Getting to grips with private banking

You might already think that you know all you need to about offshore private banking, but if you’ve got a fair bit of capital to manage and could do with re-structuring your finances, then it is probably right up your alley.

Private banking is designed to offer a personalised, tailor-made service which will optimise your existing assets, preserve your wealth and generally make your financial life a lot easier.

Offshore private banks cater for a wide variety of clients; from expatriates and international executives, to those looking to establish an effective way to transfer wealth to their heirs. It’s ideal for people looking to diversify their funds internationally while guarding against unnecessary taxes and minimising financial uncertainty, alongside those who need the flexibility and freedom of efficiently dealing in more than one currency.

The background

Historically, private banking has tended to be seen as quite elitist, with certain institutions imposing stringent criteria when it comes to choosing their clientele. To some extent this is true and certain banks ask for a minimum deposit of around £500,000 – £1 million, but in recent years most banks have begun to offer similar services to customers with just a tenth of this kind of cash in their back pocket.

Private banks pride themselves on offering a diverse range of services to their clients including wealth management, savings, estate planning, trusts, and all kinds of tax planning. Offshore private banking means that you will benefit from all of these, alongside the assurance that your account will be based in a tax haven.

Similarly, if you wish to move a certain amount of money onshore, your personal relationship manager (RM) is already aware of your individual circumstances and can suggest the best way to mitigate against any unnecessary Capital Gains Tax (CGT).

One thing is for certain; private banking means that there is no mis-selling and no fobbing you off with products that you don’t really need. RMs are there to help you structure your finances appropriately, and not simply earn commission based on the specific products you invest in. You also benefit from the close-knit support network surrounding each RM; if you are looking to invest in a fund, they will first consult an investment specialist to advise on the most appropriate decision for you.

Decisions, decisions…

If you’re set on the idea of channelling your fortune into an offshore private bank account, then the next question is which one to choose.
Looking for the ideal bank might seem like looking for a needle in a haystack, but if you are serious about your investments and have a large chunk of money to deposit, it’s worth familiarising yourself with the winners of Euromoney’s annual global private banking awards.

The awards rank the best private banks according to their wealth management services, profitability, ratio of clients to relationship managers and services offered – so you know if it’s sitting pretty at the top of the list, as UBS was at the 2007 awards, then it offers a top notch, all round service.

General consensus is that the bigger the bank, the better your funds will be taken care of. This is to some degree rooted in truth considering an international financial institution with a steadfast reputation has an exceedingly slim chance of going bust, meaning your funds are in very safe hands. With this in mind, the best choice for most expats will probably be a global private bank with a well-established branch in your chosen jurisdiction.

The Isle of Man, Jersey and Guernsey all play host to a wealth of offshore private banks, although the stereotypical Swiss bank account still lives on. Switzerland currently controls an estimated 35 per cent of the world's private and institutional offshore funds, equating to a monetary value of 4.6 trillion Swiss francs or around £1.9 trillion.

Certain types of offshore account, such as the Dual Currency Deposit account offered by Royal Bank of Canada (RBC), will protect against currency fluctuations, allowing expats to deposit capital at a fixed exchange rate and, as long as the desired currency has not seen a marked depreciation in value, investors can then withdraw it at the agreed rate.

The inner workings

Offshore private banking in the 21st century is regarded as more of a bespoke gateway into investment management rather than the traditional ‘family’ relationship built on generations of trust, however it undoubtedly still offers a highly personalised service.

As a result, relationship managers have assumed the position of objective financial adviser and sounding board, rather than just the service provider. In addition, RMs will only work with a handful of other clients – lower net wealth individuals banking with RBC will share theirs with an average of 50-60 others – meaning that you don’t end up getting a watered down service.
Individuals opening an offshore private bank account will not have to compromise on the usual, tangible benefits either. Offshore clients will be granted universally accepted debit and credit cards, cheque books in different currencies and global ATM access, as well as interest paid gross and favourable foreign exchange facilities.

What should I look for?

Moving from your comfort zone can be daunting so make sure you know what you want to achieve. Familiarise yourself with the average annual management fee, as well as the cost for any extras – remember that although extras are great, you shouldn’t skimp on the services you really need in order to obtain them.

If you are serious about investing, it will also be of benefit to find out how well equity managers have done over the past 5-10 years, alongside the range of bespoke services offered and how far the specific advisory services extend.