So you’ve just sold those Facebook shares that your high school buddy, Mark Zuckerberg, let you buy years before it went public, and you’ve made an after-tax profit of $4m. You’re feeling very, very rich.
Until, that is, you talk to a private bank that specializes in managing money for rich people. That’s when you realize that you’re nothing more than a “single-digit millionaire”. You’re just not that special.
In fact, the rate at which the ranks of millionaires is expanding is so great, you’re actually pretty boring. Last year alone, the US welcomed 300,000 new millionaires: that translates into a growth rate of 3%, outpacing the growth in the US gross domestic product.
In fact, there are now so many millionaires out there that the private banking system simply can’t cope.
JP Morgan Chase’s private bank has been raising the minimum amount of assets you need to become of its clients slowly and steadily for many years. Early this year, it announced that the minimum asset level to remain a private banking customer would double from $5m to $10m. When that takes effect early next year, about 10% of the bank’s customers could be shuffled off to a less deluxe service, Private Client Direct. While a private banker might work with only 20 or so people, those working with “single digit millionaires” might have 100 clients – meaning that every one of them gets much less of their adviser’s time and attention.
JP Morgan’s move was partly aimed at convincing clients to shift any assets they might be stubbornly holding at other banks, bringing them up above the $10m threshold. But it’s also a recognition that with the proliferation of millionaires, the private banks that you’ve heard about – the ones that will walk your dog, deliver gold bars with your monogram stamped into them and provide “wealth therapy” so your children don’t grow up entitled brats – can pick and choose the clients that they deal with.
A sign of just how ruthless they have become is that JP Morgan’s new rule even applies to the corporate lawyers with whom its investment bankers work closely on big deals. Until now, access to private banking programs have been among the perks offered to lawyers at firms like Skadden Arps, Slate, Meagher & Flom; now, the word is that they too will be shut out from this special treatment (and the access to hedge fund investments and other products and events that only the super-elite can tap into). Imagine how the poor lawyer who does a deal for a Silicon Valley billionaire must feel: he’s negotiating with the very bankers who have thrown him out of their private club, on behalf of a client who is welcome to join it.
If you don’t feel much empathy for that hypothetical lawyer, worth millions, just because he can’t qualify for super-special treatment from banks, I don’t blame you. The fact is that as banks scramble to emphasize with wealthier clients, it comes at the expense of serving the rest of their clientele.
JP Morgan’s private clients might feel offended at being demoted. On the other hand, those of us who merely toil for our money and whose net worth hasn’t reached seven digits yet might be flattered to be invited to join Private Client Direct, a program serving the “mass affluent” that offers after-hours access, a phone number to reach a banker any time and a few special perks. (Yes, even if that also involves some heavy pressure to buy the bank’s proprietary investment products.)
But even then, we’ll need $500,000 in investments or $250,000 in deposits to qualify, and minimums for other such programs at other banks aren’t very different.
All of which brings me to an important point.
Big banks are struggling to make money. That’s why Wells Fargo’s 5,300 rank-and-file employees were “encouraged”, or at least not discouraged, to set up phony accounts in the names of existing clients, earning the bank more in fees (phew) and helping those employees hit sales targets. The bank opened 1.5m of these ghost accounts – and has paid out $185m in penalties to various regulators, including a record $100m to the Consumer Financial Protection Bureau.
It’s also why the banks want to focus on their richest clients. Investing time and money in working with those of us who may only have a few thousand dollars to put to work is a waste of their resources – in their eyes.
The problem is that as they keep conducting triage, and denying access to investment guidance to one group after another, more and more of us will end up without the ability to turn to the banks to help us manage our investments. Let’s face it, JP Morgan and other private banks can boost their investment minimums dramatically, but the incomes of most Americans are barely budging. We’re less and less likely to have the minimum level of assets that most investment counselors want to see before accepting us as a client.
Robo-advisers – the new breed of automated investment platforms that use algorithms to invest your money, taking into account factors such as age, income and risk tolerance – offer sensible alternatives. But they work best for those people who are familiar with how financial markets work. Someone who isn’t comfortable with markets, doesn’t understand the concept of an index fund, isn’t completely sure about how an asset allocation will help them, or isn’t certain about the relationship between stocks and bonds may not want to simply hand over their money to a robo-adviser and then step away.
So, big banks are in love with the billionaires who generate the bulk of their profits. Even the single-digit millionaires these days are starting to realize that they just don’t count as much as they used to. But at least if those folks make an error or two along the way, they have financial padding to cushion their fall.
The rest of us? Like everyone else, we’re increasingly underserved by the banks and the rest of the financial services industry, and our needs are growing. A third of all Americans lack any retirement savings in a 401(k) plan or other tax-deferred account. That isn’t the fault of the banks, but it’s something that the banks could help to fix by offering even basic financial education and counselling to those who don’t have balances with many, many digits. Then we’d at least feel we were getting value for the account fees we’re already paying.
As it is, if I were a single-digit millionaire tossed out of the “paradise” of private banking, I’d walk away from that bank altogether. They don’t want me? Heck, I don’t want them either. There are plenty of independent financial advisers out there who – unlike the banks – aren’t intent on making more money flogging their own proprietary investment products. Instead, they vow to put their clients’ financial interests before their own, come what may. Try one of those instead.
For the rest of us? Well, we can keep demanding better financial education, however and whenever possible. And that the banks at least try to employ a better-functioning moral barometer.