What is private banking?
Private banking is a service often used by high-net-worth individuals allowing them to receive personalized care from a retail bank or financial institution. Private banking services cater to the needs of wealthy and high-net-worth persons.
Clients may work with a single representative or a team of financial advisors to receive expert information on a matter of financial subjects. Private banking offers clients a range of services allowing them to manage their wealth. It is a one-stop shop for high-net-worth individuals seeking to have everything they need under one roof when it comes to their finances. Some of the wealth management services available include investing in stocks, management of investment portfolios, tax services, insurance, and trust and estate planning.
Retail banks and financial institutions of all sizes provide customers of all financial levels the chance to use private banking. Oftentimes, it is only high-net-worth individuals who take advantage of private banking to manage their wealth.
How do private banks work?
Private banking offers the usual services that most financial institutions provide. The difference between regular banking and private banking is that the checking and savings accounts services are much more personalized to the individual’s needs. A client will be assigned a “private banker” or “relationship manager” to handle all of their needs. Some of the tasks the private banker will handle include paying bills or arranging mortgages.
More in-depth services provided by private bankers include:
- Investment strategy
- Financial planning advice
- Strategic wealth preservation
- Portfolio management
- Hedge fund investing
- Customized financing options
- Retirement planning
- Penny stocks and shares
- Passing wealth on to future generations
- Exclusive credit cards
Private banking typically works with high-net-worth individuals with over six-figures of asset worth. Other financial institutes only work with clients with a minimum of $1 million to invest.
Advantages of private banking
Clients receive a number of advantages when they use private banking. As banking as become more automated and digitalized, private banking allows clients to speak with a person that has expertise on financial matters. Having a private banker to speak with is not the only reason clients work with these financial institutions.
Other advantages to private banking include:
- Privacy – A clients’ services and dealings can remain anonymous when working with a private bank. Services and products are kept confidential as private banking institutes want to keep competitors from discovering their financial offerings.
- Preferential pricing – Clients may receive discounted prices on financial services and products. They may also receive special terms or interest rates on products.
- Alternative investments – Clients will receive an extensive range of opportunities to make investments through private bankers. There are also a wide range of resources provided to clients to use allowing them to manage their money smarter.
- One-stop shop – One of the most significant reason high-net-worth individuals use private banking services is due to them being a one-stop shop of financial products and services. Clients can find everything they need under one roof. A client will receive enhanced services from their expert handler who works as a liaison with other departments within the same financial institution.
- Assets and Fees for Banks – Private banks compete to get high-net-worth individuals under their umbrella. A client’s financial might is added to the private bank’s assets under management.
- Personal attention – Clients using private banking love the personal attention they receive. The more wealth that an individual possesses, the more white-glove approach they receive.
Disadvantages of private banking?
Although there are a number of great advantages to private banks, there are some disadvantages to using the financial services provided.
These disadvantages to private banking may include:
- Bank employee changes – Banks regardless of their size often have employee turnover and changes. Loyalty can also be called into question of private bankers as they are compensated by the financial institution rather than the client. Therefore, the products offered and sold could be in the financial institution’s best interests and not the client’s.
- Low number of investment options – Private bank groups may only offer a client their proprietary services rather than a range of investment services. Some smaller financial institutions may not offer the same expert knowledge as larger organizations.
- Bank regulations – Since 2008 when the financial crisis gripped the world, private banks have been under increased regulations. Licensing requirements are now higher and there is more transparency and accountability in the private banking sector. In many ways, this is also an advantage now.
Private Banking in the real world
There are a number of financial institutions that provide high-quality private bank services. Financial institutions such as UBS, Merrill Lynch, Wells Fargo, Morgan Stanley, Citibank, and Credit Suisse all provide private banking to clients.