Private Banking

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.