The pull of private banking

Date: 01 May 2024

Karen Jones

In this feature, Citywealth opens the opulent doors and uncovers what entices clients to the world of private banking. We receive updates on the sector, initiatives and news from the banks, insights into client demographics and demands, and more.

Insights from other jurisdictions

It is no surprise that private banking has its heart in Switzerland, the traditional home of private wealth. One such Swiss bank is Mirabaud. Founded in Geneva in 1819, Mirabaud Group is now an international banking group with offices across Europe, Canada, South America and the Middle East. We spoke with Martin O’Hare, Managing Director and Senior Private Banker, for an overview and update on the Group’s operations.

On the general demographic of Mirabaud’s clients, O’Hare said: “We have a very wide scope in terms of both the demographics and geography of our clients. Mirabaud is over 200 years old so naturally we are in a unique position in that we have looked after clients through multiple generations. In terms of the client base managed from our London office, we have a particular focus on entrepreneurs across the UK and we advise clients on all aspects of newly created wealth. Interestingly, this means that we are deeply involved with the first generation creators of wealth alongside the next generation – the main natural long term beneficiaries are the usually the wider family members. Furthermore, these businesses may be UK based although often may also have an international dimension which requires greater expertise and experience to help our clients through business sales and the wealth management process. Our clients come from a wide range of business sectors including technology, healthcare and life sciences as well as more traditional sectors such as construction, manufacturing, property and of course, finance.”

As mentioned, Mirabaud’s reach extends outside of Switzerland to many other financial hubs around the world. We asked O’Hare if he is noticing any geopolitical influences on incoming clients’ decisions to engage with a private bank. He answered: “2023 was an eventful year for the banking sector. The year started in early March with bankruptcies of SVB and Signature bank in the US closely followed by the collapse of Credit Suisse and subsequent takeover by UBS. On top of this we had a significant escalation of geopolitical risks in the Middle East starting in October last year. During periods of heightened economic and geopolitical risk, clients always re-visit the question of ‘is my money safe with my bank’. Mirabaud is well positioned in that respect as we are a Swiss bank with a very strong capital base and 200 years history – a clear demonstration to our clients that the bank has looked after its clients through many of the most significant world events and political and economic crises and cycles. I think our banking pedigree is a key factor in helping grow our business in the current environment.”   

Private banking is not just a form of wealth management; it is often a lifestyle. O’Hare provides some examples of this: “In a world where the core products offered by banks can be quite similar, access to unique investment opportunities and high levels of client servicing can be key differentiators. At Mirabaud we pride ourselves in offering clients access to unique investment opportunities such as direct investments, equity club deals and access to innovative new Fund opportunities. As an example, this year we are offering our clients access to a new Agritech Private Equity strategy managed by Mirabaud in partnership with Zebra Impact Ventures. In terms of client events, we offer very unique experiences both here in the UK and overseas. Our flagship global client event is an invitation to attend the Mirabaud Bol d’Or – the world’s largest inland lake regatta. Closer to home we offer clients customised networking events and of course opportunities to attend some of the key sporting events in the UK.”  

For those considering a boutique bank to begin their private banking journey, O’Hare provides a summary of the other benefits that can be expected: “I have had the pleasure of working at several large international banks. From my perspective, I believe boutique banks offer a more personalised service with less of a focus on product selling and more of a focus on providing long term guidance and advice to clients in the context of unique individual client circumstances. On top of this, often the larger banks can be administration heavy for clients. Boutique banks can execute more effectively, generally make decisions quicker and provide clients with a more consistent high level of personalised service.”

When it comes to jurisdictions with an exceptional amount of experience in the private wealth world, the crown dependencies are undoubtedly up at the top. Dennis Howard, Head of Coutts Crown Dependencies, provides his perspective on current trends in the banking industry:

• Changes to resident non-domiciled status tax rules

“While the changes represent major reform for those with ‘non-dom’ status, there are also opportunities to be had and we’re working closely with our impacted clients to ensure they receive the best advice. We’re reminding clients that the changes don’t come into effect until next April so there is no need to panic or take immediate action, but it is important to be prepared and have the support of good advisers.”

“The changes could actually be beneficial for some. For example, there will be a window between 6 April, 2025 and 5 April, 2027 for people who have previously sheltered income and gains elsewhere and want to bring them into the UK. During that period they will be able to do so and pay 12% tax, whereas they could have paid up to 45% under current rules. We’re working closely with our partners in Coutts in the UK. ”

• Technology advancements and working with AI

“We work closely with Coutts in the UK and RBS International to introduce new technology. Coutts has always embraced modern technology throughout its 330-year history: from being one of the first banks to bring in machine-posted ledgers at the end of the 1920s, the first British bank to use a fully computerised accounting system in 1969, and one of the first to introduce online banking. Video conferencing platforms like Zoom have transformed how we interact with international clients, and chat bots also allow us to access the information we need more efficiently. Through our app, clients can also securely email and send documents to their private banker, providing a range of communication options to meet client preferences.”

“More recently across the wider bank, we’ve partnered with MiTek to enhance our digital account opening process, utilising biometric checking, liveness detection and document validation to verify clients and detect fraud. Digitalising back-end processes like this allows us to onboard our clients quicker, easier and safer. We are also looking at propensity modelling and how that can help target the right clients and help meet their needs, as well as automating risk controls. While we’re constantly evolving and investing in this space to give our clients the best experience, human interaction and the relationships we develop with our clients face-to-face is of utmost important to us and really sets us apart from our competition.”

