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Private Banking Isn't Just For Millionaires


Personal Business: PLANNING

PRIVATE BANKING ISN'T JUST FOR MILLIONAIRES

When you walk into your bank, do you feel overwhelmed, underappreciated, and ignored? If so--and you earn at least $100,000 a year and have a net worth of $250,000 or more--try heading to the private banking office. There, you may be eligible for a level of personal service that was once available only to a Rockefeller.

O.K., perhaps that's an exaggeration. But private banking, formerly the province of the superrich, is making inroads among the merely affluent. The more money you have, of course, the more handholding you will receive. Five million dollars in assets will get you extra-attentive treatment along with tailor-made investment plans. But smaller fry now qualify for an array of personalized services, as banks compete with brokerage houses and investment managers to get their hands on investable assets.

BETTER TERMS. As U.S. banks try to expand profitability, they are increasingly dividing their customers into three groups, says Michael Kostoff, managing director of the VIP Forum in Washington, which does research on the private banking market. Multimillionaires expect--and get--personal service and customized products. Ordinary retail customers receive little service and off-the-rack products. Those with $250,000 to $1 million on average to invest now get something in between.

For example, a private banking customer might merit more favorable loan terms. At Signet Bank in Richmond, Va., an executive wanting a credit line to exercise stock options or a physician needing to borrow money to start a practice would find the private banking officer has some discretion in setting interest rates, based on how much business the person does at the bank.

Similarly, First Bank System, an 11-state regional bank with headquarters in Minneapolis, will arrange special repayment conditions. Say an executive with an outstanding loan has an option maturing in a couple of years. "He might like to pay interest only until the cash from the option comes in. We can work it out," says Neel Johnson, senior vice-president for private financial services. First Bank and others also make it hard for private banking clients to bounce a check. "If there's an overdraft, we look at it personally and decide whether to call the client or pay it and forget about it," Johnson says.

Along with such credit services, private banking departments offer trust and estate planning services to help with wealth transfer. And increasingly, they are providing asset management through mutual funds and tailored portfolios of individual securities.

Who is actually using private banking? A 1994 study by Payment Systems, a Tampa-based research firm, found that the average customer was a 62-year-old male who earned $192,000 a year and had investable assets of $1.2 million. But Robert Rossettie, a partner in Ernst & Young's financial-services group in New York, notes that a lot depends on where you bank. Large money-center banks typically want to see at least $1 million in investable assets, while smaller community banks may be happy with as little as $200,000.

Chase Manhattan now accepts private banking clients with $1 million or more to invest, down from the $5 million required before its recent merger with Chemical Banking. Signet Bank will put together an investment portfolio of individual securities for a minimum of $250,000 and will package mutual funds for even less.

Summit Bank, with branches in New Jersey and eastern Pennsylvania, accepts private banking customers with incomes of $100,000 a year and total net worth of $1 million. It offers discount brokerage accounts and its own mutual funds. First Bank System wants customers to meet one of three criteria: net worth of $1.2 million (where estate planning starts to make sense), annual income of $150,000, or $250,000 in investable assets.

Don't expect your private banker to obtain theater tickets or walk your pet poodle. Do expect a "relationship manager" who knows you, understands your needs, and can guide you through the thicket of bank products and services. "The relationship officer is a financial quarterback for the client," says William Mundy, senior vice-president at Signet Bank in Washington. Often available on evenings and weekends and at your home, office, or other places convenient to you, the relationship manager can be a boon to the busy professional with little time to spare for financial chores. In fact, while some banks offer special teller windows so that private banking customers can bypass the lines, most business is done over the phone.

FREE REIN. If you're a potential client, determine exactly what you need and want out of the banking relationship. Then start your search by going to the bank where you currently do business. If there is no private banking unit, or if the unit doesn't meet your needs, ask your lawyer, accountant, or financial adviser for referrals. Although you will want to sit down with your banker at least once, you need not stick to your own locale. "Credit services tend to be delivered locally," says J. David Officer, manager of Mellon Private Asset Management in Boston, "but asset management services are often delivered long-distance."

In making your choice, if asset management is important to you, look into available investment offerings. Are you satisfied with a bank's proprietary mutual funds, or do you want a broad range of domestic and international investment vehicles? If you plan to let the bank direct your investments, be sure you understand its philosophy. At some banks, portfolio managers are given free rein, so that performance depends on the individual manager. At others, the bank sets guidelines on portfolio management. Either way, the style should match your risk tolerance level and objectives.

While brokerage firms also deliver asset management services, the downside is that credit may be limited to margin accounts and, perhaps, jumbo mortgages. You may want to shift your allegiance as your needs change, finding the right institution for a specific purpose. Or you may want to stick with one that offers across-the-board competence.

Be sure to investigate how much this will cost you. Credit and trust services are usually individually priced, depending on loan size and estate complexity. Private banking investment management fees typically run about 1% of assets under management, declining with larger amounts. By contrast, brokerage firm wrap accounts, which invest your money with different money managers, often exceed 2%.

Once you've chosen the bank, talk to the individual you'll be working with. You'll want him or her to be knowledgeable and trained to help you meet both your short- and long-term financial objectives. Relationship managers at some institutions, such as Signet, receive training in broad-based financial planning and may even be certified.

"TURF WAR." Also try to assess if the bank encourages cooperation among departments. The worst thing that can happen, says Charlotte Beyer, director of the Institute for Private Investors in Summit, N.J., is to "get involved with a turf war." Unfortunately, that's what sometimes happens. VIP Forum's Kostoff says "big banks, seeing an investment opportunity, are trying to integrate the delivery of services to the affluent market." But "with separate business lines in most banks, until recently competition has been more the norm than cooperation."

Still, for those with sizable credit needs or substantial assets spread helter-skelter, finding the right private bank and banker could produce better results while simplifying your life. A Rockefeller would expect no less.EDITED BY AMY DUNKIN By Grace WeinsteinReturn to top


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