Private banking is the collective term for all the specialized financial services a bank reserves solely for its high-net-worth (HNW) customers.
Private banking is the collective term for all the specialized financial services a bank reserves solely for its high-net-worth (HNW) customers. These “services” range from wealth management services and estate planning to a dedicated account manager and favored interest rates on accounts.
Definition and Examples of Private Banking
Private banking refer to the special privileges and benefits afforded to affluent customers by a bank, which may be a private bank or the private banking part of a sizable retail bank.
HNW clients may be private individuals, corporate executives, or foundations. The services that are typically offered to them include the following:
- a committed customer support group.
- banking services with a personal touch.
- preferred rates of interest for loans and bank accounts.
- further restrictions on internet payments, transfers, and ATM withdrawals.
- Discounts on the purchase of foreign currency.
- Special funding is available for residences, businesses, artwork, airplanes, sports, and events.
- individual credit solutions.
- management of investments.
- Treasury administration.
- tax preparation.
- childcare services.
- Advisory services for family offices and law businesses.
- Planning for money and trust.
- Grantmaking and charitable giving.
For instance, you are regarded as a Citigold Private Client if you have at least $1,000,000 in combined deposit, retirement, and investment accounts with Citibank. With this status, you’ll have access to a dedicated relationship manager and wealth advisor, as well as 24-hour support, waived bank fees, sophisticated wealth planning, and even exclusive access to events and Citigold lounges across the world when you travel.
How Private Banking Works
Private banking can be compared to courting. Banks want their wealthiest customers to continue doing business with them so they can increase their AUM (assets under management) and profit. In exchange, the banks place a strong emphasis on fostering connections with these clients by bestowing upon them particular benefits, discounts, and instruments to assist in streamlining their somewhat complex holdings.
While the average person might only have a basic checking or savings account with their bank, wealthier consumers have whole other banking needs. These individuals might be served by a devoted account manager (or team of managers) who is well-versed in their accounts, personal circumstances, and overall financial condition. This person serves as the client’s point of contact, assisting with bank account transactions and other required wealth management services.
Your account manager will even collaborate with any existing financial advisors you may have to make managing your wealth as simple as feasible.
Requirements for Private Banking
Every institution has specific minimum standards for private banking. Large organizations frequently offer tiers of services, where paying more grants you access to more opulent extras.
J.P. Morgan Chase & Co., for instance, has several levels of private banking. Chase Private Client, its lowest category, is only available to customers with investable assets and account balances at Chase totaling at least $150,000.
Customers of the J.P. Morgan private bank must have assets of at least $10 million. Custom financial planning, counseling based on financial goals, cross-border wealth advisory, and other benefits are provided to its wealthy clientele.
J.P. Morgan Private Bank was voted the top private bank for ultra-high-net-worth clients (those with $30 million to $250 million in assets) and mega-high-net-worth clients (those with more than $250 million in assets) in the 2020 Euromoney Private Banking and Wealth Management Survey.
To join the TD Wealth Private Client Group at TD Bank, you must have investable assets totaling at least $750,000. (its private banking arm). By doing this, you gain access to a neighborhood relationship manager, discounts on investment costs, and extensive wealth management services to aid in your long-term planning.
Pros and Cons of Private Banking
- Under one roof, all of your financial services
- Responsible account manager
- Extra bonuses and perks
- Account managers change frequently
- Potential for greater fees
- Recognize potential conflicts of interest
- Under one roof, all of your financial services: Your bank becomes your “one stop shop” for all of your financial needs when you use private banking. Additionally, if you already have a group of seasoned financial experts you can rely on, your bank will collaborate with them as well.
- Responsible account manager: Delete the memories of spending hours on the phone with customer support or interacting with a different teller each time you visit your neighborhood bank. With private banking, you have direct contact with an account manager who is well-versed in your circumstances.
- Extra bonuses and perks: You will receive priority customer care, greater interest rates on deposits, lower interest rates on loans, higher transfer limits, personalized lending options, and more as a client of private banking.
- Account managers change frequently: Employees in the private banking sector have higher levels of stress than those in other sectors, according to a 2017 study on work-related stress in the banking industry. You could have to decide whether to hire a new manager at your existing bank or to follow your current manager to their new job if your account manager decides to leave.
- Potential for greater fees: If you no longer fulfill the minimum requirements, you can have to pay extra for private banking services—or even lose them entirely. Chase Private Client, for instance, levies a $35 monthly fee if your balance falls below $150,000. 7 It’s vital to compare prices before making any commitments because you can end yourself paying more for wealth management fees.
- Recognize potential conflicts of interest: Your allocated advisor or account manager is ultimately an employee of the bank, not of you. Because of this, they might be required to promote proprietary products or satisfy quotas, even if doing so is not in your best interests.
Private Banking vs. Wealth Management
Consider wealth management as a piece of private banking, rather than the entire pie. It comprises up a portion, but not all, of the services provided by a bank’s private banking section.
Solutions for managing wealth often include broad financial services like investment management, portfolio analysis, tax preparation, and estate planning.
These benefits are included in private banking as well, but it also includes regular banking benefits like special interest rates on checking and savings accounts, discounts on loans, bill-pay services, and more.
|Private Banking||Wealth Management|
|Typically only offered by a bank||Can be offered by a bank, brokerage firm, wealth management firm, or another institution|
|Includes wealth management services as well as other day-to-day banking perks and benefits||Doesn’t include day-to-day banking perks and benefits|
- High-net-worth clients who want to handle all facets of their wealth in one location might take use of private banking services provided by banks.
- Private banking offers customized financial services like a personal account manager, increased transfer limits, and preferential interest rates. It also offers wealth management options like investment management, estate planning, and charitable giving.
- If you are a high-net-worth client who would profit from the variety of services available, private banking might be worthwhile.
- Depending on the institution, a minimum net worth of $1 million or more may be required, while others may only accept applicants with assets in the six figures.