Last time we went through the bread of private banking—custody fees—and now we get to the butter: transaction fees. (If you missed Part I, click here.)
Before you open an account with a private bank, you’ll be shown a price list (that's if you can get an account open nowadays, because it isn’t easy; the paperwork alone is scary). The first thing you need to understand is that if you have the money to be a private banking client, the price list is open for negotiation. You do not pay list price. Remember, you do not pay list price! You negotiate.
Having said that, if you think as a client you are going to get private banking services for 0.1% a trade, forget it, unless you’re in the top end of the wealth scale and/or trade daily at the same speed as a hyperactive teenage girl texts her BFF about last night’s date, immediately after consuming a Starbucks Double Caramel Frappachino.
So why still bank with a private bank, if you can get cheaper access via your retail bank?
There’s a simple answer to that: Any capable private bank has the infrastructure in place that if you want to buy or sell anything slightly more exotic than stocks listed on a major global exchange or an ETF, your private banker will say, “No problem, how many do you want?” With a retail bank, on the other hand, you will come up against hurdles that if you’re lucky will take weeks to clear.
"Private bankers love a little bit of short term volatility like a chubby child loves cake."
The banker will call all his fraidy-cat clients first and get them to drop risk by selling, only to pick up the phone next and call their gambling-inclined clients to sell the same stuff to them as a punt.
Oh, the memories of good times come back to me now and that sweet, sweet symphony of the cash register ringing.
Next up in Part III: Portfolio Management Fees