platinum card these days. This has made them less appealing to the very rich.”
Even so there are still some truly exclusive credit and charge cards. The Coutts World charge card is available only to Coutts customers, who must have at least £500,000 in liquid assets or £5m in fixed assets.
The £350 annual fee buys an international-concierge service, bespoke insurance deals and access to events such as Wimbledon and the Cannes Film Festival. The fee is waived if you spend more than £50,000 a year on the card.
Coutts also offers a Gold charge card, which has a £90 fee and offers travel insurance and Air Miles, as well as a Classic credit card with an £18 fee and a typical rate of 20.1%.
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But even with these, top-of-the-range cards benefits rarely justify the fee.
Glendinning said: “It’s hard to see why anyone would pay a fee on a credit card nowadays. You could usually save money by sourcing benefits such as travel insurance separately.”
You can also find lower interest rates. HSBC, for example, charges Gold cardholders 14.9% and Premier cardholders 9.9%. But Capital One’s No-Hassle Visa card has a standard rate of just 6.9%.