Are Privileged Banking and Relationship Managers worth it?

I’ve been a privileged/preferred banking customer for about 2 years now. I’ve shopped around the major banks in Singapore, and have a decent understanding of their services and charges. There are slight variations, but they sell essentially the same products and services. I have spent hours chatting with relationship managers (RMs) and understanding what is the value they bring. I thought this would be a decent time to review my thoughts on these services.

So are privileged banking and RMs worth your time and money?

Privileged Banking

In order to qualify, you would need at least $250,000 of liquid assets that you can put with the bank. Most RMs would contact you once the bank detects such an amount in your accounts. Private banking is another level up and you need $5 mil to be a private banking client.

There actually aren’t much special products that privileged banking offers that you can’t get by yourself. Its the usual things like unit trusts and bonds. These can be bought by everyone on platforms like FSM or your brokerage. Sales charges for privileged banking are higher than these platforms, at 1%-2% vs 0.2% – 0.3%.

However, some banks offer complex products like Contract for Differences (CFDs), which can be personalised for you. For the life of me I couldn’t understand how CFDs worked, even after a 1 hour explanation.

There are privileges like early access to new bond issues and IPOs. I’m not very sure if this makes money, since I have not participated. I think there is a pop right after issue, which some insiders use to take a profit and get out. But there also doesn’t seem to be any discernible pattern across the board, and hence no guarantee of profits.

Insurance is also sold, with the most interesting being annuities. These give a lifetime payout to you or even your children, after paying a premium and waiting for around 5 years. I’ll like to cover my thoughts on annuities in another post. Again, this isn’t unique to privileged banking, and annuities can be found through insurance agents and even directly from the insurance company.

There are some other silly things about privileged banking that others feel good about. Things like having a well-dressed person fawn over you, priority queues, and free tea and cake. These are nice things, but it doesn’t really matter. If you invest hundreds of thousands based on these frivolities, you will be quickly exploited for maximum fees. Only judge services by how much money they make for you.

The real benefit of privileged banking to me, is the leveraging. You can borrow up to 70% on near everything, from bonds to insurance to unit trusts. This is very powerful stuff, and with some products, fairly safe. Its hard to go back and accept normal returns after experiencing leveraging. Privileged banking offers better interest rates than brokerages, at least 0.5% less.

Annuities only start to make sense with leveraging. Its not worth to buy an annuity without it, since the underlying returns are worse than CPF. Returns are low as you forgo 5 years of returns plus pay interest on the the loan. As such, the average interest rate for that period is less than 2%, including both guaranteed and non- guaranteed portions. Annuities don’t start to break-even until at least after 10 years. RMs love to sell this because of the high commission (distribution) they get. I don’t think private annuities are completely useless though, and they may serve high net-worth individuals who want to establish a very safe stream of income.

Relationship Managers

Privileged banking and a RM are worth it if you are smart and do your own due diligence. A RM is a financial adviser, but they are compensated based on the amount of products you buy, and not your actual returns. You would be a fool not to do your own homework. Its very easy to be sold products that are beyond your real risk appetite and where the returns and risks are not quite clear. I nearly bought a $1 mil annuity because it wasn’t apparent what the real returns were, till I did my own sums.

Just like everyone else, RMs have no clue about market timing. Its not a negative, and more for me to keep in mind that RMs are humans too and are making the best of the the available information. I didn’t realise this at first and got annoyed at advice given at bad timing, but I can’t blame them for it.

On the plus side, I really appreciate having someone to discuss investments and financial planning with, something I can’t do with my friends or family. I like to ask about market gossip and what other clients are doing when I meet up with my RMs.

Its also educational to learn about the different financial products out there. But exposure to many different funds and products have only reinforced my view that ETFs are the way to go. Honestly, privileged banking clients don’t get special products that make a lot of money with low risk. Everything that has a high return comes with high risk. If you somehow think you can get a high return with low risk, its because the risks are not apparent or untested. An example are REITs, where they outperformed the STI with years of steady capital and dividend returns. However, plunges of 50% – 70% were seen in the GFC and early 2020. Its not to say REITs are bad products, but most investors probably thought REITs were stable investments and didn’t expect such plunges.

Most importantly, RMs provide a service by helping me get large sums of money from the bank at the lowest interest rates possible to invest . Overall, I have made outsized returns with my RMs, that I probably couldn’t have done myself.

Conclusion

My conclusion is yes, privileged banking and RMs are worth it. Its kind of like fire, in that if you know how to use it well, it will be a great service to you. But if you blindly follow, you will get burned. I also want to say that don’t worry if you can’t reach these services yet. There really isn’t anything inherently special about the services and products sold over privileged banking. There are many other options that will offer the same risks and returns. The only real reason is for leveraging, which is not for everyone.

But for those who can tap on such services, privileged banking and a RM makes a lot of sense. The base advice they give is free and personal, and if you do it smart, you can make a lot of money.

Agree? Disagree? Let me know your own experiences in the comments.

12 comments

  1. Sorry. But my own encounters and both types are big failures.

    I show them my returns over 15 years and ask what can they do for me, they usually run away and never see again.

    1. Same experience with seberal banks. Young punks cannot convince 30Y experience in the battle field. BS most of the time when one really scrutinise the proposal. If you want to leverage, broking house do that too. $500K of shares leverage to buy another $1M of shares. This whole thing about privileged banking is to stroke human ego (weakness) and let people show off.

  2. As part of the perks moving to a new job my company offered me a fee free account with one of the very famous and “too big to fail” banks with its overseas branches.
    The account is typically available to anybody, who is willing to invest about ~ 400 K USD with the bank. I opened it up and tried three things with the bank:
    – Applied for a mortgage application.
    – Did some currency exchange.
    – Tested security features.
    Mortgage application was very exhausting – lengthy and tortures. They want to know more than average bank would ask you (for example, separate interview with your partner). The mortgage advisers would miss interview appointment at very last moment and only notify you by leaving message on the answering machine.
    The end result? Their offer was 1.7% higher than their average retail outlet. The only perceived advantage was they were ready to loan 5 times of your wages, assuming that 25% deposit. I was actually told by the mortgage adviser that as having access to the retail sector, I would be better off there.

    1. I had a similar experience. My RMs directed me to their retail side too. But I thought they would tell you the rate first before asking you to do all the forms.

      Hope you managed to refinance in the end. Rate now should be like 1.5% or less?

  3. Although availability of leveraging is important including cost of funds, another key factor to take note when selecting annuities offered by the bank or any financial institution is to check whether is your principal guaranteed throughout the term or its voluntary surrender value is a mixture of guaranteed plus non guranteed components. This is especially so when you are using leveraging funds to purchase an insurance annuities plan. The last thing you want is to redeem a voluntary surrender value that does not make up your principal which is usually comprised of your own money and bank leverage monies.

    1. Yeah I agree. Surrendering an annuity is like throwing money into fire. Besides the principal, there is also the opportunity cost to think about. I’ve thought about it quite a while and I think its best to maximise CPF LIFE to the Enhanced Retirement Sum (ERS) before even considering buying a private annuity

      1. That will depends really on your longetivity…

        Cos if you do your maths, the first 17 yrs after the first payout is taking back your own money without interest. I think FRS is a good idea but the funds necessary to park to enhance to ERS, I think there are better alternatives out there with

        1. Higher yield
        2. Flexibility in funds management
        3. Higher Liquidity

        Just that its takes time and effort to do your research…below is a list from LIA.

        https://www.lia.org.sg/about-us/member-companies/

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