Private bankers: asset guardians for the rich
THE 80:20 rule also applies to the financial sector; the richest 20% of the clients control 80% of the financial institution's profits. Thus, it is essential for financial institutions to attract as many of these "very important" clients and provide financial services that maximize both the clients' and institutions' profits. The private banker is the well rounded, one-to-one consultant who takes exclusive care of the VIP clients' assets.
Definition and history of private banking
Private banking is a term for customized total wealth management service for savings, financial investments, inheritance, tax planning, and so forth for clients with sizable assets. Private banking is different from mass-market retail banking in that the service is rendered on a more personal basis through financial advisors called "private bankers." Private banking should not be confused with a private bank, a non-incorporated banking institution.
Historically, private banking has its roots in Europe, where there were individuals responsible for preserving the assets of the affluent, especially the traditionally rich households with wealth that had been passed down for generations. Such concept of private banking changed when it crossed over to America; while European private banking is based on maintaining the wealth of the clients, American private banking focuses more on increasing assets through more aggressive financial investments. Nowadays, private banking usually refers to American private banking, dealing with high net worth individuals (HNWI)*.
*High net worth individuals (HNWI): In the private banking business, these individuals are typically defined as the wealthy having investable assets (financial assets not including primary residence) over $1 million.
Private banking in Korea
Private banking was first introduced in Korea in the early '90s. Boram Bank (now merged with Hana Bank) adopted private banking in 1995, and most of the commercial banks followed suit in 2000. At first, private banking in Korea was merely a form of offering preferential services to VIP clients, such as exemptions from transaction fees. Afterwards, private banking evolved to a more systematic and specialized form, focusing on efficiently managing the large assets of their clients.
However, the private banking market in Korea is still smaller than that of the abroad. For one, there are not many high net worth individuals in Korea. In addition, the Korean capital market is not yet open to overseas markets. Thus, foreign firms cannot enter the domestic private banking market, and at the same time Korean institutions cannot manage foreign assets.
Also, unlike those working in foreign financial institutions, Korean private bankers do not receive a separate fee for consultation. Bae Do-jin (Assistant Manager, Private Banking Division, Hana Bank) says, "With the Capital Market Consolidation Act (CMCA)* in effect, less regulated and more open financial dealings have become realized. However, affiliated to their institution and not receiving separate fees for their consultation, it is still difficult for Korean private bankers to work freely as an one-to-one adviser."
*Capital Market Consolidation Act (CMCA): This act, which took effect in February, 2009, roughly comprises deregulation on the sales of FIPs and heavier protection regimes for investors.
What private bankers do
In Korea, private bankers are sometimes wrongly viewed as entertainers who play golf with VIP clients. However, private bankers are clearly experts who must have thorough knowledge in finance and capability in managing their clients' assets.
Providing advice on what financial investment products (FIPs) to invest in is the main job of private bankers. What must be considered is that clients with large deposits generally tend to aim on long term profits and are cautious when it comes to investing a considerable amount of money. Private bankers must therefore view the matter from a long term perspective and strive to propose FIPs that suit the clients' needs.
It is also a private banker's important duty to help the client reduce tax liability. Here, the private banker may suggest to the client, for example, to purchase whole life insurance to secure finances and avoid cash-flow problems for surviving family members.
In many cases the clients are CEOs. Hence, private bankers not only manage individual assets, but also the company's assets. Private bankers also consult about management rights and M&As.
How to become a private banker
Private banking also exists in other financial institutions other than banks; securities companies and life insurance companies also participate in the private banking business in forms of "financial planning" or "financial advising." These institutions tend to be more flexible, often bringing in outside personnel to the private banking division. Banks tend to be more closed; one has to start from the bottom and become a private banker through promotion (yet nowadays banks are becoming more open). Regardless of the type of financial institution one works for, one should be equipped with sufficient knowledge on finance and investment (certificates such as the Certified Financial Planner (CFP) are necessary) and plenty of work experience to be able to deal with the wealthy clients.
* * *
The production of customized products and services is the current trend in business. This applies to the finance industry also, especially for the high net worth population. Laws such as the CMCA are being enforced and the potential of an open private banking market is high. Hence, the demand for specialized personnel that can devise plans on what to do with the clients' assets is increasing. The prospect of the private banker is indeed promising.
*Interview with a Private Banker-Interview with Huh Chang-joon
(Private Banker, Gold & Wise, Kookmin Bank)
Annals : What qualities are needed in order to be a private banker?
Obviously, knowledge on finance and investment is compulsory. There are various certificates to obtain, such as the Certified Financial Planner (CFP), but these are merely prerequisites. Studying abroad and work experience in foreign-affiliated firms are also necessary to be capable of handling the assets of high net worth individuals. Sometimes those who used to work at investment banks or large private enterprises are offered the job, since such people with experience in other sectors could provide consulting from a wider perspective.
Also, since the job involves much time interacting with the client, it is also useful if one has some knowledge in psychology and humanities and efficient communication skills. Thus there are actually many majors in humanities and psychology who are working as competent private bankers. But of course, knowledge in finance and investment is required first for these people, too.