To make a long story short, after cashing out my investments recently, I am sitting on an amount of cash that qualifies me to be a premier/priority banking client in Singapore.

Now, I know that premier/priority banking is just a poor man’s version of the true private banking, which is still in the future for me. Not now. But I’d be lying if I said that I wasn’t at least a bit excited though.

I mean, hey, imagine not having to queue with 745 other people in front of me everytime I need to go to a bank! Imagine getting “personalized attention” thing from this “dedicated Relationship Manager” person! Imagine having a limousine fetching you from Changi airport to your home! (That last one is not there anymore.)

Sounds good, no?

Well… unfortunately, my experience with a few of the local banks that offer premier/priority banking turned out to be frustrating, humbling, and eye-opening, all at the same time.

In the grand scheme of things

They must've learned from this guy.

First of all, there are the Relationship Managers. My first impressions of those premier banking Relationship Managers (RMs) were terrible.

They are horrible, horrible listeners! Not a single one of them stopped for even a second to listen and understand what I need from them. Instead, throughout the whole discussions they were just aggressively trying to sell me products. It never felt like I was having a discussion. The whole conversation was just sales pitch after sales pitch after sales pitch after sales pitch after sales pitch.

It was disappointing, really. I get better service from the tellers whom I see in my usual, decidedly non-premier, regular banking.

It made me wonder, really. Aren’t premier banking RMs supposed to give you better service than this? Isn’t the service you get here supposed to be way above what you get from the POSB tellers?

Then it dawned on me. In the grand scheme of things, SGD200k might be a big amount for you (it certainly is a big amount for me!). But in the world of premier banking, SGD200k is just an entry level, minimum amount, that puts you at the very bottom of the premier banking ladder.

Now that explains a lot of things, doesn’t it? No wonder I get better service from the non-premier banking people! I was a reasonably-sized fish in the normal, non-premier pond. But in the premier banking pond, I am just one ikan bilis among the halibuts and the salmons swimming in this pond. Coming in at SGD200k, I am literally the poorest client they have! No wonder those RMs didn’t even bother to pretend that they care!

5m10y: "Premier Anchovy"

I’m guessing here, that those people who’ve just barely made it into the private banking pond are getting the same bottom-of-the-barrel treatment as well in the private pond. (Of course I might be wrong here–I’ll write about it in this blog when I’ve become a millionaire a few years from now.)

But back to premier banking. So what’s so special about it? If the only thing you get from becoming a premier banking customer is more sales calls, why bother at all?

Well, the other things that premier banking is supposed to give you are: (a) preferential rates, and (b) access to products that “normal” banking customers don’t have access to, and (c) lifestyle privileges.

Let’s see how big of a deal these things are.

Preferential victims

Preferential rates. The word preferential is supposed to make you feel warm and fuzzy inside. After working hard for all those years, now, after all, you are a preferred person. Ahhh… that feels good doesn’t it?

Naw, sorry. Preferential rates, if my discussions with the premier RMs are any indicators, really mean that they prefer to screw you than other people.

Preferential? Why don't you kiss my... my potato!

Consider the deal I was offered, to buy a certain ETF with the “special rate commission” of only 0.5%. So if I buy USD100k, the commission is USD500. Quite small, isn’t it? Until you realize that in optionsxpress, you can get the same thing for USD68, and don’t even get me started on Interactive Brokers–those guys will only take around USD20.

Those dual currency deposit that they do is equally bad too. You’re basically selling a put option cheaply to them, quite a lot cheaper than what they could get from the market, and they’re still quote you a spot rate that is quite far from what they can get from the market. Here’s a very good post about this by icecold1967.

These preferential rates can vary widely from bank to bank too. At one point I got two offers for exactly the same product, same terms, and the interest for one offer is 20% higher than the other (close to 8% vs. 6+%, if I remember correctly).

Preferential? Not very much so, I’m afraid.

How about those special products nobody else can have access to?

Early in 2008, I met up with my (now ex) financial advisor, who was “VERY excited” because she was able to “get me special access to products which, until recently, were only accessible to accredited investors“. The only condition was that I had to put in at least SGD50k, and the commission was way heftier than what I had been used to pay.

I rejected it right there and then. In my experience, this kind of deal is almost always a rip off, especially for the little people. The price you’re paying is almost never worth whatever it is you’re supposed to get from those special, otherwise inaccessible things. Lucky me. If I had gone with that special deal of hers, I would have lost much, much more, than just exorbitant commissions.

Look, here’s the thing, kay? There are certainly products that only certain people can have access to. And it is true that some of those products are better. People like Warren Buffett, for example, get a lot better deal when he invests in a company. Way better deal than what regular investors like me can ever hope to get.

Hitting the high notes: not for DBS customers.

But products aren’t automatically better for you and me just because normally they are inaccessible to us! For instance, don’t you feel a bit lucky if you’re not one of the richer people who would have qualified to invest with Bernard Madoff, unlike this Singapore-based gentleman?

And of course, those of us in Singapore is very familiar with DBS High Notes, again one of those special products offered by these Relationship Managers to DBS’s wealthier clients–which, unfortunately, includes older people who don’t know anything about credit linked notes too.

All I’m saying is, drop the notion that just because something is inaccessible to us it is automatically better than the readily available options.

Sometimes, you’ll get screwed more, for less return. No good.

Lifestyle Privileges

Honestly, for my personality, among the “benefits” of premier banking, this is probably the most useless one. You’re not helping me one bit by giving me 5% discount if I spend 1000 dollars in some overpriced spa. Duh. Discount my bill by 20%, then we’ll talk. Okay?

