Slowly but surely, however, this industry is changing.  A Germany/Switzerland-based network for private banking clients, My Private Banking, has recently launched a service helping clients to renegotiate for lower fees, translating into fatter investment returns worth potentially millions of dollars or the equivalent over the long run.

So far, the service is in Europe, but its worldwide potential is considerable, it says.

“We feel that part of our service should be to improve service and get more transparency. It is also good for the banks, especially for those players who want to be competitive,” Steffen Binder, managing director of the network, told this publication in a recent telephone interview.

The fee renegotiation service was launched about a week ago, drawing on extensive research MPB has undertaken about the sort of fees people are paying their private bankers, he said. The service is carried out in collaboration with GoodValues, a Swiss service set up by the German-Swiss business, Porfolio Consulting.

MPB is in a position to exert some influence – it currently has just over 2,000 members, who have been a valuable source of data on fees and other issues in the industry.

“We have been gathering such data for more than a year. We have also gathered a lot of informal information from our clients and also did a mystery shopping enabling us to analyse in detail the fees and costs of investment proposals by the 20 largest wealth managers. It is difficult to calculate the average as it depends on the type of services that a person gets and the type of assets they invest in,” Binder said.

At present, clients of the service are mostly those with banking facilities in countries such as Switzerland, but in time, the service has global relevance, Binder said.

The renegotiation service is not free – a charge for the work is taken by the negotiator working for one of the network’s clients, based as a percentage of the savings a client receives. For example, on a $2 million portfolio, where a client pays 100 basis points fee, or $20,000 per annum, a fee saving of 40 per cent, say, would be equal to $8,000, and the negotiator takes say a third of that figure.

And the benefits to a client can be large when compounded over time. As MPB says on its own website, a client paying 2 per cent, or 200 bps to a manager every year, would see his or returns rise by more than 25 per cent over 20 years if that fee was cut in half.

“Overall, when you look at the total cost to a client, it is between 2-300 bps across all mandates. That figure will include the cost of funds. The fee may be as high as 400 bps for some of the most expensive products,” says Binder.

Transparency and trust

Achieving greater clarity on what private banks charge, and being able to renegotiate fees down, could help improve the industry’s image in the long run, a fact that is not lost on those banks which understand that a newer, younger generation of clients is less willing to tolerate high fees regardless of service, Binder said.

A number of banks are starting, he said, to look at their costs to clients in a more systematic way, while some banks are going down more of an online route, such as Wegelin, he said. “This is a minority segment but it is growing and looking for more of an opportunity,” said Binder.  Wegelin, the Swiss bank, has recently launched Nettobank, an online private banking service.

The lack of clarity of private banking fees has long been the source of grumbles in some parts of the industry, as this publication has found. However, obtaining accurate, consistent data on fees has proven difficult. The position stands in contrast to sectors such as the US and European mutual funds market, where organisations such as Lipper, the research group, provide regular data on fees and total expense ratios of funds. In sectors such as private equity, which has also been a quite secretive area in the past, there is now more data on costs and fees from organisations such as Preqin.

In a recession, where portfolios have taken a hit – as happened in 2008 for many clients – the pain of high fees is even more acute than in sunnier economic times. Concerns about fees and price competitiveness are not new, of course. Three years ago, this publication carried an article, based on a poll of readers, showing that 75 per cent of readers said fees were important in securing client business, and that the remaining 25 per cent said they have to discount to win client business.

The well-publicised loss of trust in financial services has yet to fully galvanise a reaction from wealth managers, according to a report in April by Ledbury Research, a UK-based organisation. It found that dissatisfaction with fees was a reason for client concerns, although not the most significant negative factor.

Private bank clients are getting more demanding and conscious of costs. They now have the tools to make their voices heard.