What is private banking and how does it work?
Private banking offers personalized financial services for high-net-worth individuals, providing exclusive access to expert advice, investment options, and unique perks.
Summary
Private banking is for people with substantial wealth.
Private bankers offer advice, unique rates, and services.
This type of bank offers wealth management options.
Private banking pros include a dedicated representative, discounts, and higher returns.
What is private banking?
Private banking is an elite financial service that connects clients with a personal advisor to help them manage their money.
It is a financial service generally reserved for individuals with considerable wealth to manage. It can be hugely beneficial, making it easier for them to stay on top of their wealth and investments.
Private bankers are clients' first contact points when they want to speak with their bank. Instead of going to a branch and talking to a standard teller, clients can go straight to their private banker for advice.
They advise on investments and financial plans and can also offer important services that are attractive to clients because of their exclusivity.
There are certain unique rates, services, and wealth management options available to people who bank privately, like:
Access to savings and checking accounts with special features (such as high interest rates)
Lower interest rates and better terms for loans and lines of credit
Financing for luxury purchases or other services outside of the bank’s usual remit
Though these services sound attractive, they alone don’t necessarily point to private banking as the right option for you. You may benefit just as much (or more) from wealth management services.
What is an example of a private bank?
Some of the most prominent institutions offering the advantages of private banking in the US include:
Morgan Stanley
Bank of America Merrill Lynch
Citigroup
Goldman Sachs
Private banking vs. wealth management: what is the difference?
Understanding the difference between private banking and wealth management is crucial if you’re considering opening an account.
Private bankers operate more in the realm of advice.
They’re particularly useful during significant life changes or unstable market conditions because they can provide sound knowledge about investment risks. They can also explain potentially attractive options regarding borrowing needs and financial goals.
Private bankers sometimes offer wealth management services but are more focused on helping clients decide their plans and goals.
Wealth management services, however, go a little further.
Like private banking services, they’re usually reserved for high-net-worth individuals.
Wealth managers are primarily concerned with optimizing a client’s financial portfolio and managing and making the right investments on their behalf. They can also help with tax planning, estate planning, and trust administration.
You should compare options from several private banking and wealth management firms before deciding which one to use, as this will be the most reliable way to determine what best suits you.
What are the private banking minimum requirements?
Private banking minimum requirements are generally around $250,000 in investable assets, though some banks will set the bar higher than others.
Let’s take a look at some examples:
Bank of America private bank minimum requirement is $10 million.
HSBC global private bank minimum requirement is a total relationship balance of $2 million.
JP Morgan private bank minimum requirement is $10 million.
Chase private bank minimum requirement is an average beginning day balance of $150,000 or more.
Morgan Stanley private bank minimum requirement does not exist. However, account holders must maintain an average balance of at least $5,000 to avoid a $15 monthly fee. Other ways the fee can be waived include having a direct deposit of $200 or more a month or making at least 30 stock or options trades each quarter.
Wells Fargo private bank minimum requirement is a $500,000 minimum opening deposit and a minimum of $500,000 in money new to Wells Fargo.
In some cases, private banks will make exceptions. For example, if you’re the child of a high-net-worth individual, a private bank may want to show loyalty by keeping that account open for you.
Similarly, if a young professional is on a career path that will see them meet the minimum requirements in time, banks may agree to open an account before they do.
How much are private bank fees?
Fees are another thing to bear in mind if you’re considering private banking services.
Private bank fees apply and are usually charged at a specific rate of an individual’s annual income (commonly around 1%), but this rate can change between companies and clients.
If you meet the criteria and choose private banking, your bank will connect you with a personal advisor to help you manage your money. As advantageous as it can be, private banking is not suitable for everyone.
What are the advantages of private banking?
The advantages of private banking make this a highly coveted service.
Some of the main benefits include:
A dedicated representative: One of the most significant benefits of private banking is that you get consistent service from a person/team with an understanding of your financial situation. This removes the need to repeat yourself every time you go to the bank and makes it easier to carry out things like wire transfers and check deposits.
Perks and discounts: Every private banking package comes with some attractive private banking benefits, from better foreign exchange rates to other conversions for clients in particular industries. Private banking clients may also receive higher annual percentage yields on their savings accounts.
High investment returns: On average, returns from private banking investments are between 7 to 13%. Banks assign their highest-performing staff members to become clients’ private bankers, and these talented experts are well-equipped to help their clients get higher investment returns each year.
What are the disadvantages of private banking?
Meeting a private bank’s minimum requirements to open an account isn’t the only disadvantage; here are a few other drawbacks:
Impact of employee changes: Staff turnover at the bank could have an impact on you. If your private banker leaves the bank, it could cause problems and force you to make a decision you don’t want to: Do you stay with the bank and reintroduce your situation to a new banker not familiar with your financial needs, or do you move to your existing private banker’s new place of work?
Variation in expertise and intention: Small banks offering these services may claim to provide the same level of knowledge as more prominent firms but be unable to deliver. Plus, private bankers might not have specialist expertise in the area you need them to. And, because they’re not fiduciaries, they may not always be committed to your best interests over making sales.
Higher administrative costs: The management fees and associated costs of private banking and wealth management are high. Private bankers often charge a flat rate of 1% or thereabouts as a commission in the US. Be sure to shop around and compare prices before committing to any particular option, paying attention to the administrative and financial fine print.
Get expert financial advice
Offered to wealthy individuals, private banking goes beyond simple wealth management to provide a range of attractive advantages. There are disadvantages as well, so this coveted service might not be the best option for you.
Visit Unbiased to learn more about banking, savings, and investment options. Let us match you with an SEC-regulated advisor who can offer expert financial advice and guide you through your options.
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Content writer
Kate has written for leading publications and blue chip companies over the last 20 years.