While profit margins have been squeezed in every corner of the financial services industry, private banking services for the world's ultra-rich remain a reliably lucrative business.
Still, the rising cost of good wealth advisors and fierce competition for assets pose challenges, senior private bankers told Reuters.
Wealthy individuals commanding a million or more dollars in investable assets have shown they are willing to pay up for firms that can deliver market-beating performance and protect assets from the occasional storm.
And with the ranks of the world's millionaires growing rapidly, many wealth managers are scrambling to keep up with demand.
There isn't pressure on the high net worth individuals space. Most people value quality more than fees, Daniel de Fernando Garcia, head of private banking at Grupo BBVA, said at the Reuters Wealth Management Summit in Geneva.
The Spanish bank generates about a 0.6 percent return on private banking assets, where the average client has 7 million euros, de Fernando said. Other bankers at the Summit cited ROAs as high as 1 percent, depending on region.
While there are lots of banks and money managers eager to take in the assets of wealthy families, the pool of clients is growing faster than the ranks of bankers to serve them. Cap Gemini and Merrill Lynch report that high net worth family assets worldwide rose 11 percent to $37 trillion last year.
That growth in assets has helped sustain expanding profits for private banking, said Paolo Molesini, head of private banking at Italy's Intesa Sanpaolo.
On average, Intesa is generating 0.7 percent returns on its managed private banking assets, he said, though the largest clients can negotiate lower fee rates.
The economics are still very sound because the assets are higher, Molesini said.
That said, margins and profit remain very attractive. Private banking is a relationship business that does not require a lot of capital and generates steady revenue.
We have a cost base which is very thin. Our cost-income ratio which is something like 40 percent. We have a return on equity which is more than 60 percent, Molesini said.
Ray Soudah, founder of private bank advisory firm Millenium Associates, argues firms can add new clients assets to their business without having to boost costs. That has helped increase profitability.
It's complete nonsense that margins are going down, complete nonsense, Soudah said. The cost-to-income ratio right now in Switzerland is slightly under 65 percent. It was 85 to 90 percent in 2002. You don't need a Ph.D. in nuclear science to tell you that that's an improvement in margins.
Some bankers, though, warn that the business has evolved and that the days of keeping clients for a lifetime may be ending.
While hefty hedge fund fees have held steady, there's been pressure on the fees charged by the broad group of people surrounding the investment managers.
We used to easily generate 5 to 6 percent on assets in fees. That's probably 50 to 60 basis points today. The big drop in price has been there, said Union Bancaire Privee head of alternative investments Jan Erik Frogg.
Other bankers warned that the business has evolved. Clients are sophisticated and demand a wide variety of services and investment options. The days of keeping clients for a lifetime with hand holding and gold-plated service are over.
The trust is gone. We've become a commodity, said Bernhard Coucke, deputy global CEO of ING Private Banking. It's become difficult to capitalize on loyal clients.