The GSB Guide to Private Banking and External Asset Management
05/09/2022 Written by GSB Private
Private Banking is a subsection of the banking industry that caters to individuals and businesses that qualify for enhanced service and offerings through their high net asset base or income.
Private banking comes in many different forms, and each Bank will often have its criteria for what makes a client qualify for ‘private status’. For example, a Private Bank may stipulate that before a relationship can be established, a minimum of $1-10m must be deposited, borrowed or invested with the Bank.
Whilst the minimum will vary from one Private Bank to another, the need to have them in place is dictated by a model with a much higher cost to serve than traditional retail banking. This is predominantly due to the level of service clients will receive from a dedicated Private Banker (PB) or Relationship Manager (RM). The PB/RM will typically have a smaller portfolio of clients to look after, allowing them to get to know and serve their clients well. The volume of clients associated with retail banking means this kind of personal touch is unachievable.
Private banking clients generally have exposure to a much broader range of services and solutions offered by the Private Bank. These can include multi-currency accounts and cash management solutions, foreign exchange services, property and investment-backed lending facilities, investment management (discretionary, advisory and Execution-only platforms) and wealth planning services. A good private bank will always take time to understand a client’s needs and objectives before implementing any solution.
External Asset Managers, also known as Independent Asset Managers (IAMs and EAMs, respectively), provide tailored asset management services to high net and ultra-high net worth clients.
One of the main differentiators between an EAM and a Private Bank is that EAMs are not custodians of any assets. Instead, EAMs work closely with partner Private Banks and other financial institutions to provide that custody of assets on their behalf.
EAMs act as trusted advisors and relationship managers for clients, providing the same high level of service and diligence that Private bankers provide for their clients but doing so independently.
EAMs are often smaller, more nimble and tighter-knit organisations compared to banks.
The EAM is given authority and power of attorney as a third party to represent the client in managing the assets with the custodian. At all times, the assets remain in an account in the client’s name, but the EAM and client work collaboratively to make decisions and decide how the assets should be managed.
The parties are connected via agreements between the client, custodian bank or financial institution and the EAM.
The EAM Model
The EAM model and its relationship with the banks or financial institutions is designed to provide the client with as much flexibility as possible, whilst maintaining high levels of safety and security. It also puts greater emphasis on the EAM and Bank to perform and fulfil their respective duties to their highest standard.
For example, if at any time the EAM and client agree that the Bank is not performing or fulfilling its duties to the client, the Banking agreement can be terminated, and the EAM can assist the client in finding a more appropriate partner. Similarly, if the client is satisfied with the Bank, but unhappy with the EAM, they can cancel the Client agreement. This would terminate the relationship with the EAM, but the client would retain accounts and a direct relationship with the Bank via the Banking agreement.
The model therefore ensures the EAM and the Bank are always striving to perform and deliver for the client, because otherwise, it is easy for the client to terminate their relationship with either and find a more appropriate solution.
There are many advantages for clients of using an EAM. These include:
As previously mentioned, EAMs are conscious of not adding layers of fees for their clients and, in reality, can be more cost-effective by negotiating preferential terms with the Banks under their EAM Agreement.
Each EAM will charge clients differently depending on their work scope. Examples include:
The services and solutions provided by an EAM will vary in the same way they would from Private Bank to Private Bank.
Traditionally, EAMs tend to be very investment management focused, using a bank for custody only and then running their bespoke investment models and portfolios on the Bank’s platform. These portfolios are then managed by in-house portfolio and relationship managers.
As EAMs have grown in prominence, so too has the scope of their client offering. Whereas a Private Bank may be able to offer some but not all of an HNW/UHNW client’s requirements (for example, investment management and lending, but not transactional banking, or banking and lending but not investment management), an EAM can dictate the breath of its propositions by the relationships it chooses to set up with 3rd parties.
For those EAMs who wish to truly serve clients across the full spectrum of Private Banking and Wealth Management services and solutions, multiple EAM agreements can be established with Private banks, Lenders, Investment Managers and other Advisory firms such as Tax Specialists, Trust companies, law firms and insurance companies.
This ensures the following service areas can be provided to clients if required:
GSB Private is a regulated External Asset Manager headquartered in Dubai, with offices in London and Geneva. We offer a full spectrum of private banking and financing services for HNW and UHNW individuals.
To find out more, please contact us on firstname.lastname@example.org.