I’ve read more personal finance books than I care to admit. I’ve had more conversations about money with people than I’ve had about most other subjects. I enjoy getting a new perspective on money. There always seems to be something new to learn. Recently I found out about a side of banking I’d never heard about before.
I was chatting with a someone I’d only just met. She mentioned that she use to work at a bank which naturally got my attention. “What was your job at the bank?”, I asked. She explained that she worked in private banking. Thinking she meant that she worked for a private bank or credit union I asked her, “What’s private banking?”
I confess, I’m no economist. Nor have I ever worked in the financial sector. I have an interest in personal finance. I do a lot of volunteer work helping people with the basics of money management but I have no formal training on the subject. I can’t be the only one who has never hard of private banking.
She explained that private banking is for people whose balances totaled more than a million dollars. At first I thought, “Of course. That makes sense. They have so much invested at the bank so the bank gives them special VIP treatment to show their appreciation.”
“Not quite”, she clarified “They pay more in service fees, not less. Clients meet with us on a separate floor of the bank that is only accessible to people with a large net worth but they often pay in excess of $100 a month in bank fees.”
This is where I got confused. These individuals keep massive amounts of cash at banks who then lend that same cash out to other people for a profit and they charge them for it? At this point, I’m really curious. I thought the road to wealth was paved by saving money not by paying more. This goes against everything I learned in the Millionaire Next Door (link).
Millionaires are doing banks a favour by trusting their money with their bank. They should not have to pay in excess of $1200 a year in bank fees to keep it there.
“They get excellent customer service”, she explained. “They never have to wait in line. Our job is to show them how valued they are.”
I can see the argument that it’s a bit like first class airline tickets. If people want better, faster service in a more comfortable environment and they are willing to pay for it, who am I to question their reasoning? Yet there doesn’t seem to be the same conflict of interest when it comes to airlines.
“I really enjoyed my time there”, she said. “The people were really nice and I always met my sales targets.”
“Sales targets? You mean to tell me that not only does the bank charge them in excess of $1200 a year in yearly bank fees but they also had to promote products the clients might not need in order to reach sales targets?”
She laughed when I told her I’d be no good at that job. I’d keep trying to talk clients out of products they didn’t need.
What I wondered but didn’t get a chance to ask was could I as a regular customer with a net worth of well under a million dollars pay the extra bank fees in order to get the VIP service. If the answer was yes, then I’d argue that private banking is simply paying more for better service. If the answer is no, as I suspect it is, then I can’t help but wonder if there are some serious conflict of interest issues that need to be addressed.
Anyone in the world of banking who care to shed any light on this? Is it in fact available to anyone who is willing to pay the fees or is it restricted by total bank balance?
Kathryn has been a staff writer for MDJ since January 2009. During the day she works in an office. In her off hours, she volunteers as a financial coach helping ordinary Canadians with the basics of money management. Kathryn, along with her husband and two children live in Ontario.