Personal touch adds value - but is it worth the money?

PRIVATE banks have benefited from increased demand for personal services, but the jury remains out on the value they offer, as one Edinburgh firm comes under fire for introducing new charges.

RBS-owned Adam & Co has angered customers by telling them to pay 40 a month for their current account, unless they have savings, investments and borrowings of at least 250,000. The move came three months after fellow RBS-owned bank Coutts, which counts the Queen among its clients, introduced a fee of 150 every three months for customers without combined borrowings, savings and investments of 250,000.

Adam & Co, which this week announced that 130 staff in back-office roles at its Edinburgh headquarters would be made redundant over the next three years, had previously offered free banking to customers maintaining a balance of at least 10,000 in their current account.

The charges have sparked fresh scrutiny of the services offered by the UK's growing army of private banks, which typically cater for "high net worth" or well-connected individuals who want a more personal and specialised banking service than that offered by the typical high street current account.

The plethora of packaged accounts offered by most banks, where customers get services such as insurance and preferential interest rates in exchange for a monthly fee of between 5 and 25, has blurred the definition of private banking in recent years.

David Black, banking specialist at researcher Defaqto, said: "We've already seen that, as the number of packaged current accounts have increased, they have increased the number of options available as the banks seek to segment their range of offerings to appeal to different segments."

For instance, the entry-level packaged account will have the lowest monthly fee but relatively less impressive incentives; intermediate-level services will have a middling fee and reasonably impressive incentives; the premium level features greater incentives and more emphasis on relationships.

"The premium packaged accounts are the area that appear to offer the greatest threat to private banking," said Black. "But many of the banks, and especially the private banks, have arms that cater for the investment portfolios of their customers, and if the individual's portfolio is large, then they can waive the monthly fee as they will be earning money on the other aspects of their dealings with that individual."

For example, the HSBC Premier account is available without a monthly account fee for customers with savings or investments of at least 50,000 or an individual annual income of at least 100,000 paid into the HSBC Premier Bank account.At Lloyds TSB, the Private Banking Premier Current account is open to those with a balance of at least 10,000 or a managed portfolio with the bank of 250,000 or more.

However, it's the personal services that wealthy customers are prepared to pay a premium for. Private banks place more emphasis on relationship-based banking, with access to discretionary advice and services, including financial planning, investment management, tax planning and lending. Added extras usually include concierge services, according to Black.

"Concierge services are largely in the domain of the private banks whereby part of their service can include getting sought-after tickets, arranging travel and hotels, or arranging for a plumber," he said.

"For many busy high net worth individuals, the concierge services are a major timesaver and such services, at the moment, tend to be restricted to the private banks and the higher monthly fee packaged accounts."

While most high-street names offer some form of private banking service, the names more traditionally associated with the sector include Coutts and Adam & Co; Kleinwort Benson; Brown Shipley, and C Hoare & Co (as opposed to wealth management firms such as Brewin Dolphin and Williams de Broe).

This is where the appeal is as much about prestige and packaging as it is about the services offered, according to Gareth Howlett, fund manager director at Brooks Macdonald Asset Management and formerly chief investment officer at Adam & Co. He said: "Like all banks, they take deposits, make loans and arrange payments by various methods, but the difference lies in the level of service and individual attention clients expect to receive. That kind of service doesn't come cheap and it can only be profitable for the banks if those clients have really substantial means."

Fees for clients below a high threshold, such as those introduced by Adam & Co but already common across the market, underline the fact that private banks are focused only on the top end of the market. But that doesn't mean they provide better services, a point noted by Colin Campbell, a retired property executive from Edinburgh, who said the new 40-a-month charge levied by Adam & Co prompted him to take his business elsewhere.

"You now need to pay 40 a month for the current account even if there are no additional services with it. There has been a change of personnel in the last year and it has become a less personal service," he said.

Private bank clients are also unlikely to get the best rates of interest, Howlett said, "for the same reasons why cornflakes cost more in Fortnum and Mason than in Tesco".

Yet mainstream financial services firms have not typically provided the banking and investment expertise many customers demand.Private banks have the opportunity to take advantage of the changes in the advice market ahead of the retail distribution review in 2012, under which commission-based advice will be outlawed and qualification requirements for IFAs will be stepped up.

Private banks are also well placed to exploit the gaps in an increasingly restricted mortgage market. Several firms have ramped up their high-end loan business to offer customers more competitive rates and more specialised underwriting. Black said: "Those seeking very large residential mortgages will often be steered by brokers towards the private banks."