Private banks are pushing up their profit margins, according to management consultant McKinsey & Co.

Fees as a percentage of assets rose from 94 basis points to 100 last year, significantly higher than fees charged to institutional customers, among the 68 banks surveyed. Profit margins as a percentage of turnover last year was 37%, representing a growth rate double that of retail banking, which has higher capital requirements. Loans to wealthy individuals represent between 10% and 20% of turnover. The lion's share of private bank revenue came from asset management and advisory work. McKinsey believes wealth management will continue to enjoy superior growth prospects as economies flourish and a few families capture a disproportionate amount of new wealth generated. Frederic Vandenberghe, leader of KcKinsey European private banking practice, said: "Private banking remains a highly attractive business with huge potential." The survey pointed out private banks have captured only half the financial assets owned by high net worth individuals. It said: "Far from fearing market saturation, we see a significant unmet demand." But McKinsey added some private banks are more effective than others. Profitability at the top quartile of private banks it analysed was nearly five times higher than the bottom quartile. This resulted from the fact some banks are in a better position to offer products, such as hedge funds, which generate high fees. There is also a wide variation in the quality of advisers employed. According to McKinsey: "Many players need to question their hiring, retention and development strategies as the quality of relationship managers is an important differentiator between private banks."