Private Banking: What It Is and How It Works

Private banking, or “relationship banking,” is a set of elite services that retail banks and other financial institutions offer to high-net-worth (HNW) individuals and families. It typically includes a range of personalized financial and wealth management services, plus access to a dedicated private banker (or a team of professionals) who creates a financial strategy, manages your accounts, and helps you reach your goals.

Opening a private bank account is much like opening a savings or checking account, except you’ll need to meet the bank’s minimum asset balance, which may be $1 million or more. Here’s a closer look at private banking to help you decide whether it’s right for you.

How does private banking work?

Private banking is a financial relationship you have with a particular bank or financial institution. As a private banking client, you can skip the teller (and the line) and contact your relationship manager directly via phone or email to get help and complete transactions. While private banking services vary, they generally include:

• Financial planning
• Investing
• Philanthropy
• Preferred interest rates on lending and credit products
• Preferred yields on deposit accounts
• Risk management
• Wealth management
• Tax planning
• Trust and estate planning

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Cost

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In addition to bespoke financial services, private banking offers perks and privileges that aren’t available to standard account holders. For example, private banking clients may have access to higher deposit account yields, lower fees, and better foreign exchange rates.

The cost of private banking

Private banking services may come with several costs and fees, which vary by bank and the services each provides. Many private banks charge a percentage of assets under management (AUM), typically 1%. There may also be account-maintenance, transaction, and foreign-exchange fees, though some fees may be waived if you meet minimum balance requirements.

Advantages of private banking

• Concierge-like services. You’ll have a single point of contact at the bank who can quickly help with your financial matters.
• Competitive rates. Private banking typically offers higher yields on deposit accounts, below-market interest rates on loans and credit lines, and fewer fees than standard bank accounts.
• Exclusive benefits and perks. You may have access to products and services that don’t come with standard accounts, such as specialized financing, estate planning, higher daily limits on mobile deposits, a free safe deposit box, and discounted (or free) entry to concerts, sports events, and attractions.

Disadvantages of private banking

• High costs. Private banks may charge up to 1% of your AUM—for example, $10,000 a year on a $1 million portfolio. Consider whether the fees justify the benefits you receive from private banking.
• Potential conflicts of interest. Only some certified private bankers are fiduciaries, meaning your relationship manager may not be legally bound to act in your best interest.
• Limited expertise. Smaller private banks may have less expertise than their larger counterparts in handling complex issues like tax and estate planning. You may be better off assembling your own team of CPAs, mortgage brokers, and financial advisors.

Who qualifies for private banking?

Private banking is intended for high-net-worth and ultra-high-net-worth individuals and families with substantial assets. You’ll need to meet specific asset requirements to qualify.

While minimums vary by bank, the starting point is often a combined monthly balance of at least $1 million in linked deposit, retirement, and investment accounts at the bank (some banks offer better perks the more assets you have). A private bank may also consider your investment goals, risk tolerance, and level of financial literacy to determine whether you’re a good candidate for its private banking services.

Institutions that offer private banking

Many financial institutions offer private banking. If you’re happy with your existing bank, you can find out if it offers private banking services. Otherwise, here are a few well-known banks to consider:

• Bank of America Private Bank.
• Chase Private Client.
• Citigold Private Client.
• Credit Suisse Private Banking.
• Goldman Sachs Private Wealth Management.
• J.P. Morgan Private Bank.
• Morgan Stanley Private Wealth Management.
• Raymond James Private Wealth Services.
• UBS Private Bank.

Private banks don’t typically publish a comprehensive list of services and fees due to the exclusive nature of the business, so comparing your options and finding the best bank for you can be challenging. Before committing to private banking, interview several banks to learn about the perks and services they offer, as well as minimum asset requirements and costs.

Is private banking right for you?

Private banking offers access to personalized service, all-in-one financial solutions, and one-stop banking. Still, even if you qualify for private banking, it may not be the right choice for you.

Private banking may work out in your financial favor if you benefit from higher deposit account yields, lower interest rates on loans and credit lines, and fewer account fees. It can also be worth the cost for the exclusive benefits and perks you receive—and having access to an on-call private banker.

On the other hand, a certified financial planner, CPA, and investment manager may offer similar services (and potentially more expertise) for less than you would pay for one-stop private banking. Estimating your costs for private banking versus assembling a team of experts can help you decide if private banking makes financial sense.

Find the right financial advisor with WiserAdvisor

View Offer

Find the right financial advisor with WiserAdvisor

Description

Matching service to connect you with the best financial advisor for your needs.

Benefits

1. Personalized match with up to 3 vetted advisors;
   
2. Calculators to help financial planning;
   
3. Free initial consultation;
   
4. Location-based directory lists of top advisors.

Cost

Free

TIME Stamp: Read the fine print when choosing a private bank

Private bankers make money through various fee structures. While a flat percentage of your assets under management is standard, you might also be on the hook for account-maintenance fees, transaction fees, foreign-exchange fees, commissions, and more. Pay close attention to the fine print in your private banking agreement and ask for clarification if anything seems unclear. That way, you’ll know what to expect fee-wise and can look elsewhere if the fees outweigh the benefits.