What to know if you’re considering moving your assets out of the high street

 In days gone by, Belgian high street banks had the market for private banking to themselves. But with the arrival of the EU institutions, Nato and numerous multinational hubs, Belgium has become an attractive market for private banks and this has resulted in increased competition for the assets of the country’s wealthiest individuals.  

This trend accelerated in 2008, after the collapse of Lehman Brothers signalled the onset of the credit crisis; arguably, Belgium’s financial system was the worst affected after Iceland and Ireland. Confidence in the competence of the big four high street banks drained away, with all four needing to be rescued. With many affluent clients frustrated by poor investment returns, there has been a natural tendency to look elsewhere for private banking services. Consequently, new entrants have been eating into assets under management of the high street banks at a time when they are under pressure to increase their revenues to repay bail-out funds.

When choosing a private bank, look for an organisation whose interests are aligned with yours. This will typically be an organisation that is growing its business through referrals rather than relying on a high street presence or advertising. Most Belgians are referred to their high street bank’s private banking division when their assets exceed a certain level; however, private banks that rely on referrals from satisfied customers are likely to provide more rewarding results.

Boutique private banks have an efficiency advantage compared to the high street banks.  Large banks struggle to keep their cost structures low in comparison to niche organisations and this is reflected in the cost of services such as asset management. 

Adverse taxation developments in Belgium have increased the attractions of international private banks. Belgium has joined Cyprus and France in an ignominious list of jurisdictions that has resorted to retrospective tax legislation. This type of tax policy is extremely rare. It destroys confidence within the business community and the wealthy as it becomes impossible to plan for the future knowing that the local government is prepared to go into the past to change rules and dish out tax bills that could not have been foreseen prior to the goalposts being moved.

Family offices have become an increasing competitor for private banks, in particular shared family offices. Disappointing experiences with Belgium’s banks, combined with developments in technology, have been catalysts for a steady increase in the number of family and multi-family offices serving the needs of high net worth individuals looking for impartial advice, access to high quality products and transparency.

Low cost structures and solid finances are important characteristics to look for within a private bank. With pressure on revenues, many private banks are geared to push products and view clients as distribution channels.

The Markets in Financial Instruments Directive (Mifid) was introduced in 2007 to harmonise regulation for investment services across the 31 member states of the European Economic Area. The main objectives of the directive are to increase competition and consumer protection in investment services. The soon-to-be-enforced Mifid 2 will dramatically change the landscape for financial services. A clear trend is emerging towards ever greater specialisation, and the days of going to one bank for all products and services are numbered. 

Analysis of how the financial services industry has evolved in the UK provides an indication of the direction Belgium and the rest of mainland Europe are heading. Financial services and products in the UK have become more specialised and transparent. The model in much of mainland Europe – where customers are unclear about the component costs of advice, administration and investment management – has been swept away.

This has served to highlight the key role that professional financial advisers play in ensuring their clients go to the right financial institutions for the various component parts of their financial needs rather than relying on one organisation, which will inevitably be better in some areas than others. 

This article was first published in The Bulletin Newcomer, Autumn 2014