When Did Private Banking Become Ryanair?
Even the best of us have had a Ryanair experience, sold with a cheap headline price, only to be hit with a plethora of hidden fees. You see a flight to Paris for £15 pounds, but then to bring a briefcase and a suitcase it adds another £70, you want a coffee on the plane its another £3, your suitcase is 500 grams overweight and you pay an extra £20. Suddenly your bargain has become a bit of a nightmare, when you could have flown BA for about £80 all in and they’re nice enough to give you a drink on the plane for free.
There is an intrinsic value in simply knowing what you’re paying and what you’re getting, the psychology of loss aversion comes into affect where the same flight with hidden fees makes you feel substantially worse than the same flight that just put the all in one price upfront, because you feel like you’re losing from your original bargain.
Private Banking seems to be emulating Ryanair currently.
In building 220 Bank we have been looking into competition, sometimes rather aspiringly, we have been taking a look under the hood of UBS, Coutts, Credit Suisse and a number of others.
Millennials and Generation Z who are soon to become the Wealthiest generation in history, with $24 Trillion in Current Total Assets and set to inherit over $68 Trillion over the next 25 years, what do they want and what do they think of fees?
Over 56% rank fees as a high rating in their choice of Wealth Manager. That seems to have driven down headline annual management charges across the board, but these are just one of a host of fees charged by incumbent providers.
Here I will take a look at the Queens Wealth Manager, Coutts, and the worlds Largest Wealth Manager, UBS, using as an example a not unusual client, assume they are about 25, made some good money in a start up, just into 7 figure territory in net worth, a few shares, a house, a nice 6 figure job ticking over, looking to invest £250k, no frills just a solid portfolio and some good advice.
Coutts are the queens wealth manager, a bit of a British Icon, however they are not exactly punching up there with UBS, with a client base of 14,000 and an AUM of £30bn, they are rather more boutique.
I can’t really deny, Coutts are better than most here. Their Headline fee for a sum of <£250,000 is 0.35% on their platform, very competitive.
However, when you look into the offering, for fund selection, there are only 5 funds really to chose from, Coutts own 1 being their low risk to 5 their higher risk portfolio, millennials rate choice and ethical investments as some of their highest priorities, so not a high score there. The other charge is their on going charges on their funds, ranging from 0.6% to 0.98%, with the renewed focus of Coutts on passive strategy with approximately 40% of these funds allocated to passives, when you can run into Blackrock and pick up their Ishares passives from 0.03% and robinhood broker the other equity allocations commission free, it seems a little high. Bringing AUM Charges for a Retail size client with a balanced risk appetite to 1.33% in Total Expenses on the Assets.
Problem is, if you want an account with them, the flash Coutts Card and any client perks, you also need to pay their annual charges, of £900, a not insignificant amount.
So over all, for a representative client investing £250,000, total fees stand at £4225. However, they also have brokerage fees, they do not disclose their financial planning fees, and other additional services. So assuming you want the barebones and invest and plan yourself that is a effective rate of 1.69%
Over all, not terrible, but there is a few pieces hidden there.
Total Cost: £4225 Estimated
Transparency: 5–6/10
Price: 7/10
Offering: 5/10
Clout: 9/10
Come on, you know that if you pull out a Coutts card on a date you’ll get a comment, I’ve never met a Coutts client that didn’t show me the card on a first meeting.
The other Thing for younger users, they do have an App, but its currently rated 2.9 Stars on the app store and has a few complaints, it doesn’t let you do much, doesn’t let you allocate funds, their smart-payments feature seems to just send you back to your computer to use the little calculator everyone hates with online banking, it doesn’t have FaceID or TouchID elements, over all, not good.
Millennial friendly rating over all: 5/10
They’re trying, closer than most to an incumbent that will work for millennial clients.
UBS are the Big Dog in Wealth Management, 2.3 Trillion in AUM, they are by a large margin the largest Wealth Manager in the world. Must be pretty good right? You can’t fault their service quality, same as my take on Coutts, they are good, and visiting Switzerland is a bonus. Lets take a look under the hood.
Headline fees for our target client are at 0.55% Annual fee for their ‘safekeeping’, not the worst.
