For Small Businesses, Contractors and Investors there can be hidden costs to being managed in Business Banking.
If you have a complex business then a Business Banking Relationship Manager might make sense – not that you have any choice!
However, if you’re not really a business (i.e. an IT Contractor or a Property Investor) then being forced into Business Banking can come at a real cost without adding any value back to you.
How did I end up in Business Banking?
Banks have put a lot of effort into Business Banking to drive profit growth. If you have unwittingly found yourself in Business Banking you will be guilty of having a P&L, a bank account in a company name, or a GST number.
If you are a small business then chances are you were directly marketed to with a letter introducing your new “relationship manager” and chances are you have since received a similar letter every 12 months or so as your relationship manager changes! Maybe you’ve meet your Business Banker once or twice. If only real relationships were that easy!
Your relationship manager is measured on profit contribution from their clients. That’s fine if they focus on adding value to your business, but what happens when you don’t really have a business? How do they add value then? Conceivably they don’t!
What Cost?
We’ve consistently noticed that Home Buyers and Investors that are managed in Business Banking get worse deals than those managed in the retail consumer bank. That’s possibly understandable if you look and smell like a business. You pay more for getting more. At least in theory!
But it simply isn’t right for Contractors and Property Investors with PAYE or regular contractor income. The “cost” shows up in the form of less negotiating power, so might not be obvious. You end up paying an extra 0.10%-0.20% above discounts available to retail clients, as well as miss out on promotional offers, and pay more fees.
Are you getting value-for-money?
One way to avoid this pitfall is split your business and personal relationships across banks. If you can, it makes sense to keep your personal and business affairs separate.
Another way to keep out of Business Banking is for us to use IRD personal tax summaries instead of financial accounts where the accounts only reflect contractor income.
