ZBetween golf, charity, work and vacation, a rather dry topic seems to be preoccupying high net worth private customers at the moment: the “custody fees”, also known as negative interest or credit fees, which are being charged by more and more banks. “This is an issue at the moment in a lot of customer discussions,” says Andreas Rapp, who, as head of “Private Banking” at the Stuttgart-based bank Ellwanger & Geiger, looks after wealthy private customers. “The sums that have to be paid are often not huge – but many wealthy private clients, especially here in Swabia, are concerned with the principle.”
It doesn’t bother the heirs that much
Rapp made an interesting observation: “The generation in the entrepreneurial families who built up the assets themselves is particularly bothered by the custody fees.” The heirs apparently made less of the custody fees.
The private banker has a bold thesis: What used to be tax optimization when advising wealthy clients is now the avoidance of the custody fee. “I still remember exactly when I started consulting in the early 2000s, tax optimization was an important topic that moved many wealthy clients very much,” says Rapp. “Now it is the avoidance of custody fees.” The mechanism is similar: an impulse that moves people emotionally, and a reflex to it.
However, the banker thinks that, as was the case with tax optimization back then, it is not wise to let yourself be carried away by this motive alone and then not look carefully at which investments you are putting your money in. “The escape from the custody fee must not be the main reason why someone switches from secure liquidity to shares,” says Rapp. In any case, it is not wise to shift huge amounts from the account into shares in one go. After all, many are highly valued, some of the indices are even at all-time highs: “It is wiser to take the time to develop a strategy and then invest in stocks over a period of twelve to 24 months.”
According to Rapp’s words, the private bank Ellwanger & Geiger benefits from the fact that other banks are introducing negative interest rates, but cannot completely avoid such regulations. You try to solve this as individually as possible with each customer – a small private bank could do this more easily than a mass institute.
When it comes to strategies for evading custody fees, the banker does not consider all strategies to be equally good. In a recent survey, almost one in two people said they would switch banks if they introduced negative interest rates. “This strategy has its limits. If I switch to a bank that has a limit for negative interest of 100,000 euros, and it then lowers it to 50,000 euros, I’m affected again with an amount above that, ”he says. “Interest hoppers” have already existed with positive interest rates – they also exist now with negative interest rates. But these are mostly not the really wealthy customers.
The very rich are also affected
Rapp does not think the strategy of dividing the money between several banks is bad. It is a good idea to talk to your bank first. There is often an internal bank solution, especially for wealthy customers. “But being with two or three banks is not bad for wealthy customers – then you can also see which bank has which ideas.”
Storing cash in a safe and insuring it, as some large banks do, is not yet worthwhile for most private customers, says Rapp. Storing it at home is too dangerous anyway. “The costs for professional storage are close to the 0.5 percent custody fee,” claims the banker. “If interest rates drop even further into the red, it could be worth it.” Banks that did this with their money often had hundreds of millions of euros stored in cash. Then it’s worth it.
Rapp says he could well imagine that the allowances for negative interest rates would be further reduced. When the first three banks introduced negative interest rates, there was still a great outcry in the media. Back then, no bank wanted to be angry. In the meantime, however, people have become so used to the development that it no longer makes much difference in terms of image for a bank to reduce the tax allowance from 100,000 to 50,000 euros, for example – or even further.
Even the very rich often find it difficult to avoid negative interest rates, says Rapp. Depending on how you used to invest your money: “If someone has 20 million euros in his bank, but 15 million of them are invested in securities, it will not be the problem to keep the remaining 5 million in the account without negative interest”, says Rapp. “But if someone has the whole 20 million in the account, the bank has some pressure to charge a custody fee for it.”