What is 'Private Banking'

Private banking includes personalized financial and banking services generally offered to 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.

Challenges of Private Banking

Private banks have dealt with a restrictive regulatory environment since the global financial crisis in 2008. This 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 regard to their finances. Traditionally, private banks acquired new HNWIs through other divisions within the firm, such as wholesale and investment banking. Since the 2008 financial crisis, 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 and ensuring high customer service levels.

RELATED TERMS
  1. Privately Owned

    Privately owned refers to businesses that have not offered public ...
  2. Retail Banking

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

    Private equity is a non-publicly traded source of capital from ...
  4. Bank

    A bank is a financial institution licensed as a receiver of deposits. ...
  5. Private Investment Fund

    A private investment fund is a fund that is not open to regular ...
  6. Group Banking

    Group banking is a bank plan that generally provides incentives ...
Related Articles
  1. Personal Finance

    Private banking versus wealth management

    Discover the various ways in which private banking and wealth management services coincide, as well as the significant differences between them.
  2. Managing Wealth

    Best Banks to Stash Your Million Dollars

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

    Investment banking versus private banking careers

    Examine the two potential financial career options of investment banking and private banking, with an eye toward choosing the most suitable career.
  4. Personal Finance

    Private banker: Job description and average salary

    Discover what a career in private banking entails, including a job description, education and training, necessary skills and licensing, and salary.
  5. Managing Wealth

    The Biggest and Best Wealth Management Firms

    Looking for a fee-only wealth management firm? Here's a handy ranking to get you started on your search for a top financial advisor.
  6. 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?
  7. Small Business

    Why Companies Stay Private

    Many private companies prefer to stay private and find alternate sources of capital. Find out what firms have to gain by eschewing the windfall from a flashy IPO.
  8. Financial Advisor

    How Financial Advisors Can Meet Clients' Private Banking Needs

    Wealthy individuals need both wealth management and private banking services. Here's how financial advisors can meet their clients' private banking needs.
  9. Personal Finance

    Private banker: Career path and qualifications

    Discover what kind of work private bankers do, and learn more about how you can develop the experience and qualifications required to work in the field.
  10. Investing

    How to Invest in Private Equity

    Private equity might be a pricey investment, but the payoff could be big. Here's why and where you should invest in private equity.
RELATED FAQS
  1. Investment Banking vs Private Equity

    Despite both shared similar characteristics, they are different in many ways. Check out how private equity and investment ... Read Answer >>
  2. What type of funding options are available to a private company?

    Understand how private companies can obtain financing for startup, growth or expansion projects, and learn how this differs ... Read Answer >>
  3. What is the banking sector?

    Learn why the banking sector is a vital industry to our economy, what it does to drive the economic growth and understand ... Read Answer >>
Trading Center