Private Banking & Lending

Private banking is among the most poorly understood corners of the financial world — partly because the institutions involved prefer it that way. The combination of high entry minimums, opaque fee structures, and relationship-driven access creates a system that is difficult to evaluate from the outside.

What you are actually buying

Private banking bundles four things that are normally sold separately: custody of your assets, credit secured against them, investment management on an advisory or discretionary basis, and a named person who answers the phone. The entry minimum is the price of the bundle, not of any single part. If you need only one of the four — and most people do — you are almost always better served buying that one thing directly.

Where the cost actually sits

The headline fee is a percentage of assets under management, and it is rarely the largest cost. The rest sits in places that never appear on a statement labelled “fee”: the spread taken when currency is converted, the margin added to lending, the product charges on in-house funds, and per-trade custody and ticket charges. A portfolio can be quoted a low management fee and still be expensive.

Ask for total cost of ownership in basis points, all-in, including FX spread — and ask in writing. An institution that will not put the all-in number in writing has answered the question.

Lombard lending, plainly

Lombard lending means borrowing against a portfolio instead of selling it. The attraction is real: you raise cash without triggering a disposal, so the position stays invested and no capital-gains event is created. The bank lends a proportion of the portfolio’s value — the advance rate — which varies by asset, with government bonds treated far more generously than concentrated equity.

The risk is routinely underplayed. Because the advance rate applies to current value, a falling portfolio shrinks your borrowing capacity at the same time as its value drops. A margin call therefore arrives precisely when your assets are worth least, and meeting it can force a sale into a falling market — the exact outcome the loan was taken out to avoid. Before signing, ask what percentage fall triggers a call, and how long you are given to meet it.

Genuinely advantageous, or merely prestigious?

It is genuinely advantageous where the situation is complicated: affairs spanning several jurisdictions, a concentrated single-stock position that needs lending against rather than selling, illiquid assets that need valuing, or an estate that has to be coordinated across borders. Coordination is the product, and it is worth paying for when there is genuinely something to coordinate.

It is merely prestigious where the portfolio is a straightforward holding of listed securities. A mainstream broker will custody that for a fraction of the cost. The honest test: write down what you actually need done, price each item as a separate service, and compare. If the bundle costs more than the sum of its parts and you do not need the coordination, you are paying for the card and the lobby.

Five questions to ask before signing

• What is the all-in annual cost in basis points, including FX spread and product charges?
• What are the advance rates by asset class, and what move triggers a margin call?
• Is investment advice restricted to in-house products, and how is that disclosed?
• Who covers the relationship when my relationship manager leaves?
• What is the notice period, and what are the transfer-out fees per holding?

General information, not financial advice. Figures and terms vary by institution and by client; verify everything above against the offer actually in front of you.

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