For high net worth individuals, the typical banking experience might not cut it. Instead, they may require private banking, which provides a much higher and more personal level of service.
Private banking is a common term used to describe wealth management services offered by a bank, according to David Frederick, director of client success and advice at First Bank. “Clients who are eligible for private banking must typically have a certain level of investable assets,” Frederick says. That amount depends on the particular bank; local and regional banks may require $1 million in assets, while national banks may require closer to $5 million.
What Is a Private Banker?
These days, basic banking needs can be handled on your own either online or at an ATM. Every now and then, you may need to visit a branch, which typically involves waiting in line to speak with the next teller available.
A private banker, on the other hand, is your go-to source for any financial needs you might have. A private banker is familiar with your situation and history as a customer.
“A private banker has an existing pulse on a client’s personal financial situation to easily help them manage the entirety of their financial life,” says Michael Milich, senior executive vice president and director of trust at Frost Wealth Advisors. In some cases, private bankers can perform services for you directly. Often, however, they serve as a concierge who connects you with the department or financial expert that best fits your needs, whether that’s securing a loan, making an investment, writing a will and more.
What Services Does Private Banking Offer?
Private banking involves many types of financial services, spanning different areas of wealth planning and management. “Private banking approaches finances as parts of a whole, rather than in distinct categories, and offers a variety of services to manage consumers’ financial lives,” Milich says.
- Provides customers access to checking, savings and other deposit accounts that come with special features not available to the general public, such as higher interest rates. Similarly, loans and lines of credit for private banking customers often come with lower interest rates and more favorable terms.
- Helps arrange for services outside of the bank’s general offerings, such as specialized financing for luxury purchases or portfolio-secured lines of credit.
- Provides access to portfolio management, tax planning services, estate planning, trust administration and more.
This comprehensive, individualized service does come at a cost, however. Depending on the financial institution, private banking clients may pay commissions on certain financial products or higher fees on their accounts. In some cases, the bank might charge a flat percentage of the client’s assets under management (typically, 1%).
Pros and Cons of Private Banking
Private banking might sound like a great deal – and it can be for certain people – but it’s not without its downsides, too. Here’s a closer look at the pros and cons of private banking.
Pros
- High level of convenience. Private banking allows all of your financial matters to be handled in one place. “Though expensive, private banking is often worth the price for individuals who demand a high degree of service, want ongoing professional advice for no extra charge and have their assets held in sophisticated structures that require professional management,” Frederick says.
- Dedicated help. With private banking, you don’t have to stand in line or wait on hold to find someone to assist you. Instead, you have a dedicated professional who can facilitate everything for you.
- Special services and perks. Private banking clients often have access to benefits that aren’t available to regular bank customers. “For example, whereas high-end estate planners will often charge their clients hundreds of dollars an hour for a consultation, private banks typically include estate planning attorneys who will meet with clients for no extra charge,” Frederick says.
Cons
- Higher costs. “Private banking services typically cost more than run-of-the-mill investments available to the public,” Frederick says. Whether it’s commissions, fees or a combination of both, private banking clients pay a high price for that convenience.
- Bank personnel may change often. Even though you will have a dedicated private banker to handle your finances, that person may not stick around for a long time. Turnover at your bank could mean you have to start over with new bankers who don’t have a history of working with you.
- Less expertise. A private banker can help you with a variety of financial needs, but the banker is probably not an expert in many of these areas. You may prefer to go directly to a financial planner, accountant or insurance agent and not feel stuck with one bank in order to meet its minimum asset requirement. Plus, private bankers aren’t fiduciaries, which means they aren’t legally and ethically bound to act in a client’s best interest.
Should You Use Private Banking?
Private banking is designed for high net worth individuals who need a lot of services and personalized attention. If that’s you, and you value the convenience and dedicated service of private banking, it could be a good option despite the cost.
For the average person, however, private banking probably isn’t necessary or cost-effective. Further, you may simply value the expertise and variety of products you can find outside of your bank. But that doesn’t mean you shouldn’t spend time selecting a financial institution that meets your unique needs. “I’d encourage consumers to find a bank that helps them take a look at finances as a whole, regardless of their net worth,” Milich says.
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