Why Big Banks Find Private Banking Difficult

Would you like private banking services? If so, I'd recommend that you not sign up with the private-banking arm of a big retail bank -- which is what John Hempton did.

I am a customer of National Australia Bank private bank. Private bank is an area walled off for the "important" customers.
I need something very simple. I need a set of interest statements for my own account and the family trust for the 2006-07 tax year - and I need them in a simple form.
Surprisingly the bank cannot deliver.

Big retail banks tend to look at their high net worth clients and see lots of profits. So they try to pamper those clients as much as they can, with personalized service and dedicated phone numbers and, very often, lots of salespeople pushing some kind of equity derivative or other.

But their org chart, their IT system, their DNA -- it's still Big Retail Bank. If a private-banking client phones up and asks for something they can call up on their computer, then no problem. But ask for something which might be slightly different -- and you run into a brick wall.

In a real private bank, one which is built upwards from a rich client base rather than being built by skimming off the richest clients of a much broader client base, such things are much less likely to happen. In a real private bank, the client has a private banker -- a human being with first-hand knowledge of his client and the ability and authority to make things happen.

If he were the customer of a real private bank, Hempton wouldn't be running into walls. He would make one phone call to his private banker, who would immediately understand what he needed. Now there's a good chance that the private banker wouldn't be able to immediately call up that information. But that's the banker's problem, not the client's. The banker would then start navigating the bank's bureaucracy and IT systems on behalf of his client, and would have the great advantage of being inside the bank and being able to talk to people who aren't "client-facing".

And in a real private bank, the only reason that these people have any job at all is that they're providing an excellent service to the high-net-worth clients. They're not providing mass IT support for a bank with millions of customers across the country, they're delivering a high-end service to a small number of clients. So when the banker comes to them with a request, they're much more likely to be helpful rather than obstructive.

This is why people get worried when a storied private bank like US Trust gets acquired by a big retail bank like Bank of America -- and why they get even more worried when the big retail bank starts talking about back-end synergies and the like. Private banking is nothing without empowered private bankers, and it's hard for a private banker to be truly empowered in an organization with the size and complexity of BofA. Or even, it would seem, NAB. Put another way, when you're looking for a private bank, you should never be happy with a private-banking arm. Instead, you should always look for a entire private-banking central nervous system.