How does a Private Bank 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 it more expensive?
The higher level of service comes at a price, particularly for clients who owe over $5,000,000 with their bank. The high cost of having experienced bankers managing a small number of clients is recouped by higher interest rates on the loans to their clients.
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.
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 0.20% to 0.40% for loans of around $5,000,000. That is around $10,000 to $20,000 a year.
However once you have made that bank your Main Financial Institution (MFI) and stopped shopping around when applying for new loans then they will typically charge you 0.40% to 0.55% 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.
The dangers of being tied up with one bank
Choosing the right bank for each product
If you have a range of home, business and investment needs to be taken care of then it is rare that this can all be provided by just one bank.
In most cases, you may 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.
Each bank has their own lending policies and their own view of which loans, properties and business activities are high or low risk. As a result of this we often find it’s beneficial to match different commercial properties or investments with loans from different banks, depending on the needs of our client.
While there is some room for banks to negotiate lending policy with you, in most cases it makes more sense to go with a bank that can give you exactly what you need.
There is a big risk of tying up all of your properties and your business with 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 thirty 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 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 have you needed to go to a bank branch in the past? If you haven’t needed them in the past then 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!
What are the criteria 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 p.a. to become a private banking client.
Most banks prefer to switch customers into 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?
The Australian Private Banks are:
- Commonwealth Private Bank: A minimum loan size of $4 million with an annual income of $400,000 or more and a net worth that’s higher than $3 million is required.
- Westpac Private Bank: A minimum loan size of $2.5 million, a minimum annual income of $400,000 with an investible asset position of more than $1.5 million (excluding the family home but including super).
- ANZ Private Bank: A minimum loan size of $5 million and an average net worth of $30-$40 million is required. An annual membership fee of $1,200 applies. Their ideal clients are complex high net worth families with an income of more than $500,000 p.a. They seek for clients who are not merely looking for loans but are also looking to protect , grow and transfer their wealth through building a long term relationship.
- NAB Private Wealth: They don’t have a minimum loan size, however, they require $1 million in assets outside of the family home and an annual income of about $400,000 or more.
- St. George Private Clients: A minimum loan size of $2.5 million and an income higher than $400,000 p.a. is required. Net wealth is not necessarily applicable but is usually $3-$5 million or greater. Their primary focus is on the residential sector and commercial loans for investments, and not for construction or operating a trading business.
- BankWest Private Banking: Their preferred clientele are Professionals/Medicos/Family Trust and complex applications with a requirement of $1.5 million in lending or more than $250,000 p.a. in household income. They do not have restrictions on the minimum amount and all fees and charges are product based.
- Credit Suisse Private Banking Australia: They won’t consider loans under $4 million unless you have significant assets (greater than $2 million) to invest with Credit Suisse. They are looking for clients with a 2:1 ratio of investable assets to debt.
- Macquarie Private Bank: A minimum investment of $1 million is required, however, the minimum loan size requirement is not addressed as of yet.
- Bank Of Queensland:A minimum loan size of $2 million, greater than $2million in net worth or debt with a minimum household income of $400,000 p.a. is required.
- BOQ Specialist: Their minimum loan size is $1 million with a minimum income threshold of $350,000 p.a. They do both residential and commercial and are more geared towards doctors, lawyers and accountants.
As mortgage brokers we also have our own special package for high net worth clients.
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 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.