Playing golf with my immensely successful shoulder surgeon recently, I was surprised to hear how his mainstream bank had tortured him for weeks then charged him $15,000 in fees for a simple collateralized $350,000 loan. When I told him I paid less than $3,000 for a much larger loan and that all it took was one phone call and a 20-minute closing, he yanked a nine iron into the water. The right private bank can structure your investments, minimize your taxes, put together your estate plan, direct your charitable giving, build an art collection, open a checking account for your daughter, and move money between your accounts by phone. Its execs will deliver foreign currency to your home before a trip, send mortgage documents and lawyers to your office for a closing, and always cover an overdraft.
With the role of private banking services changing from simply taking deposits to offering a full menu of global investments, banks have discovered that high-margin advisory work blends well with low-margin retail service. This has led to giant firms buying up small service-oriented banks or building out high-net-worth coverage internally. So though you may still find a private banker willing to walk your proverbial dog, he’d better be able to also execute a Eurodollar bond swaption on his satellite phone while the pooch does its business.
"Our goal is to have a positive impact on our clients’ future," says Eric P. Hayes, northeast regional head of U.S. Trust, which requires clients to meet a $2 million threshold of investable assets. "We help them build and protect their wealth and provide for the coming generations. We also try to help them consider the impact of financial success and how to prevent it from becoming a burden." U.S. Trust regularly hosts programs to educate teenagers about financial matters and has created a platform and rationale for meaningful philanthropy to help families use their wealth purposefully.
The Three Disciplines
Philanthropy—along with tax and estate planning, performance measurement and reporting, and insurance—is the soldierly work of "wealth management," one of three functions in modern private banking. The other two are daily transactions and global investing. Each of these disciplines requires specialists. Back in the 19th century, titans of industry discovered that a full-time staff was needed to invest and manage their money. One such industrialist, Henry Phipps of U.S. Steel, decided to make this "family office" available to other wealthy individuals (with a $10 million threshold) and created Bessemer Trust, which today manages $5 billion for the family and $48 billion overall, spreading the overhead around. Every client at Bessemer is assigned a dedicated relationship manager and account team at one of the firm’s 11 U.S. locations. This group, explains Bessemer’s senior managing director Rob Elliott, acts as the investor’s "alter ego," quarterbacking a client through the full menu of services. Though Bessemer does only a limited amount of direct lending, it maintains excellent relationships with sophisticated lenders on referral and helps find the best deal.
"We want to take the worry out of being wealthy," Elliott explains, "providing our clients with dedicated financial expertise. If they want someone to get them theater tickets, of course we are happy to refer them to a great provider."
The fees that private banks charge may seem unnecessary to sophisticated investors willing to do the research and pick their own strategies and vehicles. But bankers who have greater access and resources can be a good buy, particularly if you use the full range of services available. For example, some will even act as brokers for both life and property insurance, negotiate the best deal, and often, within regulatory limits, reduce or eliminate commissions.
The Web of Globalization
Modestly scaled private banks have entered the snarling web of global money-spinners, making investment management a lot more complicated than picking stocks. "As the world’s capital markets opened and expanded in the nineties," says John Duffy of JPMorgan Private Bank ($25 million threshold), "the burden on the private banking business essentially changed us into a private investment bank. A client who sells his business may need a team to properly value his holdings and analyze his tax liabilities long before the sale closes." Duffy points out that wealth management is "all about after-tax outcomes," and JPMorgan has 37 advisors on staff who could be partner-level tax attorneys at major law firms. Paraphrasing BASF’s clever ad campaign, he says, "We don’t write the returns or documents, we just make them better."
The buzzword du jour in the trade is "open architecture"—meaning that your banker evaluates all investment options, not just funds or products managed by other departments in the same firm. The purpose is to avoid any conflict of interest. "We come out of the true fiduciary tradition," says Bill Whitt, senior vice president of strategic marketing at Northern Trust ($1 million threshold). Northern, born in 19th-century Chicago, has managed accounts for tycoons from Marshall Field and Philip D. Armour to the Bush family and some 22 percent of the current Forbes 400. "But protecting our clients’ best interests and being conservative," Whitt adds, "doesn’t mean being stodgy. The proprietary, state-of-the-art technologies and investment disciplines we’ve developed in more than thirty years of managing money for institutions enable us to deliver cutting-edge tools to our relationship teams [in 84 dedicated offices]. We bring a long-term institutional investor’s ’buy side’ approach and sophistication to private banking, rather than Wall Street’s ’sell side’ notion of selling whatever happens to make the firm the most money."
The Power of the Balance Sheet
Ironically, one of the advantages of private banks with the power of a large corporate balance sheet is their ability to make borrowing money—even a lot of money—easy for people who you might assume don’t need credit. "We have clients who may look to finance the acquisition of professional sports franchises, art, and aircraft," says Joe Giglia, regional director of Wachovia Wealth Management ($2 million threshold). "It’s not unusual for a client to be asset-rich and prefer not to reallocate his holdings. We understand how to bring leverage to very complex balance sheets—quickly, quietly, and all in one place."
The bigger banks bring other chips to the table as well. They can often negotiate better fee structures with top fund managers and command better service from the investment banks, plus they often tend to be invited to look at the most appetizing transactions because of their ability to commit quickly and in size.
Relatively new are the microbanks and multi- family offices that serve localized markets. One, New York Private Bank & Trust ($3 million threshold), was recently started by New York’s Milstein family—real estate and banking billionaires. President and CEO William Fuhs points out that clients may have the opportunity to invest alongside the Milsteins in everything from hedge funds to real estate partnerships chosen by the bank’s analysts.
Sometimes Bigger is Just...Bigger
For my money, the specialized firms with their roots truly in private banking make the most sensible choice. Companies such as Bessemer, JPMorgan, U.S. Trust, and Northern Trust have been in this business for generations. They are big enough to have deep, experienced staff and to command special attention from major banks, private equity firms, and fund managers but are small enough to be service-oriented.
Private banking has become a huge revenue engine for the financial industry. It may be that the European model of discreet, even secret, clublike institutions is fading in the techno-swirl of postmodern global finance. For the affluent customer, however, the perfect combination of white-glove service and truly expert advice is hard to beat.
Checks + Balances
For basic banking services, you can open accounts and get a personal banker at U.S. Trust or Northern Trust by making "significant" initial deposits and maintaining average balances. If you want attention and service, the minimums of $7,500 to $10,000 will not get much. Accounts of more than $100,000 seem to receive a bit more focus. These accounts, however, come with small annual fees.
If you want access to estate planning, wealth management, and investment management, there is some flexibility in the minimum investments at each company. Fees generally start at about 1.2 percent of assets for the first $1 million to $5 million and decline to an average of 0.6 percent by the time you reach amounts in the $15 million range.
New Account Numbers
Bessemer Trust 212-708-9141
JPMorgan Private Bank 212-464-1468
New York Private Bank & Trust 212-850-4080
Northern Trust 312-630-6000
U.S. Trust 212-852-3944
Wachovia Wealth Management 888-283-9633