how private banking works
private banking includes common financial services like checking and savings accounts but with a more personalized approach a relationship manager or private banker is assigned to each customer to handle all matters the private banker handles everything from involved tasks like arranging a jumbo mortgage to the mundane like paying bills however private banking goes beyond cds and safe deposit boxes to address a client s entire financial situation specialized services include investment strategy and financial planning advice portfolio management customized financing options retirement planning 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 most financial institutions set a benchmark of six figures worth of assets and some exclusive entities only accept clients with at least 1 million to invest advantages of private bankingprivate banking offers clients a variety of perks privileges and personalized service which has become an increasingly prized commodity in an automated digitized banking world however there are advantages to both the private bank clients as well as the banks themselves privacy is the primary 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 private banking clients typically receive discounted or preferential pricing on products and services for example they may receive special terms or prime interest rates on mortgages specialized loans or lines of credit loc their savings or money market accounts might generate higher interest rates and be free of fees and overdraft charges also customers who operate import export ventures or do business overseas might receive more favorable foreign exchange rates on their transactions if they are managing a client s investments private banks often provide the client with extensive resources and opportunities not available to the average retail investor for example an hnwi may be given access to an exclusive hedge fund or a private equity partnership or some other alternative investment in addition to the customized products there is the convenience of consolidated services everything under one financial roof private banking clients received enhanced services from their private banker that acts as a liaison with all of the other departments within the bank to ensure that the client receives the best possible product offerings and service the bank or brokerage firm benefits from having the clients funds add to their overall assets under management aum even at discounted rates the private bank s management fees for portfolio management and interest on loans underwritten can be substantial in an environment where interest rates in the u s have remained low banks have been unable to charge higher loan rates to grow their profits as a result fee income has become an increasingly important financial metric in helping banks diversify their revenue stream banks have made strides in expanding beyond traditional banking products such as loans and deposits to more service oriented and fee based offerings like private banking one stop shopping for financial affairsconcierge services and dedicated employeesfavorable rates discounted chargesperks and privilegesless institutional expertiseoptions limited to proprietary productshigh staff turnoverpossible conflict of interest for employeesdisadvantages of private bankingalthough there are many advantages to private banking drawbacks do exist to this exclusivity employee turnover rates at banks tend to be high even in the elite private banking divisions there may also be some concern over conflicts of interest and loyalty the private banker is compensated by the financial institution not the client in contrast to an independent money manager in terms of investments a client might be limited to the bank s proprietary products also while the various legal tax and investment services offered by the bank are doubtlessly competent they may not be as creative or as expert as those offered by other professionals that specialize in various types of investments for example small regional banks might provide stellar service that beats out the larger institutions however the investment choices at a smaller regional bank might be far less than a major player such as jpmorgan chase company jpm lucrative as private banking can be it can pose challenges for the institution as well private banks have dealt with a restrictive regulatory environment since the global financial crisis of 2008 the dodd frank wall street reform and consumer protection act along with other legislation passed in the u s and around the world has resulted in a higher level of transparency and accountability there are more stringent licensing requirements for private banking professionals that help ensure customers are appropriately advised about their finances real world example of private bankingubs merrill lynch wells fargo morgan stanley citibank and credit suisse are all examples of financial institutions with substantial private banking operations another bank that offers private banking is td bank td with its td wealth private client group 1 available to clients with at least 750 000 in assets it offers many services to its clients services include money management strategies for business owners real estate financing and custom lending solutions the private banking team also offers retirement succession and estate planning which help reduce taxes the td website promises that beyond the product offerings each private client will receive a local relationship manager that will deliver exceptional customized service as outlined in the quote below 