Private Banking

Personalized banking services for high net worth individuals

What is Private Banking?

Private banking involves providing banking, investment, tax management and other financial services to high net worth individuals (HNWIs). Unlike the mass-market retail banking, private banking focuses on providing more personalized financial services through dedicated advisors. HNWIs possess more wealth than the average person, and they are capable of accessing a large variety of investments such as hedge funds and real estate. The bank’s role is to match these individuals with the most appropriate investment options.

 

Private Banking professional

 

There are various consumer banks with private banking divisions that assist HNWIs in protecting and growing their assets. Clients with large accounts receive attractive perks and exclusive personalized services, guaranteeing them instant access to specific employees working with their accounts. Clients can contact the lead assigned to their account and complete any transactions on the phone, without the need to queue at the bank. Most banks that offer private banking only accept clients with at least $500,000 in investable assets. However, some banks may allow individuals with over $50,000 in investable assets to access some of the personalized services.

 

Benefits of Private Banking

Banks target very affluent individuals because it earns them significant returns and guarantees them regular clients. The clients also benefit in the following ways:

Privacy

Customer dealings and services offered to high net worth individuals typically remain anonymous. Banks provide the clients with proprietary products which they keep confidential to prevent competitors from selling similar products to the same clients. Also, high net worth individuals are attracted to the culture of privacy in private banking since they can conceal personal information that may give their business rivals an undue advantage. Sometimes, HNWIs are subjected to lawsuits involving their investments and keeping such information confidential gives them a sense of security.

Discounted Services

A bank may offer discounted services to HNWIs as a reward for the large volumes of business that they bring to the bank. Services such as tax preparation, corporate checking, and estate management are provided at a lower cost than the usual cost. Clients involved in export and import business may also receive an attractive foreign exchange rate. Those involved in real estate benefit from the quick and timely processing of their transactions through the lead advisors in charge of their accounts.

High Investment Returns

Banks often allocate the best and well-performing personnel to the private banking division to manage the accounts of HNWIs. The practice ensures consistent high returns that outperform the market performance. The rate of return from private banking ranges between 7% to 13% and can go as high as 30%. Due to their extensive resources, wealthy clients can get exclusive access to top-performing hedge funds through their affiliation with the bank. The client also gets professional advice from experienced investment professional on the best investment options with a high rate of return.

 

Challenges facing Private Banking

The private banking division faces various challenges, some of which emanated from the Global Financial Crisis of 2008 while others are systemic to the private banking profession. These challenges include:

Lead Generation

Client acquisition is an essential part of private banking, and it is a common problem that affects all businesses. Most banks rely on traditional customer acquisition methods like referrals from the whole banking and investment division to land new clients. Another option of getting new clients is through customer referrals. Clients who are satisfied with the services provided by the private bank division can refer their friends or relatives. Other lead generation channels include social networking, event marketing, and client referral marketing. If a bank gets most of its customers through customer referrals, it is evident that the customers are satisfied with the services provided.

Regulatory Restrictions

The financial crisis of 2008 led to the insolvency and collapse of major financial institutions. As a result, governments moved in to enact strict regulations that require more transparency and accountability among banks. These regulations have made the licensing of private banking professionals more restrictive, and this has affected their career advancement. In some countries like Switzerland, banks were banned from storing assets as a means of tax avoidance. Some HNWIs stored their assets in tax havens as a way of hiding their wealth from government authorities.

Retaining Private Banking Professionals

Private banking is built on personal relationships between the high net worth individuals and their advisors or relationship managers. However, since the 2008 financial crisis, private banking has experienced a high turnover mainly due to the restrictive regulatory framework. Banks now focus on talent recruitment, training and retaining the most qualified professionals. These professionals must remain loyal to their employer and be dedicated to keeping the client relationships ongoing. Some of the steps that banks have taken to keep their employees satisfied include better compensation packages, incentive programs and launching succession programs to substitute relationship managers.

 

Private Banking vs. Wealth Management

The terms private banking and wealth management are closely related but differ in the kind of services they offer. Wealth management involves taking into account the client’s risk tolerance levels and investing assets according to their financial goals. Private banking, on the other hand, involves providing personalized financial and banking services to high net worth individuals. The bank assigns specific staff members to the private banking division to manage client’s accounts.

Private banking differs from wealth management in that the former does not involve investing the client’s assets. Private banking advisors manage the client’s account, from cashing a check, transferring large volumes of cash between accounts, to making payments on behalf of the client. Although they advise the client on possible investment options, they do not make the actual investments. Wealth management staff members advise their clients on the best possible investments and help them in investing assets with the goal of earning a profit. They do not provide the clients with private banking facilities like account management. A wealth management advisor sits down with the client to discuss their financial goals and any reservations in the type of investments they can invest in.

 

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