What is 'Private Banking'

Private banking is personalized financial and banking services that are traditionally offered to a bank's wealthy high net worth individual (HNWI) clients. For wealth management purposes, HNWIs have typically accrued more wealth than the average person, so they have the means to access a larger variety of conventional and alternative investments. Private banks aim to match such individuals with the most appropriate options.

BREAKING DOWN 'Private Banking'

In addition to providing exclusive investment-related advice, private banking goes beyond managing investments to address a client's entire financial situation. Services include protecting and growing assets in the present, providing specialized financing solutions, planning retirement, and passing wealth on to future generations.

While an individual may be able to conduct some private banking with $50,000 or less in investable assets, some exclusive private banks only accept clients with at least $500,000 worth of investable assets. Such high levels of wealth allow these individuals to participate in alternative investments, such as hedge funds and real estate. Furthermore, this level of wealth often prevents liquidity problems. UBS, Merrill Lynch, Morgan Stanley and Credit Suisse are examples of private banks.

Private Banking Confidentiality

Privacy is a key benefit of private banking. Customer dealings and services provided typically remain anonymous. Private banks often provide HNWIs with tailored proprietary solutions, which are kept confidential to prevent competitors from luring a prominent customer with a similar solution. A culture of privacy has the added benefit of potentially attracting new customers on the premise of exclusivity.

Private Banking Personalized Service

Private banking customers generally receive highly personalized service. An account or relationship manager is assigned to each customer to tailor a customized approach to asset management. This allows the customer to liaise directly with management should the need arise.

HNWIs typically receive discounted services at privates banks due to their substantial assets. For example, customers who operate exporting businesses may receive a reduced foreign exchange rate.

Private banks often provide HNWIs with investment returns that outperform the market; these customers can leverage extensive resources. For example, a HNWI may be given access to an exclusive top-performing hedge fund through an affiliation with a private bank.

Private Banking Challenges

Private banks have dealt with a restrictive regulatory environment since the global financial crisis (GFC) in 2008. This has resulted in a higher level of transparency and accountability. For example, there are more stringent licensing requirements for private banking professionals that help ensure customers are being appropriately advised in regards to their finances.

Traditionally, private banks acquired new HNWIs through other divisions within the firm, such as wholesale and investment banking. Since the GFC, the private banking industry has experienced high employee turnover; as a result, there has been a need to focus on talent recruitment. As long-standing customer relationships are critical for a private bank's success, there has been a need to place greater emphasis on keeping employees satisfied, ensuring high customer service levels.

RELATED TERMS
  1. High Net Worth Individual - HNWI

    A classification used by the financial services industry to denote ...
  2. Retail Banking

    Typical mass-market banking in which individual customers use ...
  3. Going Private

    A transaction or a series of transactions that convert a publicly ...
  4. Bank

    A financial institution licensed as a receiver of deposits. There ...
  5. Relationship Banking

    A strategy used by banks to enhance their profitability. They ...
  6. Limited Service Bank

    Any type of banking business facility that is located separately ...
Related Articles
  1. Insights

    Which Are the World's 10 Largest Private Banks?

    Most of the largest private banking providers in the world are headquartered in Europe or the United States.
  2. Personal Finance

    Private Banking Vs. Wealth Management: Not Quite the Same

    Discover the various ways in which private banking and wealth management services coincide, as well as the significant differences between them.
  3. Financial Advisor

    Chase vs. Wells Fargo: Which Is Best for High-Net-Worth Accounts? (JPM, WFC)

    Compare private banking services offered by Chase and Wells Fargo to high-net-worth individuals, and decide which bank provides a better deal based on unique needs.
  4. Financial Advisor

    Top Insights Into Winning More Wealthy Clients

    The upcoming young and wealthy client class is like none other when it comes to wealth advising preferences. Here are some hints to what these folks want.
  5. Trading

    Best Banks to Stash Your Million Dollars

    Get the richest perks and red carpet treatment for you and your money from these financial institutions.
  6. Personal Finance

    Career Advice: Investment Banking Vs. Private Banking

    Examine the two potential career options of investment banking and private banking, with an eye toward choosing the most suitable career.
  7. Financial Advisor

    Wealthy Clients: How Advisors Can Nab More of Them

    Wealth management firms still only manage a minority of the assets of high net worth individuals. Here are some insights into how to tap their market.
  8. Managing Wealth

    Comparing Wealth Management Services: Not So Easy

    It's more than privilege checking, but not exactly private banking. What do bank wealth management services actually deliver?
  9. Personal Finance

    Private Banker: Job Description & Average Salary

    Discover what a career in private banking entails, including a job description, education and training, necessary skills and licensing, and an average salary.
  10. Personal Finance

    Retail Banking Vs. Corporate Banking

    Retail banking is the visible face of banking to the general public. Corporate banking, also known as business banking, refers to the aspect of banking that deals with corporate customers.
RELATED FAQS
  1. Under what circumstances would I require private wealth management?

    Learn why many high-net-worth individuals may prefer private wealth management services, and understand how these firms charge ... Read Answer >>
  2. What is private wealth management?

    Understand what private wealth management is from the perspective of both the private client as well as the private wealth ... Read Answer >>
  3. What are the major differences between investment banking and private equity?

    Read about the major differences between investment banking and private equity, two iconic financial industries with mixed ... Read Answer >>
  4. Why are private equity investments usually reserved for rich people?

    Learn what investors without a high net worth can do to invest in private equity investments, and discover the benefits and ... Read Answer >>
  5. What percentage of asset management firms are privately held and not publicly traded?

    Explore asset management firms, a major part of the financial services sector, and learn about the respective markets served ... Read Answer >>
  6. What is the difference between an investment and a retail bank?

    Learn the primary differences between retail banks and investment banks by examining the business activities, type of clients ... Read Answer >>
Hot Definitions
  1. IRS Publication 970

    A document published by the Internal Revenue Service (IRS) that provides information on tax benefits available to students ...
  2. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  3. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  4. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  5. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  6. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
Trading Center