Private Banking Essay Example

the player has to be there for the long term. Cost of customer acquisition is high, with a norm of ‘revenue-neutral’ for the first year of the relationship. The relationship is perhaps spanning generations as well as a variety of family branches. Most of the activity is off- balance sheet, and therefore does not use massive capital after the initial investment, almost all income is fee- based.

So the big banks are looking private banking as a profitable diversion. Since banking sector has global reach, established telecommunications and information technology, significant existing investment in trading and portfolio analysis capability, the success of private banking market is achieve one. The reputation, history and referrals are the key factors of the established players. Secrecy or at least confidentiality is another key factor, not solely for protection from legal and fiscal requirements.

The relationship between client and advisor is based on service and the benefits from the perception of peer to peer value. Historically private banking has been viewed as very exclusive, only catering for high net worth individuals with liquidity over $1 million, although it is now possible to open some private bank accounts with no more than $50,000. An institution's private banking division will provide various services such as wealth management, savings, inheritance and tax planning for their clients.

The word "private" also alludes to bank secrecy and minimizing taxes via careful allocation of assets. An offshore bank account may be used for this purpose. According to Scorpio Partnership's Annual Private Banking Benchmark for 2006, the largest private banking division is at UBS AG, followed by Citigroup and Merrill Lynch, each of these institutions gathering more than $1 trillion

in assets under management for private clients. Switzerland is a major location for private banking.

Swiss banks hold an estimated 35% of the world's private and institutional offshore funds, or 4. 6 trillion Swiss francs. In private banking, the pressures on costs and margins are increasing, and as clients become more knowledgeable they expect ever-greater absolute performance. They would like pricing transparency; too a concept, private bankers prefer not to move into. The capital requirements of private banking are not high, although any diversion of capital into off-balance-sheet activities has an impact on capital adequacy ratios.

The human capital investment is much higher: a service-led business delivered to demanding clients needs highly professional practitioners, and to provide them with adequate and ideally leading- edge tools to their job. The current lack of sophistication of existing private banking offered by the universal banks due to an indecisive and poor strategic focus on this business (although quality is improving fast and has reached an impressive level in 2006); and The complex legal and tax system that is regarded as one of the most non-transparent and encumbering systems in the world.

The legal system has presented a particular challenge in wealth management as regulation changes have been frequent and even retroactive creating a high level of uncertainty. While banks are not allowed to give active legal advice to their clients, it is necessary for them to keep abreast of all relevant legal and tax issues which is a demanding and never-ending task. In order to achieve sustainable success, banks need to hone their business model. There are seven critical success factors that banks would need to adapt to their own capabilities

as well as to the market environment.