Their Diversity of offering is truly massive, essentially any fund out there that is worth knowing, they have, if you want to invest ethically or green, you can do, they’ve got that. However, when it comes down to fees, UBS really goes Ryanair.
Their minimum fee is CHF1600, there is a surcharge of another 0.05% if you have normal funds, 0.2% for unusual funds, they sum all of those and ramp it up by 50% if it is an individual custody account, bringing us to 0.9% annual management. Not Good.
In Brokering the funds to you they take 1.35% if its a European listed fund say the Blackrock Ishares FTSE100 Tracker. If it is their own in house funds with a foreign domicile, that becomes 2% for their own funds… and their funds contain their own ongoing charges of 0.68% and up. So for our representative client, the fees could be as high as 3.58% in the first year or £8950, which is just astronomical dropping to 1.28% for each year onwards for one of their most cost effective funds, but that big front end hit is what will hurt your longer term returns.
They are technically transparent in the fees with a big list to be found quite easily by a search, but you need to speak banker to navigate under which circumstances each fee applies, and with such a long list it is naturally quite confusing.
If you then want to bring it up to par with the pricing for Coutts above you would want an account and associated card, that will run you 30CHF a month for the account and then a card on par with the coutts silk would be the UBS Infinite Visa, coming in at 495 CHF annually.
Total Cost First Year: £9662.5 Estimated
Transparency: 4/10
Price: 2/10
Offering: 10/10
Clout: 4/10
That Price is pretty astronomical, there are discounts as you become a larger client and the fees trail off, but its hardly an incentive for the generally smaller but long term more valuable millennials, but at least they have a list of fees and are as detailed as you expect the Swiss to be.
In Terms of Clout, In Switzerland, everyone banks with UBS, it gets a solid 2, if you’re outside Switzerland, its a bit of clout given the fact they usually have HNW to UHNW clients over smaller retail clients, but you need to be a banker to know that, and so it scores a modest 4 for clout over all.
You can’t deny the offering, there isn’t much you couldn’t invest in if you are a UBS Client, just remember you’re paying for that privilege.
UBS do have an app, they have 8 in fact, all are highly rated around 4.9 stars, however there isn’t an app for private clients, and none of these apps give you a clear overview of position as a private client or let you actually transact it seems, also who downloads 8 apps?
Millennial Friendly Rating over all: 2–3/10
To expensive, good offering, but little clout, ethical investing is a nice touch but its really not good for millennials.
If you thought I wasn’t going to rate myself in here, you were very wrong, I won’t score ourselves I’ll just leave it to you to make your mind up with a brief description of us and our services.
All of our functions are settled in the 220 Bank app, members for £20 per month get a full current account with us, our titanium Black 220 Card which is rather pretty but judge for yourselves below.
We offer then either the Robo-advisor route or the personal advisor route. If you just want to have a general investment account, you don’t want personalised financial planning, you have a good idea of what you’re doing, its a 0.5% fee all in for any volume of funds invested, that includes the brokering, the custody, the advisory function, asset servicing, automatic rebalancing, the underlying fund fees, its one fee, thats it, you always know exactly what you’re paying.
If you want a bespoke advisor, financial planning and access to more funds including ethical investments (In general ethical funds have higher on-going charges generally, while I am value for money I’m not trying to lose money on investing for you) thats 1% pa.
If you come to me from another Bank, you already have a portfolio of funds, we will take custody for you on a case by case basis at cost plus 0.1%, so targeted around 0.25–0.3% depending on volume, asset type etc.
So for our representative client, of £250,000:
Card Membership and perks annual: £240
Highest possible Annual Management Fees at 1% : £2500
Lowest Possible advised portfolio fees at 0.5%: £1250
Total Cost (Max): £2740
Total Cost (Average):£1490
Our card holders get some nice perks from our partner brands, we are working on hefty first class flight discounts, discounts and partner events at luxury brands for clients only, with some more ambitious plans being rolled out as we continue to expand.
As for millennial friendliness, all functions are done in app, even if you want to speak to your own personal Wealth Advisor, thats a Video Conference on demand in the app or our dial in line, if you want to see your portfolio in app, no problem its a live feed, we can even drop you a notification when you’re doing well.
