As the name implies, private banking is private. That doesn’t mean that as a regular client your banking information is public; it just means that if you’re not a HighNet Worth Individual (HNWI), your banking is not being attended to by a specialized group of experts.
The banking needs of HNWIs tend to be more intricate, so private banking offers personalized financial services and products that are catered specifically to the individual needs of a client, in a one-stop-shop. These can include providing insurance, loans, portfolio and wealth management, investment banking, and tax advice.
Private banking clients get assigned a specific representative or team, who will always handle their financial and banking needs.
Who can join a private bank?
You typically need at least $250,000 in investable assets to qualify for private banking, but there are private banks of all shapes and sizes, so that number can vary.
Smaller institutions might allow you to join for $50,000 worth of deposits – but if your balance drops below this, you will incur extra fees.
Larger more well-established private banks only cater to HNWIs with assets above a million dollars.
What are the benefits of private banking?
One of the biggest draws of private banks is the way that clients can attend to all their financial needs in one place.
That means that whether they want to make a deposit, get a loan, get help with their taxes, or invest in the market, clients can do it all in one place with a single point of contact. It makes banking a lot more convenient.
Private banking also offers preferential rates and services, which are not offered to their regular customers. For example, you might get a much lower interest rate on a loan, or a higher interest rate on a high-yield savings account. Clients may also have the option to invest in portfolios that are not available outside of the private banking channel.
What are the disadvantages of private banking?
Private banks are sometimes criticized because of the possibility that representatives could have a conflict of interest.
Private banks make their money through fees and by selling products to their clients. Representatives are paid directly by the bank, but they are encouraged to sell the products that make their bank the most profit.
These products and services may not always be in the best interest of the client though.
It’s always important to be aware of that relationship between you as a client and presentative and bank, and what the management of a specific product or service is actually costing you.
Another disadvantage of private banks is that clients are limited to the services, products, and investments offered through that specific bank. This can make it difficult to find more competitive services, products, or investments.
Are family offices and private banks the same thing?
Family offices and private banks often provide overlapping wealth-management services, but family offices have a much more comprehensive list of services.
Private banks also offer their services to a much wider selection of individuals, while family offices tend to focus on a much smaller number of ultra high net worth clients.
Family offices may serve just one UHNW client at a time, or a limited number of clients, as is the case of multi-family offices.