When examining the investment possibilities typically offered to Private Banking customers and after analyzing more than 200 different investment portfolios, we have discovered three typical mistakes that Private Banking customers often make. These three typical mistakes relate to costs, portfolio composition and too many of the bank’s own products.

In this article, you can read about what this means for you as a Private Banking customer. 

Mistake no. 1: The accumulated costs are too high  

The average accumulated annual costs for Private Banking customers are more than 1,5% according to our data and the actual cost is most likely a bit higher. It would be obvious to believe that the more engaged a client, the better terms regarding i.e. product costs. However, according to our data, this is not true. As it turns out, Private Banking customers barely benefit from economies of scale in terms of lower product costs. Therefore, make sure to check if you benefit from economies of scale in your setup. 

Mistake no. 2: Too many of the bank’s own products 

When looking at Private Banking customers’ portfolios, we see a clear tendency that customers have a large share of the bank’s own investment products in their portfolios. No less than 93% of the Private Banking customers from our data set have more than 80% of their primary bank connections’ products in their portfolio. Furthermore, it is also quite unusual that banks distribute products that are not their own. 

Often, the advisors in the banks are measured by their ability to sell the bank’s own products. This means that Private Banking customers typically are not presented for investment options that are not the bank’s. As a result of this, Private Banking customers miss out on advantages like better annual returns, lower costs and better risk-adjustments, since no bank has the best investment option within all categories.

Mistake no. 3: Too small a part of alternative investments – or no part at all

The number of alternative investments in the portfolios of Private Banking customers is often very low. According to our data less than 3% have allocated for alternative investments. 

From a portfolio-based point of view, this number should be a lot higher due to the low correlation between alternative investments and the stock market, meaning that alternative investments have a stabilizing effect on the portfolio.

This especially becomes apparent when looking at 2022, where most investors experienced significant negative annual returns from the stock and bond market. If you had a balanced portfolio in a mix of only bonds and stocks you would have experienced a loss between 10-15%. However, investors in Selected Alternatives received an annual return of 6,8%, thus experiencing a stabilizing effect on their portfolio. 

At Selected Group, we recommend that 25% of your assets are invested in alternative investments, offering Private Banking customers a stabilizing element in their portfolio and a better risk-adjusted annual return. 

What does your current portfolio look like? Can you recognize any of the above issues? Are you curious to know how your current setup can be elevated?

Would you like an impartial analysis of your portfolio to see how it can be improved? Then don’t hesitate to reach out to us by phone or mail for a non-binding talk about your investment setup.