Private banking refers to all the personalized financial services a bank reserves just for its high-net-worth (HNW) clients. These “services” include everything from a dedicated account manager and preferred interest rates on accounts to wealth management services and estate planning.
Private banking can be a good option for HNW clients who want to manage their wealth under one roof, but it’s not without trade-offs. Find out how it works and explore the pros and cons of private banking here.
Definition and Examples of Private Banking
HNW clients can be individuals, business owners, or foundations. The range of services available to them generally include the following:
- A dedicated client support team
- Personalized banking services
- Preferred interest rates on bank accounts and loans
- Higher limits on online transfers, payments, and ATM withdrawals
- Pricing discounts on foreign currency purchases
- Special financing for homes, commercial real estate, art, aircrafts, sports, and events
- Customized credit solutions
- Investment management
- Treasury management
- Tax planning
- Custody services
- Advisory services for law firms and family offices
- Trust and wealth planning
- Philanthropic giving and grantmaking
For example, if you have at least $1,000,000 across all deposit, retirement, and investment accounts at Citibank, you’re considered a Citigold Private Client. This status gets you a dedicated wealth advisor and a relationship manager, as well as 24/7 support, waived bank account fees, advanced wealth planning, and even special access to concerts and global Citigold lounges when you travel.
How Private Banking Works
Think of private banking as a courtship. Banks want their wealthiest clients to stay with them so they grow their AUM (assets under management) and make more money. In return, the banks focus on deepening relationships with these clients by showering them with special perks, discounts, and tools to help these clients streamline their rather complex wealth.
While the average person may have a simple checking or savings account with their bank, it’s an entirely different story when wealthy clients bank. These people may have a dedicated account manager (or team of managers) who are intimately familiar with their accounts, personal situation, and overall financial picture. This person acts as the client’s liaison, helping them facilitate bank account transactions and whichever wealth management services they need.
If you already have a team of financial professionals in place, your account manager will even work with them to make managing your wealth as seamless as possible.
Requirements for Private Banking
Each institution has its own minimum requirements for private banking. You’ll find that large institutions typically have tiered services, where more money gets you access to more luxurious perks.
For example, J.P. Morgan Chase & Co. has a couple of private banking tiers. Its most basic tier is Chase Private Client and is reserved for clients with at least $150,000 in account balances and investable assets at Chase.
Clients with at least $10 million in assets can become J.P. Morgan private bank customers. Its wealthy clients enjoy custom financial planning, goals-based investing and advice, cross-border wealth advisory, and more.
The 2020 Euromoney Private Banking and Wealth Management Survey named J.P. Morgan Private Bank the best private bank for ultra-high-net-worth clients (those with $30 million to $250 million in assets) and mega-high-net-worth clients (those with more than $250 million in assets).
At TD Bank, you need at least $750,000 in investable assets to join the TD Wealth Private Client Group (its private banking arm). This gets you access to a local relationship manager, rebates on investment fees, and comprehensive wealth management services to help you plan for the future.
Pros and Cons of Private Banking
All your financial services under one roof
Dedicated account manager
Special benefits and perks
Account managers come and go
Potential for higher fees
Watch out for conflicts of interest
- All your financial services under one roof: With private banking, your bank becomes a “one stop shop” for all your financial needs. And if you already have a team of financial professionals you know and trust, your bank will work with them, too.
- Dedicated account manager: Say goodbye to spending hours on the phone with customer service or chatting with a different teller every time you pop by your local branch. With private banking, you have direct access to an account manager who’s intimately familiar with your situation.
- Special perks and benefits: As a private banking client, you’ll enjoy priority customer service, higher interest rates on deposits, lower interest rates on loans, higher transfer limits, custom lending solutions, and more.
- Account managers come and go: A 2017 study on work-related stress in the banking sector found that employees in the private banking sector have higher levels of stress relative to other sectors. If your account manager decides to leave, you may end up having to choose between getting a new manager at your current bank or following your old one to their new place of employment.
- Potential for higher fees: You could pay more for private banking services—or lose them altogether—if you no longer meet the minimum requirements. For example, Chase Private Client charges a $35 monthly fee if your balance dips below $150,000. You could also pay more for wealth management fees, so it’s important to shop around before you make any commitments.
- Watch out for conflicts of interest: At the end of the day, your account manager or assigned advisor is employed by the bank—not you. As such, they may be obligated to push proprietary products or meet certain quotas (even if it’s not in your best interest).
Private Banking vs. Wealth Management
If private banking is a whole pie, think of wealth management as a slice of that pie. It makes up a portion of the services offered under a bank’s private banking division, but it’s not everything.
Wealth management solutions typically consist of big-picture, wealth-related offerings such as investment management, portfolio analysis, tax planning, and estate planning.
Private banking consists of these perks, too, but it’s also made up of day-to-day banking perks, such as special interest rates on checking and savings accounts, discounts on loans, bill pay services, and more.
|Private Banking||Wealth Management|
|Typically only offered by a bank||Can be offered by a bank, brokerage firm, wealth management firm, or another institution|
|Includes wealth management services as well as other day-to-day banking perks and benefits||Doesn’t include day-to-day banking perks and benefits|
- Banks offer private banking services to high-net-worth clients looking to manage all aspects of their wealth under one roof.
- Private banking includes personalized banking services such as a dedicated account manager, higher transfer limits, and preferred interest rates, as well as wealth management solutions such as estate planning, philanthropic giving, and investment management.
- Private banking may be worth it if you’re a high-net-worth client who would benefit from the range of offered services.
- The minimum requirements needed to qualify for private banking varies by institution: Some may require six figures in assets while others may require a net worth of $1 million or more.