The booming economy is leading to an increasing number of individuals who are cashing in early on the value of family businesses and other assets. This, coupled with the massive explosion in technology share values means a growing number of people have more money at a younger age.
Known as high net-worth individuals, these people have substantial cash and other assets that need to be managed effectively to ensure ongoing income, capital growth and effective tax and succession planning. And the financial institutions have not been slow to recognise that providing a special service for these customers could generate lucrative fees. Along with the increase in personal wealth has come growth in the number of institutions offering private banking.
Bank of Ireland started segregating its personal market just more than 10 years ago when it set up its private-banking unit. Located in a tastefully extended and plushly decorated Georgian house in Dublin's Fitzwilliam Square, Bank of Ireland Private Banking numbers its clients in "hundreds" and has a staff of 40 people.
But like the other heads of private-banking operations, Bank of Ireland's Mr Michael Moriarty is not interested in making any big expansion to his client base. He is more likely to increase the business/monetary thresholds set for acceptance as a private-banking client to keep his client numbers at a level where he feels he can provide the sort of service private clients want.
At a minimum, Bank of Ireland private-banking clients must be able to do £500,000 (€634,869) to £1 million worth of business within a short period. That would mean either borrowing, depositing or investing this amount. A client would therefore need to have cash or other assets worth at least £0.5 million in addition to the value of the family home, or the income/assets against which to borrow this amount.
But because of the changing nature of wealth, the bank like all its competitors takes a fairly flexible view when it comes to accepting new clients. High earners without assets now, but with the potential to build an asset portfolio are welcome clients as are developers of some of the technology companies who could be currently in the red with the bank. AIB, which set up its Private Banking operation five years ago to differentiate the service for high net-worth individuals, looks for individuals who could invest at least £1 million or borrow over £250,000. Manager, Mr Brian Nevin, says threshold levels are increasing all the time as individual net worth is rising.
Irish Intercontinental Bank and Anglo Irish Bank had both been dealing with high net-worth clients for years before they decided to set up focused private banking units. IIB set up its unit in 1997 targeting the bank's existing high net-worth clients and other clients through tax advisers, accountants and solicitors the bank was already dealing with. Head of IIB Private Banking Mr Vincent Dodd said his clients looked for a discreet professional service and an immediate response. His bank offers no current accounts or credit cards. Customers do not have to meet a stated minimum criteria, he says, adding that the bank and the professional advisers it dealt with knew which clients would benefit from the private-banking service. "Focusing on cut-off criteria is self-defeating, we focus on people in a position to do large ticket transactions. We look at the relationship and the potential because there are a lot of young people out there who are going to be very wealthy."
Anglo Irish Bank set up a focused private-banking unit over two years ago which is located in Fitzwilliam Square and has 30 employees. Its clients mostly come from the main bank. Anglo judges the suitability of prospective clients from the type and size of business they are doing with the main bank. The minimum net worth criteria is over £1 million, but a spokesman said this was flexible depending on the client. Anglo is interested in people with the potential to build wealth, he said. At Guinness and Mahon a client must have £250,000 to £1 million of usable assets - that is funds that can be "used creatively" which excludes the value of the family home.
However, the minimum level of wealth or income required to become a private-banking client is rising everywhere as the number of individuals who can meet the criteria is growing rapidly.
Another important criteria is that the client must want to be financially active. An individual could have a business, large deposits and a number of blue-chip shares but might not want to do anything with them, Mr Nevin explained. Private-banking customers get the benefits of a small bank in terms of personalised service and speed of response and delivery while retaining the benefits of the backing of a large group, according to Mr Moriarty.
Most of the services provided by the private banks are available to all retail or personal customers through bank branches, other bank departments such as trust services and bank subsidiaries such as funds management companies and stockbroking operations. The difference in being a private-banking client is that all of the services will be provided by a single unit and will be co-ordinated for the client.
"There is nothing dramatically different from the normal banking services except that they are provided through one unit of the bank and in a seamless way," said Mr Moriarty.
