What Is Private Banking?
Private banking provides personalised, one-to-one services to a customer through a dedicated team. Unlike retail banking (which is aimed towards the mass market), private banking provides customised financial services and even advice about the right investment options.
In Australia, private banking is usually used by, or offered to, high-net-worth clients. The people who use private banking services include:
- Wealthy retirees
- Business owners
- Professionals
- Executives
- Property investors
Private banking services are offered by the big four banks of Australia and other lenders.
How Does Private Banking Work?
Each major bank in Australia has a specialist department that handles their high-net-worth clients.
In so-called “private banking”, you’re assigned your own banker, separating you from mass market clients who have to deal with the bank’s call centres and branches whenever they need assistance.
Why Is Private Banking More Expensive?
The higher level of service comes at a price, particularly for clients who owe over $5,000,000 to their bank. The high cost of having experienced bankers managing a small number of clients is recouped by higher interest rates.
The banks are really only giving you what you should have access to anyway – your own account manager; however they are selling this as an exclusive service and in doing so get away with charging a higher interest rate.
They use a different pricing model to the rest of the bank which means that in most cases they cannot match the discounts offered through the same bank via a mortgage broker.
What Are The Requirements To Become A Private Bank Client?
While each bank is different, in most cases you need to have around $2.5 million in deposits or lending and an income of at least $250,000 a year to become a private banking client.
Most banks prefer to switch customers to their private bank when they do not yet have any lending with the bank. The reason for this is that if you already have a loan with the bank at a competitive rate then there is no additional profit to the bank.
Whereas if you are in the process of applying for a loan then they can immediately put you onto a higher interest rate.
Which Australian Banks Offer Private Banking?
| Bank | Minimum Loan Amount | Minimum Annual Income | Minimum Net Worth |
|---|---|---|---|
| ANZ Private Bank | $5 million | $500,000 | - |
| Commonwealth Private Bank | $3 million | $500,000 | - |
| MAB Private Wealth | No minimum loan size | $450,000 | $2 million |
| Westpac Private Bank | $5 million | $500,000 | - |
| St George Private Bank | $3 million | $400,000 | $1 million |
| BOQ Specialist | $1 million | $350,000 | - |
| Bankwest Private Bank | Does not specify | Does not specify | Preferred customers are professionals and those working in medico |
| ING Private Banking | Does not specify | Does not specify | Does not specify |
| Macquarie Private Bank | Does not specify | Does not specify | Does not specify |
As mortgage brokers we also have our own special package for high-net-worth clients.
How Much Is The Price Difference?
Initially when you apply for your first few loans the pricing will be moderately competitive. In most cases the difference is 20-40 basis points for loans of around $5,000,000. That is around $10,000 to $20,000 a year.
Once you have made that bank your main financial institution (MFI) and stopped shopping around when applying for new loans it will typically charge you 40 to 55 basis points more. On a $5,000,000 mortgage that is $20,000 to $27,500 a year!
What is the alternative?
If you want to reduce the cost of your loan then it is better to talk to a mortgage broker. Our mortgage brokers are specialists in dealing with high-net-worth clients and know which lenders will give you the lowest interest rates for your loan size.
Please call us on 1300 889 743 or enquire online and one of our staff will call you to discuss your finance needs.
What Are The Risks Of Private Banking?
Choosing the right bank for each product
If you have a range of home, business and investment requirement that need to be taken care of then it is rare that this can all be provided by just one bank.
In most cases, you may be better off dealing with a range of banks as one may be the right choice for your commercial loans while another is better for your equipment finance or home loan.
Lending Policy
Each bank has its own lending policies and its own view of which loans, properties and business activities are high or low risk. As a result of this we often find it beneficial to match different commercial properties or investments with loans from different banks, depending on the needs of our clients.
While there is some room for banks to negotiate their lending policies with you, in most cases it makes more sense to go with a bank that can give you exactly what you need.
Risk Management
There is a big risk in tying up all of your properties and business in one bank.
If you ever experience financial hardship then they have complete control over your situation. It is wise to consider separating your business and personal debts to reduce this risk. In many cases it is also wise not to cross-securitise your investment properties with your home.
It is common for a bank to carry out an annual review of your commercial loans, decide that they are no longer happy with their security position and then to give you 30 days to pay down your debt. If your home is security for a loan with that bank then your home is at risk!
Residential property is much easier for a bank to sell rather than a commercial property or a business. If your home is used as security for a commercial debt then the loan is not regulated under the NCCP Act and the bank can bypass many of the government laws regarding hardship provisions.
Existing Customer Pricing
Most businesses give their loyal customers the best discounts. This is certainly not the case in the banking industry!
Once you have more than four products (e.g. a cheque account, home loan, commercial loan and a credit card) with one bank then that bank knows that you are very unlikely to leave. It’s simply too much trouble to switch everything over. This is particularly true if the bank also provides you with wealth management, financial advice and international services.
Our high-net-worth client package involves strategies to make sure that you continue to receive the discounts that the banks are offering their new clients, without the need to refinance your loans to another bank.
Please call us on 1300 889 743 or enquire for free online and one of our mortgage brokers will call you to discuss your needs.
Is The Service Worth The Cost?
The service proposition of private banking made a lot of sense before the advent of internet banking. However now it is possible for you to handle your own affairs online from anywhere in the world.
The question is, how often did you need to go to a bank branch in the past? If your visits to the bank were not frequent, you probably will not need them much in the future so there is no point in paying extra for their services.
The reality is that private bankers are exposed to other opportunities on a regular basis, both internally from the bank and externally from the businesses of their clients.
So the turnover of staff in the private bank is just as high as in the other divisions of the bank, which means that you can be left without the personal relationship that you sought in the first place.
Some private bankers also become frustrated by the lack of choice that they can offer their clients and become mortgage brokers.
Would You Like A Second Quote?
Are you looking for a better alternative to private banking? Please call us on 1300 889 743 or enquire for free online and our mortgage brokers can assist you with your home loan, commercial loan and business loans. We can access competitive products and negotiated pricing from a range of lenders.