The GSB Guide to Private Banking and External Asset Management
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.
If you would like to speak with one of our team members from GSB private, contact us today.
The below discusses:
What are External Asset Managers?
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.
What are the advantages of working with an EAM?
There are many advantages for clients of using an EAM. These include:
- EAMs are independent and work for the client instead of a single bank or custodian. Relationship Managers are typically paid a fixed and pre-agreed percentage of the assets under management, meaning they are incentivised to deliver consistent and long-term results for clients rather than being paid to sell commission-led products.
- In many scenarios, clients do not have to move their assets from their current bank or investment house. If the EAM has an agreement with their Bank, the client’s assets can stay where they are, and only the management and relationship are transferred to the EAM through a client agreement.
- Clients can benefit from multi-banking whilst retaining one key contact with full oversight across all of the client’s assets. EAMs can work with different Partners, finding varied solutions across multiple providers. For example, an EAM may choose to use one Bank for their market-leading mortgage rates, another for their access to Private Equity opportunities and another for their top quartile investment offering.
- Working with an EAM reduces conflicts of interest that can occur when Private Bankers are under pressure to hit sales or revenue targets, and solutions and products are introduced to the client that may not be suitable or appropriate.
- EAMs are typically leaner businesses with lower overheads. This allows for a more competitive charging structure and ensures no additional layer of fees for clients. Instead, as detailed below, fees are often shared with the bank.
- A common frustration of Private Banking clients is that their Relationship Manager or Private Banker changes too often. As a result, the expected personal touch and expected service are often lost. An EAM is typically established on the strength of the relationship between advisor and client. The independent nature of this under the EAM model means a much lower relationship turnover.
- Working with an EAM can give clients access to services or solutions they may not be able to access otherwise. This may be because the individual client would not meet the Bank’s minimum criteria in their own right or because the EAM is granted preferential pricing or terms based on their relationship with the Banks. Further, an EAM can usually go beyond the restricted scope of a Private Bank, finding a broader range of opportunities, especially in the alternatives and VC/PE space.
How are EAMs remunerated?
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:
- EAMs agree to a discounted fee model with the Banks whereby they charge a discount to their standard annual management fees, allowing EAMs to build in their fees on top.
- A retrocession agreement is established within the EAM agreement whereby Banks charge their standard fees and agree to return a pre-agreed amount to the EAM.
- One-off fees are charged for a specific piece of advice or service.
- Pre-agreed annual fee for an all-encompassing service covering multiple advice areas.
Solutions available to an EAM and how these vary to Private Banks
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 only for their custody and then running their bespoke investment models and portfolios on the Bank’s platform. Portfolio and relationship managers then manage these mandates in-house.
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 a 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 EAM’s who wish to truly serve clients across the full spectrum of Private Banking and Wealth Management services and solutions, they must invest in their proposition and infrastructure. This ensures client’s needs are satisfied via a network of 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:
- Onshore and offshore banking services
- Cash and liquidity management
- Foreign Exchange services
- Public market investment management (Across Discretionary/Advisory/Execution only mandates)
- Private market and Alternative investments (Private Equity, Venture Capital, Private Debt, Physical Assets, Pre-IPO, Structured Products)
- Legacy, succession and estate planning
- Credit & lending solutions
- Personal and corporate insurances
- Tax advice and planning services
- Real estate advisory
- Concierge services
GSB Private
GSB Private is a dual regulated External Asset Manager headquartered in Dubai, with offices in the DIFC and London. We offer the full spectrum of Private Banking, Private Office and Private Finance services for HNW and UHNW individuals, families, companies and structures.
In addition to our asset management capabilities, we are in the unique position as an EAM of having a whole of market, international debt and finance brokerage in-house via GSB Private Finance.
Our proposition and offering ensure the perfect balance of independence, service, value, and accessibility. If you would like to discuss more about private banking and external asset management class, get in touch today.