Looking after the super-rich is a tough job - egos have to massaged, the service has to be perfect and, above all, you can't lose your client's money.
Private banks conjure up an image of refined class and privilege. The local industry is competitive. If you have R10m-R20m, you are hot property .
Private banking in SA is approaching its 10th year. The first to shake up the market was Investec in 1993. The forerunners of the FirstRand group were next, buying Irish-based Ansbacher in 1993 . Absa launched Absa Private Bank in 1997. Nedcor purchased Syfrets Private Bank in 1999 . Standard Bank was the last of the big four - launching Standard Private Bank earlier this year. BoE Private Bank had also developed a strong franchise in the market but BoE will now become part of the Nedcor group .
"It has been a hot spot for the past three to four years," says Investec Private Bank head Steven Heilbron.
The level of competition has become fiercer, as other heavily traded areas in banking - microlending and merchant banking - have fallen from favour. Foreign banks also raised a spectre of greater competition, but to date only Barclays is in the SA market.
But the competitive issue that private banking executives worry about is people: not the ones with the money, but the ones managing it.
"The ideal private banker has R10m-R20m himself," says head of Absa Private Bank Wilf Robinson. Those that turn their hand to other's wealth are handsomely rewarded.
Top-performing private bankers can take home annual bonuses in the seven-figure range.
"The main competitive edge is the quality of person you put in front of the client," agrees Heilbron.
Private bankers need to have a diverse range of skills: from transactional banking to international estate and fiduciary planning.
"Wealth management is where we cement our relationship with a client," says Standard Private Bank MD Vernon Cresswell.
Wealth management offers the real heart of profitability for a private bank. Normal banking transactions are one thing, but advisory and structuring fees are where private banks can score.
"We believe a true private bank is a wealth manager," says Absa Private Bank chief investment officer Johnny Wood, but " most complaints in the industry are about transactional issues."
A typical private bank would develop a full wealth management plan for a client, looking at all current assets. The plan would then be to augment the balance sheet by structuring assets around that, to optimise a client's risk profile, including estate planning.
The wealth management emphasis comes from the initial model of private banking, developed in Europe, where boutique banks served generations of the super-rich. But the European model, which focused on wealth management without a transactional facility, has come unstuck in bear markets.
"The European-style private banks are battling," says Heilbron. He says that the bear markets of the past few years have significantly eroded the assets of the industry.
"The revenue model is to grow your asset base, often with a bias towards equities. The cost base is constant, so a decline in assets means lower revenue. As a result, there are significant lay-offs in the European industry."
SA banks have taken note of the dilemma faced by their European counterparts. "Our clients don't like uncertainty," says Wood. "We can offer absolute return products that lock in a return of inflation plus a real return. We can take the market risk out of the equation."
A further important component is hard currency exposure.
