LIKE ANY SECTOR of financial services, private banking has had a tough year - perhaps tougher than most as it deals with an unforgiving market. Its target market is already grumpy: globally, wealth and the overall size of the high net worth population have shrunk below 2005 levels, according to the latest Capgemini World Wealth Report.

There are other global reports suggesting the reputation of private banks has been damaged by the crisis, with clients asking where was the proactive support and service when they needed it.

Alfred Ramasedi, MD of Nedbank Private Bank, says he doesn't need research to determine this, as the two most common gripes he's had from disgruntled clients are: their private bankers should have been more proactive in assisting them even before they got into financial difficulty, especially once clients realise the bank could have restructured loans and other facilities but never told them; and clients who regretted buying homes they couldn't afford and who subsequently said they wished they'd been put in touch with the private bank's property connections in good time to dispose of them at better prices than they eventually got from a forced sale.

"These are complaints I have to agree with and are lessons we've absorbed from the crisis," says Ramasedi.

During the good years there was fierce competition among private banks to sign up new clients, many of them barely qualifying for private banking status. Most private banks have since realised they sacrificed their service ethic in the cause of market share.

For example, Investec Private Banking head Wessel Oosthuysen says the past 18 months have been a time of "a return to basics" - primarily focusing on the level of service.

It's no surprise that the 2009 Capgemini World Wealth Report found that: "Wealthy private individuals rate service and advice as the most important value add from their financial advisers." The report goes on to say among the wealthy there's been a significant drop in the levels of trust with respect to both industry advisers and the financial system's regulatory bodies over the past year.

Global trends in the 2009 report showed 46% of high net worth individuals had "lost trust in their primary adviser" and an equal percentage in their wealth management firm. Their misgivings went further. The report says 78% were found to have lost trust in the financial system's regulatory bodies, which were supposed to help guard against the type of staggering market and corporate losses that occurred during the year.

This year's PricewaterhouseCoopers Global Private Banking and Wealth Management Survey - which involved 240 private banks and wealth managers, including some in South Africa - found that after several years of accelerating growth, the economic crisis had brought wealth management's expansion to a halt. The report said: "Placing clients at the centre of the business model, providing objective advice and possessing a strong, trustworthy brand were vital for success."

Trusted advice had returned as a key phrase.

SA's private banks and private wealth managers say the crisis hasn't affected them to anywhere near the same degree. For example, Paul Finlayson, CEO of BoE Private Clients, says: "It's interesting to note South African wealth advisers seem not to have been tarred with the same brush as some of their global counterparts, who have clearly lost a great deal of the trust of their clients during the economic crisis of the past year."

Emilio Pera, lead partner at Ernst & Young Financial Services, says the SA market tends to focus more on the "affluent" market as a feeding ground for private banking.

In fact, most banks had taken their high net worth (HNW) clients out of their private banking business and into their wealth management sector, crystallising the difference. "It makes sense, because HNW individuals have different needs from the affluent, who in most cases are still accumulating wealth, and whose needs are more towards gearing than wealth management," says Pera.

The skills set are also very different and it was Investec that set the mould 15 years ago. It began by targeting the professional market, locking in those people initially through loans, and ultimately managing the wealth they built. Investec was also one of the first to employ chartered accountants as private bankers, recognising the need to have more informed people to advise their fellow professionals on their wealth management needs.

The other banks all followed suit, cherry-picking their more affluent retail customers and inviting them to join the private bank, sometimes doing so fairly indiscriminately to make the operation more commercially viable. Many of those new clients simply wanted loans and in many cases they just wanted the best rate. Before the credit crisis, clients could negotiate favourable rates and Ramasedi says the result was many of those new accounts weren't really viable and certainly not viable when the economy turned and clients couldn't afford to service their loans because they were over-geared.

Nedbank Private Bank has 60 000 clients, and Ramasedi says it became evident during the recession the same level of service couldn't be offered them all. He says clients who had only a single product with Nedbank were instead removed from having a dedicated private banker and instead deal with a "desk".

Bumping clients to a call centre enables the bank to increase the ratio of private bankers to profitable clients, which Pera says is the fundamental core of private banking. The richer you are, the lower the client/private banker ratio. Pera says private banks would "definitely" have been under stress during the financial crisis and market volatility. "It forms part of retail banking and hasn't been immune to the strain being felt in the broader banking sector," he says.

Statistics aren't readily available for the SA market because so many clients in the target market are multi-banked and double counted. However, Pera says due to the combined effect of the recession, market volatility, lower property valuations and paper-based black empowerment deals being "out of the money" the market has undoubtedly shrunk.

Oosthuysen and Ramasedi both see a turnaround based on improving cash flows. Both say they're seeing clients beginning to make acquisitions and do deals based on unlocking new value rather than restructuring old transactions.

Pera agrees: "Economically, we won't see a quick recovery. But the top end of the income bracket will rebound quicker than the average as cash flow improves. But for those facing indebtedness it will still be a slow recovery."

One area where SA still differs from more mature markets is that even in the recession there was still a great deal of new money being made. Sunel Veldtman, director at BJM Private Clients, says BJM has continued to attract increasing inflows over the past 18 months, not only from new money being made from business ventures but "there's also a big pool of people in SA who have never had access to professional and holistic financial advice as offered by a private client or private banking operation" but simply been serviced by an insurance broker.