Proper Wealth S2 EP3: High Networth Private Banking - Peter Izard (Investec)
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- čas přidán 14. 06. 2024
- Paul Mahoney: Welcome to Proper Wealth with me, Paul Mahoney. Shall we discuss all things wealth creation with a focus on property? Today we’re discussing high net worth private banking. And joining me today is Peter Izard from Investec private banking. Thanks for joining us, Peter.
Peter Izard: Yes, good afternoon and welcome. Lovely to be here.
Paul Mahoney: High net worth private banking. Let’s start simple and build in complexity from there. What exactly is it?
Peter Izard: Okay, it’s a very good question and it’s something that we’re often asked. Let’s set the scene, so in simplistic terms you have what we call retail banks, which is in the high street, which the majority of us use and bank with and have for many years. And then you’ve got private banks and private banks are there to serve what we call high net worth clients. Whereas, the retail banks are there to serve the masses, the majority of us. Probably 95% of the population banks with a retail bank of sorts, whether it be a retail or maybe it might be a specialist bank, but under the guise of a retail bank. Whereas private banks far more bespoke and serve a specific sector of the market.
Paul Mahoney: Okay, so focused on high net worths as opposed to the vast majority of others. Okay. Let’s move on to the next term then. What is a high net worth?
Peter Izard: Well, very interesting. I mean, the regulators’ definition of a high net worth client, which is quite boring, but it’s a useful starting point, is that someone whose income, net income, is in excess of 300,000 pounds and/or net assets are over 3 million. So that sort of signifies the definition of a high net worth from a regulatory perspective. And some private banks use that as a basis for the entry level into their lending criteria. But of course, different private banks have different views. But essentially, high net worth are for clients who has a high income, normally well above the 300,000 mark and whose net assets are normally well above the 3 million mark.
Peter Izard: Now some private banks want both income and assets, some private banks will focus more on income, and some will be very happy with just assets. Of course, there is another key differentiator as well, is that many private banks, in order to be able to facilitate a loan to their clients, want what they require is called assets under management or effectually known as a UM. As a finance industry, we love our acronyms, don’t most if that makes sense. Now what assets under management are, is where a client brings investments to that bank, provides it to the bank for the bank to invest and grow for them, and on the back of that, they’ll provide a loan. And historically, that was the domain of private banks. As the markets evolved, some private banks or an increasing number of private banks now are offering what we call dry lending. And that basically in essence means that they will provide you with a loan on your own merits without the requirement of you actually having any assets deposited or invested with that bank.
Paul Mahoney: Okay, great. So all right, that all makes lots of sense. Okay. So for Mr. and Mrs. high net worth person, why would they use a high net worth bank as opposed to your retail bank?
Peter Izard: Yeah, well it’s a great question, Paul. And again, it’s something that comes up quite regularly. The retail banks are fantastic at doing what they call it fits the box, if that makes sense. If it’s a square peg in a square hole, it’s no problem at all. And many retail banks offer a fantastic service where it doesn’t touch the sides, for want of better words. You know? They’re very competitive on rates today, there’s a lot of liquidity in the market, so actually there’s plenty of choice. But high net worths are the opposite of square peg in a square hole. They’re completely the opposite. So their requirements are far more bespoken and actually more discerning. And what I mean by that is that they will have complications that the ordinary banks just simply cannot facilitate. Let me give you some real tangible examples of that. For example, you know?
Peter Izard: Many high net worths earn very high income, but that income will be denominated in a foreign currency, potentially. They’ll often be very highly bonused. So they might have a relatively low basic but a very high basic. They might have income from very wide various sources. They might have vesting stock or shares or buy to let portfolios or et cetera. You know? They might need to have multiple properties up that they put up as security and required to be cross-collateralized, for example. These are just some of the reasons for it...
See the full transcript on our website: www.nova.financial
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