• Interest rates

“There’s speculation that central banks will start cutting interest rates this summer, so our clients are increasingly looking at their investment opportunities. Prospects of a US interest rate cut has boosted demand for gold after Fed officials indicated they still intended to cut interest rates three times this year. In the UK, stocks are surging with the Bank of England Governor indicating the market is moving in the right direction despite holding interest rates at 5.25% for a fifth consecutive time last month. For example, we continue to have a positive outlook on gold and hold it in our client portfolios and funds. Expectations of sustained growth and inflation pressures easing should bolster the commodity in the medium term. There is also the possibility that inflation could rise again which could lead to a reduction in the number of interest rate cuts in the US this year so cash and gold could play important roles in our portfolios and funds.”

In terms of bank-specific updates, Howard reports the re-opening of the Jersey office: “While we embrace various tech options for communicating with clients, we also recognise the importance of face-to-face conversations and recently refurbished and re-opened our client offices on Broad Street, Jersey. Ensuring there is space for clients to come and see us and have quality conversations without distraction has been a focus for us when redesigning the space. It is purposefully, and refreshingly, tech-free. We celebrated the re-opening last week with 50 professionals from our local network of advisers who came to see the office for themselves and connect with us and each other.” There is has been also recent growth in the CCD team: “We recognise the opportunities for growth in Coutts Crown Dependencies and I am expanding my leadership team with a newly created role of International Markets Lead. Annie Ingram has been appointed to lead our International Markets team, responsible for providing global wealth management solutions to our international clients. We are also celebrating the appointment of Martin Halse as Products Lead, Tina Carter as Business Development Lead and a range of promotions across the bank.”

Client expectations & industry updates

Mark Plummer, Head of Private Banking at Hampden & Co, reports an increase in clients wanting to experience private banking, “many for the first time”. He attributes this to a desire for better service and expanded: “They have either been frustrated by continued branch closures at their existing bank, or at being forced into using a call centre or going online. Our client numbers were up 19% in 2023 as more people are valuing the benefits of relationship banking.”

In terms of the goings on at Hampden & Co, Plummer said: “We also announced growth in both deposits and lending for the year, slightly bucking the market trend. As interest rates were rising, more people were moving to fixed rate lending or using savings to pay down debt, while savers were moving cash to term deposit accounts. More recently, as rates have stabilised, we have seen clients return to borrowing. Looking forward, we are developing further enhancements to our digital banking service, which will complement the highly personal service clients receive from their private banker and which will add to services like Apple Pay and Google Pay.”

Whilst new clients may be transitioning to private banking for better service, existing customers of these establishments are keeping their expectations high. Managing Director of HSBC Private Bank Charlie Hoffman said: “Clients are ever more demanding of their private banks.  What was a nice to have yesterday is a must-have and hygiene factor today. This goes beyond good performance and the much-quoted trusted advisor relationship of yesteryear. Nowadays clients also want digitalisation, good reporting, state of the art risk management tools which can model scenarios. They want end to end structuring and planning. Most see themselves as global citizens so ideally look to firms with a global reach, a global view and often a global footprint. The importance of foreign markets be that Asia, the US or MENA is ever more important. With a 70% risk of transmission failure between Generation 1 and 2, and 90% between G2 and G3, having a first-class planning proposition which also includes next gen, family governance and philanthropy is ever more important.”

Hoffman also provided a technical summary of current client wishes: “We have seen a lot of clients using more and more a barbell strategy. Using short to medium term gilts for safety, and then private markets, be that private credit, private equity or real estate for longer term growth. There are significantly less IPOs that there were 20 years ago. Capital is often preferring to stay private for longer and the need to raise finance in public markets is not what it used to be. So, if you are not able to access what is increasingly a large part of the investment universe, you are limiting the reach and extent of a portfolio. The difference between top quartile and bottom is huge, and there has been much written on private equity GPs and the increased cost of leverage.  However, the best remain highly disciplined. If you can harness that illiquidity premium from the top quartile or decile managers, the client should continue to get outsized returns. Meanwhile while the IPO market remains muted, we are seeing a thaw in mid-market M&A activity, more clients are selling or taking minority investment into their companies, creating more wealth and a more vibrant economy.”

In terms of updates and news from HSBC Private Bank, Hoffman said: “Following on from the comments on client expectations, HSBC Private Bank was the first global private bank to partner with BlackRock’s Aladdin Wealth. The Aladdin platform combines sophisticated risk analytics with comprehensive portfolio management, trading and operations tools on a single platform to power informed decision-making, effective risk management, efficient trading and operational scale. Finally, returning to private markets, we have added to our award-winning capability in our discretionary offering, rather than purely advisory. We have also been developing a pure co-investment sleeve for our larger clients and family offices.”

Other industry news comes from C. Hoare & Co, who have sold their trust business to Ludlow Trust Company. Partner and Head of Philanthropy Rennie Hoare said: “This is in keeping with our approach of focusing attention and resources on our core private banking services. As part of the transaction, we retained our donor advised fund, the Master Charitable Trust (MCT). This continues to be a popular way that we can assist our customers with their philanthropy. In the last year alone, customers donated £70m from the MCT.”

When asked about any current trends or top-of-mind issues that he is seeing day-to-day in the bank, Hoare said: “For customers, there is deepening interest in environmental stewardship (particularly for landed estates), succession, and philanthropy. For both new and existing customers, there is a growing requirement for their banks to be doing the fundamentals to a really high standard. We have found that this plays to our strengths. For instance, we have implemented a change to our telephony model that means that on average, the phone is answered in three seconds and over 80% of calls are resolved in that first point of contact. The final inescapable issue is the continued layers of defence required to keep customers protected from fraud. We are doing this through both through educational seminars as well as technology.”

Thank you to all of the professionals who contributed to this article.