The growing ranks of ultra-high-net-worth (UHNW) individuals have driven many of the largest financial institutions to offer private banking services to capture their assets. UHNW individuals are much more demanding customers with expectations of highly personalized treatment of their financial affairs. If independent financial advisors are to compete for the assets of UHNW individuals, they too must be able to offer private banking services, which have not always been available to them.
What UHNW Individuals Want/Need
By definition, ultra-wealthy clients have complex financial situations, and most would prefer to simplify their lives by aligning themselves with a single institution that can tend to all of their financial needs for a more seamless experience. UHNW individuals tend to be more concerned with the preservation of wealth than they are its growth. Because many of them derive their wealth from their business, they also tend to be more focused on business risk than other financial risks. Although they may hold millions of dollars of investments, such clients often have liquidity needs for making an investment in real property or their business. They would prefer to have a broad and deep relationship with a firm that can handle their trust and liability issues along with their asset management and personal banking needs.
Private Banking Is Dominated by Established Firms
For decades, the needs of UHNW individuals have largely been met by large financial institutions, such as UBS Group (NYSE: UBS), HSBC Holdings PLC (NYSE: HSBC), and JPMorgan Chase & Co. (NYSE: JPM), that combine private banking services with asset management. For the wealthier clients, these firms create a dedicated team of professionals to personally cater to their needs. The wealthiest families are increasingly turning to exclusively run family offices, staffed by a team of professionals, to keep all of their wealth management, risk management and private banking under one roof. In both cases, a substantial amount of manpower and resources are allocated to the management of an UHNW individual or family’s financial affairs.
Making Room for Financial Advisors in Private Banking
Financial advisors who want a piece of the UHNW market, or even the high-net-worth market, have to be able to offer private banking services if they are to compete with the larger firms. Currently, there are two avenues available to financial advisors: join a firm that offers both wealth management and private banking services, or align with a custodian that offers private banking capabilities for advisors. Some of the new entrants into the wealth management/private banking space, such as Wells Fargo & Company (NYSE: WFC), the Charles Schwab Corp. (NYSE: SCHW) and Fidelity Investments, are building large contingents of financial advisors to fill the roles of personal private bankers. These are typically financial advisors or wealth managers brought on and trained in private banking services. They can serve the asset management needs of wealthy clients while having access to a full spectrum of banking products and services. The financial advisor, who often wears the moniker of “private banker,” typically heads a team of advisors personally assigned to the client.
A Private Banking Solution for Independent Advisors
For independent financial advisors who want to remain independent, the only option is to align themselves with a brokerage custodian that offers a private banking platform in addition to an asset management platform. While several of the largest custodians are ramping up their private banking capabilities to compete in the UHNW market, only one has made their services available as a platform solution for independent advisors. Pershing LLC, which was acquired by the largest global banking custodian, the Bank of New York Mellon Corp. (NYSE: BK), allows financial advisors to team up with a private banker to work with their clients’ entire balance sheet.
Through the Pershing platform, financial advisors can access the entire range of brokerage and bank custodian services on a single platform, including advanced lending and fully paid securities lending capabilities, which are the hallmark of the larger private banking companies. With Pershing's consolidated wealth reporting capabilities, financial advisors can give their UHNW clients the same comprehensive, seamless wealth management experience offered by larger firms.