The Comparison:
For our example client investing £250,000, having the nicest card with the best perks on offer and a basic current account also.
Coutts Total Cost: £4225 + (for further financial planning etc)
UBS Total Cost: £9662.5 (Seems to include all services but it is enigmatic)
220 Total Cost: £2740 (This is my highest rate)
You must be saying to yourself, how are you that much cheaper? are you another loss making Fintech?
No actually on just that client we make a healthy margin on even the cheaper solutions. The reason why I am not ashamed of mentioning that is that one of the key things you require from a Bank is stability and trust, if my model didn’t make a profit on average, it couldn’t be very stable. If you are saying well why aren’t you free, you can look into my last article on how these ‘free’ firms make money selling your order data to professional traders.
I’m not cheap, the incumbents are just inefficient.
The marginal costs as a lean start-up with a very small cost base and none of the drawback of legacy systems mean we can punch well above our weight, also with nice little efficiency squeezes such as Wealth Managers on video chat not travelling to wine and dine every client the good old way, saves a hell of a lot in expenses and gets a lot more business per advisor per hour. With the onboarding process, AML/KYC process, and account opening all covered digitally, we can get you onboarded quicker than UBS who have over 60,000 staff, we are targeting a maximum 24 hour turn around, if we get the Apple pay integration, we could issue the card straight to you for the current account in just a few minutes, with a top up from your standard retail account. We offer commission free forex, you get interbank rate. Theres no fees hidden in there.
On the investment side, with all brokers globally moving towards zero, and a focus on passive strategies, the costs on-going of the funds and the broker fees on average are coming out lower than 0.2%, with custodians running at 0.13% after PSD2 allows us to breach in on API at rapid speed to all sorts of institutions, the admin is incredibly cheap as it is automated, its really not hard to compete on funds.
When you work with UBS and Coutts, you speak to a Wealth manager, who has a team of tens to hundreds to fall back on for admin, AML/KYC, portfolio construction, equity research, that one member on the front line is generating revenues for the salary of potentially hundreds of individuals in the back office.
In terms of the offering for Millennials, they want speed, value, choice, convenience, and a lot of them would prefer ethical investments, all while it has a premium feel and they’re treated right, as I see it building to specification that incumbents have simply ignored for the last decade.
All of this above is without commenting on the fact their client acquisition strategy completely fails to work with millennials. As an example, UBS has a sizeable Instagram page at 56k followers, but all they post is about the environment without even a mention of how that plays to their core offering? its pretty sure, but Instagram has a collosal power in social verification of brands and as a lead funnel, which they aren’t using that well. Coutts is basically the same, 3000 followers after two years of being on the platform, 220Bank is on 2400 after 4 months? It seems petty, but millennials will check your social media to verify the legitimacy of brands before buying products and services its just the new way of doing business.
Right now, incumbents have ignored this $24 Trillion market opportunity in millennials because for older firms to pivot to a new generation means clearing out decades worth of old ways, clearing out legacy systems, reinventing processes, and paying severance to their thousands in the back office, to build internally what I’m making from scratch would cost them dearly, and with older clients stuck to the old ways, with 66% of Wealth clients currently above 60, they won’t do it, not until I really kick the beehive.
I’m hoping to kick the market just enough to bring on and serve clients with the highest quality, a better price and a broader offering, all in a medium that has been ignored by incumbents.
Do I believe I’ll Kill UBS or Coutts? Absolutely not.
Will I keep Sergio Ermotti up at night in cold sweats? Certainly no.
But Am I building an innovative, scalable and profitable business? yes.
But how much new business do I have to put through the books, how many good reviews and how many pinched clients from the incumbents will it take until they knock on my door with a rather nice cheque and chuck the rowdy Welshman out of the proverbial toff country club of Private Banking? Not much I reckon. If I hit my first year target of 10,000 clients as card holders and 200 million in AUM and make a profit of any size, I am quite certain these incumbents will finally stop ignoring this market which is in general the over arching aim of 220 Bank, to get clients treated right, to put the premium back in Banking.
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