Will I still go for priority banking?

Yes. But I’m not going all starry-eyed about this. I’m going in after comparing all the features, perks, and convenience that different banks can offer me. And when it comes to actually buying products, I will shop for the best deals, even if it means taking money off my balance with the bank and losing my “premier” status.

The only way those RMs can get commission out of me is if they have something that I really want, at a price that can’t be beaten anywhere else. Nobody can manage your money better than yourself! Only you are interested in you–your RM doesn’t give a damn about you! You shouldn’t give a damn about them either–just use whatever service and help they can give you. Now to me, that’s what this whole premier/priority banking is all about.

UPDATE (17 March, 2009): and be sure to read this article about private banking, written by my favourite author Doc Money. That article has convinced me even more that once I’ve reached the private banking level, I’ll be sorely disappointed again.

(Images courtesy of rick @ flickr, the US Federal Government, Decadent @ flickr, and daveiam @ flickr in the order of appearance.)

Let’s see how we’d do if we had followed Fortune’s list of “best” stocks for 2008, early in 2008. Here are their 2008 recommendations (if you can’t see the spreadsheet below, please go here):

The crowning recommendation in this list is definitely, without doubt, Merrill Lynch. Just to remind you again of what Fortune said about Merrill:

Question: What do you call it when an $8 billion asset writedown translates into a $30 billion loss in market cap? Answer: an overreaction. Yes, Merrill’s shares deserved a punishment for the firm’s mortgage-related bungling. But the public flogging has far exceeded the transgression, which is why smart investors should buy this stock before everyone else comes to their senses.

Daaaammn. Luckily I wasn’t smart according to Fortune!

Honestly though, I didn’t buy Merrill not because I was smart or better informed than Fortune. I didn’t buy MER because I already work in a bank, and investing in another bank’s stock is just too many eggs in one basket for me. (I, for one, will NEVER buy the stock of the company I work for, unless it’s part of my compensation. Not diversified enough for my taste.)

But anyway. The point I’m trying to make here is that, 2008 has proven to us that the smartest guys with the smartest bunch of people working for them can be totally, irrefutably, horribly wrong. People are even starting to ask whether our most basic assumptions about stocks are no longer valid. What the Fortune magazine is recommending is not necessarily any better than what we can come up with a reasonable amount of homework ourselves.

So I’d say, trust yourself. Hold on to your money. Invest carefully, only after doing your own homework. And Merry Christmas! Here’s to a better 2009 ahead

(Image courtesy of Jeff Kubina @ flickr.)

Bad attempts at making jokes aside–the fact is a lot of people have tons of shares that have gone south, and I don’t see some of them recovering for a long time, maybe many, many years, even. 

So what do you do with those stocks that are sitting in your account looking ain’t so pretty no more? You feel reasonably confident they won’t go down too much anymore, so you want to hold on to them, but at the same time your money is stuck there and as long as the price is not moving up, you’re not making any money off your money. What to do with them?

Selling covered call options is one of the answers.

Examples

So let’s say you have been watching Cisco Systems’ shares for sometime. You thought that $17 would be a good price, so when it hit $17 you bought 1000 shares for $17k. Alas, it went down all the way to 14+ and at the time of this writing is trading at 15+. But at the same time you think it’s probably not gonna hit $13, and it’ll probably go up to $20 in a few months, so you decided to wait it out. 

Selling covered calls can make you extra money while waiting for the stocks to go up. Let’s say you think the shares would go to 20 within 6 months, giving you $3 profit per share. Instead of just waiting passively, you can sell 10 call options that expire in April 2009 with a strike price of $20 (last time I checked such an option costs $90). Here’s what’ll happen:

1. For selling 10 call options, you pocket 10 x $90 = $900 minus commission.
2. If at any time before April 2009 CSCO goes above $20, then your 1000 shares get sold for $20, giving you the $3k profit you wanted. Only this time instead of $3k you get a total of $3.9k, because you got $900 for selling those options.
3. If CSCO never touches $20 until April 2009, the options you sold expired worthless. You’re either losing or making money depending on whether CSCO goes below or above $17. But the fact remains that you still pocket the $900 you get from selling those options.

After April 2009, you’re free to do whatever you want. You can decide to sell the shares, or you can sell more options, even. 

The risks

This strategy is best employed when you have a bunch of stocks that you want to keep because you think they have good prospects, but you don’t see them moving up that much in the near future.  

How about the risks? Well, if somehow CSCO plunges to $10, then you’re obviously losing even more money than what selling the options has earned you. But whether you’ve sold the options or not, if CSCO goes down to $10 you’re losing money anyway. The difference is that if you haven’t sold any options, you can sell the shares anytime. 

The other possibility is that CSCO shoots up to $30, but thanks to the options you can only sell your shares at $20. (Of course, nothing is stopping you from buying more CSCO and riding the move up to $30, but we’re talking about our original investment here.)

(Images courtesy of jpctalbot @ flickr and ericcastro @ flickr, in the order of appearance.)

So amazing, isn’t it? Before I joined an investment bank myself, I thought that people in there were all super savvy with their money, managed their finances wisely, diversified properly, allocated their assets intelligently, etc., etc., etc. 

But as soon as I became one of them, I realized something: people who work in banks, even senior level people, can be so depressingly, frighteningly, frustratingly CLUELESS when it comes to managing their own finances. 

“Diversification”? David? Mr. Shorr? Senior VP? Wealth Adviser? Heard of that word before? “Diversification”?

Geez.