Private banking: domestic and foreign experience (on the example of Russia and Switzerland)

Private banking is banking, investment and other financial services provided by banks to high-net-worth individuals (HNWIs) with high levels of income or sizable assets. The term "private banking" both in Russia and abroad is understood as the complex management of the client's personal funds, provided on a more personal basis than in mass-market retail banking, and delivered to the client via dedicated bank advisers.

Nowadays the banks cannot attract funds from private individuals only by standard programs - payroll, pension, social projects. In times of high competition between banks, non-standard "flexible" deposits, as well as individual approach to customer service are of particular value.

The first banks, targeted at individuals, were created more than 500 years ago in Italy where the banks were focused on managing personal finance for wealthy families. However, due to their rapid reorientation to finance commercial and entrepreneurial activities, they served only as a prototype of the ideology of private banking. Serving wealthy customers as a system of individual banking services appeared three centuries ago.

Private Banking in the classical sense includes, first of all, a slightly different approach to the provision of services. In this case, the bank serves as a personal manager in the interests of the client. Moreover, there are such important components of service as the departure of the top manager to any place convenient for the client for the conclusion of the transaction, provision of non-banking services (booking hotels, tickets, organizing exclusive tours, etc.). Often, bank managers offer wealthy clients assistance in various areas not directly related to banking services. And it ought to be emphasized that the relationship between personal manager and the client is vital for private banks, therefore, the relations between them should be very strong, and even friendly, so that the client can ask his manager to call a taxi, urgently find a nurse for a child, call a doctor, etc. The sincerity of relations is important here, especially for the manager who wants his client to be healthy and rich as long as possible. Thus, the relations between clients and managers are the foundation of private banking and its further development.

Different banks have their own criteria for entering private banking. Banks, specializing in elite private wealth management, look at potential customers differently. There are those that require an account of not less than 50 - 100 million dollars. They are focused on servicing the super-rich people. A prime example is Northern Trust (Chicago, USA), which is a leading bank in the elite service market, cooperating with several hundred of the world's richest families.

The amount of assets placed under the management of Northern Trust is approximately $ 500 billion, and the funds received for storage exceed $ 2.3 trillion.

Nevertheless, the standard of this type of banking services today is Swiss banks. Classical private banks in Switzerland arose in the middle of the XVIII century. And the term "private bank" appeared not because such a bank served only private clients, but because it belonged to individuals who carried full joint responsibility, responding for the clients' funds with all their property.

Today, Swiss private banks, organized, of course, do not bear unlimited liability for their obligations, but they are still engaged in family financial affairs of persons with large fortunes. At the same time, such institutions have very rich traditions, and sometimes several generations of families can be served in the same bank.

During its development, Private banking in Switzerland has become a separate sphere of banking activities, implying the highest level of reliability, quality of service and competence. In practice, each client has a personal manager, which manages the assets, protecting personality and commercial secrets of his client. Swiss financial institutions more successfully manage funds than their competitors. Investors believe in the talent of Swiss asset managers, as well as the stability of the local economy and currency.

The unique position of Switzerland in the banking system is caused by different factors. First of all, neutrality policy since 1815 provided the internal integrity of the country. Secondly, the stability of state institutions, political stability, a strong legal system, and a high degree of openness of the economy attract numerous investors into Switzerland. Finally, bank secrecy in Switzerland is fixed in the civil and criminal law, as well as in a number of ratified international agreements.

Moreover, although the global crisis has slightly affected the economy of Switzerland, there are some innovations in its private banking. Swiss bankers have started active implementation of the system, which provides centralized management of financial institutions that offer PB services and helps to achieve synergy within each institution. The essence of this innovation is the separation of private and corporate activities in order to protect private customer from "punctures" on the stock exchange.

What is also interesting is that Private banking in Switzerland includes two complementary directions - onshore and offshore. Onshore Private Banking provides services to clients within the state. As a rule, this direction meets the constant financial needs of the client, and is subject to the laws of that state. This direction of the Private Banking is typical for Russia. Offshore Private Banking specializes in the global management of customers' money. This includes trust asset management, trust services package, investment projects, financial and tax planning.

