Private banking is a much more personalized banking service provided to individuals who invest substantial sums, typically more than $1M. The most notable difference between retail and private banking services is that private clients receive 1-1 customer service through a relationship manager or private banker. Wealthy individuals with private accounts can expect to meet their bank contact in person and have direct phone access to a relationship manager. Typically, the private banking arm of a bank is separate from the retail banking arm and the service is completely different.
A private bank is one that is not incorporated. Private banks are favored by conservative investors because directors are personally responsible and are more likely to be cautious in managing client funds. Financial institutions like these are sometimes family owned and only cater to the very wealthy. One of the reasons wealthy people choose them is their confidentiality: a commitment to keep customer records secret. For some it is about not wanting to be targeted by criminals, lawsuits or corrupt governments. Others use this secrecy to protect income from authorities like the IRS and to evade taxes.
Many of the world’s private banks are located in Switzerland due to strict bank secrecy laws and the sophistication of Swiss financial services. Small banks in countries like Switzerland are also more likely to keep their customer records secret because they limit their operations within the country’s bank secrecy laws.
Not only private banks offer private banking services; in fact, some of the largest providers of private banking and wealth management services, such as UBS, Credit Suisse and Barclays, are not privately owned. Private clients of these large banks can take advantage of their internal research and trading departments, and sometimes choose to have the bank manage almost all of their assets. In this way they expect much higher returns than those that a simple savings account or a certificate of deposit gives them.
Types of Private Banking Services
Wealth management is typically only sought after by very wealthy clients, where private bankers manage an investment portfolio for a family or individual. The fee for this service varies from bank to bank and is charged annually as a percentage of the total amount invested. The profitability of a portfolio will also depend on the standard of the private banking service. While some will provide excellent returns, others will continue to charge high fees while investing client funds in the bank’s own mutual funds, regardless of whether or not this is beneficial to the client.
A popular alternative to wealth management is self-directed private banking, where the client manages their own portfolio and sometimes seeks advice from the bank. The advantages of this type of account are lower fees and greater personal control.
Inheritance and tax planning are extra private banking services that are provided directly or by referral for an extra fee.