Not everyone has the necessary wealth to access private banking. But for those who do, it augments and streamlines services for clients, offers exclusive perks and refers them to financial professionals who can address specific needs. Private banking is more customized and personalized than traditional banking, but only for high-income earners. Let’s break down how it works.
A financial advisor can offer high-net-worth clients wealth management and tax planning, among other services.
What Is Private Banking?
Private banking refers to individualized services that financial institutions offer wealthier customers. With private banking, customers work with an assigned employee often known as a private banker or relationship manager. To streamline their services, the private banker develops a thorough knowledge of the client’s financial situation. You’ll receive tailored assistance from the employee for all their needs, from wire transfers to accessing personalized financing.
Aside from typical banking, like using a checking account, clients can often access help with investing, taxes, estate planning, and insurance. In addition, most banks offer private banking. Names like “wealth management” or “private banking” indicate the specialized unit of the bank that takes care of customers with high net worth.
Typically, banks require clients to bring a certain amount of funds or assets to the table to access private banking. For example, some banks require clients to have $100,000 or more, while others only offer private banking to clients who are ready to invest at least $1 million.
Banks usually impose minimum balance standards for private bank accounts. However, they may waive the minimums if the customer brings along sizable investments as well. Additionally, financial institutions will often work with children of wealthy individuals because of the assets they stand to inherit. One last concession to the eligibility requirements is for someone with a career that is likely to build sufficient wealth in the near future.
Wealth Management vs. Private Banking
Private banking involves banking services, such as using checking and savings accounts, a safe deposit box, and financing tools. Conversely, wealth management refers to an array of financial services. Since many banks offer wealth management, their private banking clients also have access to these perks.
Wealth management puts clients in contact with tax professionals, estate planning experts, insurance specialists, and asset managers. As a result, banks offering wealth management and private banking allow their clients to receive help with all their financial needs at one institution.
Pros of Private Banking
Clients who can access private banking will likely experience six common advantages:
A devoted bank employee managing the account. Private banking customers work with an assigned person or team when they need financial services. Whether transferring funds or conducting a business transaction, clients receive efficient help from employees who understand the specifics or preferences unique to the situation.
The power to meet with various financial experts. When you discuss your needs with your private banker, they will be able to recommend other professionals who specialize in the area you’re concerned with. For example, a referral to an estate lawyer or business advisor can open a path to a professional you can feel confident in.
Discounts and special rates. Since banks constantly compete for the business of high net-worth individuals, they usually offer reduced fees and interest rates on loans and mortgages. In addition, they might bump up interest rates on private banking savings accounts or provide better exchange rates for transactions involving international currency.
Business help. You can further consolidate your financial activity by running the financial side of your business through the same institution where you receive private banking services. Doing so can grant you access to exclusive business loans and deals.
Privacy. As the name suggests, private banking keeps your transactions and business confidential. This perk allows wealthy individuals to retain their freedom and enables banks to solve problems in unique ways without worrying about other banks imitating their methods to poach clients.
Individualized problem-solving. Your bank might also offer you services outside of the financial area. For example, your private banker may help you with event coordination or preparations for an extended trip.
Cons of Private Banking
While private banking can be valuable for high net-worth individuals, it can have three notable downsides:
Personnel changes. With workers frequently moving into and out of bank jobs, you might go through several dedicated staff members. This dynamic can prevent any specific bank employee from getting to know you and your financial circumstances well, potentially nullifying one of the advantages of private banking. In addition, since your private banker doesn’t receive their paycheck directly from you, they may not have the incentive to always act in your best interest.
Excessive fees. Not all private banking services and costs are identical. On average, banks charge 1% of your investments as management fees.
Opportunity cost for earning interest. Because of the high minimum dollar requirements, you will likely have to tie up a significant chunk of your wealth into private banking. This commitment can keep you from putting your money into higher-yield accounts or investments.
Private banking can help high net-worth individuals access financial services efficiently and provide lucrative benefits such as connections with financial specialists and reduced interest rates. However, the high turnover rate at banks may prevent you from receiving the personalized service promised by private banks. Furthermore, you may experience high fees or underwhelming returns on accounts that require you to keep a high balance.
Financial Management Tips
- While private banks can provide significant advantages to people with considerable wealth, financial advisors can provide help with financial planning and investing for both high-net-worth and non-high-net-worth individuals. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Before you start working with an advisor, be sure you know how much their services will cost. Talk to your advisor about how their structure their fees and how much you can expect to pay.
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