Emphasizing the features of Private Banking in Switzerland, it should be noted that this country embodies the original understanding of what is private banking. Besides, currently the Swiss bankers are offering customers to transfer money to their department located in Singapore, where a new world center for Private Banking was established few years ago. There is an almost perfect system of public administration in Singapore: the level of corruption in this country is even lower than in Switzerland, almost zero, and there are perfect conditions for financial assets. According to recent studies South-East Asia has the world's highest rate of growth of personal wealth. Thus, it can be stated with certainty that a segment of the assets’ control of rich people is changing so fast that it will be completely different in a few years.

In Russia everything is a little bit different. Private Banking in Russia is a relatively young segment of the market, so it's easy to become an "important" customer –all you need to do is to save a couple of million rubles. About Russian Private Banking people have started to speak relatively recently. Currently, the market continues to grow dynamically - by about 15-20% per year.

Such service as Private Banking in Russia is practically not represented, since only a small number of banks are ready to offer their customers what the Western financial institutions understand by this term. In point of fact, in Russia the segment of private banking is in the creation process, and it is not surprising: the domestic premium industry has not turned 20 years old, while the history and standards of private banking services in foreign financial institutions number hundreds of years. One of the main features that differ Russian Private Banking is the fact that in the West, private banking services are provided only to wealthy clients. In Russia, there is a clear skew in the direction of non-market, that is, not bringing direct income customers: deputies, corporate clients. Banks are ready to incur such costs in order to keep large legal entities at their service.

The proud name of Private Banking, many Russian organizations call customer service with a capital of 50 thousand dollars to half a million. Usually banks themselves establish requirements for potential customers, compliance with which will allow join the "higher caste". The main condition is the need to transfer certain capital under the management of the credit institution. It's not just about opening a deposit, but also, for example, buying a bank's shares, placing funds in investment products of asset management companies, etc.There are just different categories of such VIP clients. The first category is those who placed funds in deposits for the amount of more than 10 million rubles (for clients in Moscow and St. Petersburg), or more than 3 million rubles in the regions. The second category is customers, the balance of loan debts with positive credit history exceeds 20 million rubles.Under the existing rules of world Private Banking, each bank itself determines the amount of funds that a person must transfer to the management in order to qualify for a top-level client status. And in Russia these standards are relatively low compare with EU countries. This is not surprising, since this segment in Russia is still poorly developed and the banks are ready to make concessions to them in pursuit of customers. Furthermore, it should be mentioned that in Russian banks, the minimum amount varies greatly, the amount of funds for Moscow and the regions is often set at different levels. For example, in Moscow customers of “Sberbank” must invest 8 million rubles; residents of other regions of the bank's presence - 4 million rubles.

Russian banks that position themselves as private banking usually simply offer high deposit rates and add services like concierge services. They also do not provide services for tax counseling or assistance in buying property in other countries to wealthy clients and, of course, they do not help in the creation of offshore companies or trusts. In Russia, in everything that concerns banking services, including the segment of Private Banking, the form sometimes prevails over the content: it is believed that the client needs to be struck with an external entourage, however, unfortunately, behind a beautiful wrapper is often hidden inappropriate content. Russian companies do not always succeed in offering the customer a really good service. Sometimes, trying to make an excellent front-end service, they forget about the middle- and back-office, which are completely cut off from understanding the needs of customers. And all these "little things" affect the perception of the Russian Private Banking industry.

To sum up, Private Banking is a kind of banking, as well as comprehensive banking services for private clients with large personal capital, using centuries-old banking traditions and modern advanced technologies. Real Private Banking implies full financial services to the client, where an important role is played not only by banking and investment products, but also by all kinds of consultations, that are not always consist of a financial plan. If you look at the services offered to private banking customers in Russia, then in general, the set of products for all is roughly the same: cash management services, loans, deposits, MBMU, etc. In fact, these are the same standard banking services available to ordinary customers from the street, however on more individual terms. There is a strong competition from foreign banks. And the fact that over the past years, wealthy clients have grown interest in those private banks that are able, in addition to raising the ruble deposit rate, to offer effective tools and solutions for protecting capital during the crisis significantly made the situation for Russian banks worse. That happened mainly because Western financial structures have serious competitive advantages over domestic ones. They brought the broadest product line, working technologies to the Russian market of private banking services and, thanks to comprehensive and more than once tested training and development programs for their employees, high standards of customer service. For all of these parameters, Russian banks are still lagging behind the Western banks.