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What is private banking?

Private banking is banking, investment and other financial services provided by banks and financial institutions primarily serving high-net-worth individuals — these are individuals defined as those with very high levels of income or sizable assets.

A bank that specializes in private banking is called a private bank. Private banking is a more exclusive subset of wealth management, geared toward exceptionally affluent clients. The term "private" refers to customer service rendered on a more personal basis than in mass-market retail banking, usually provided via dedicated bank advisers. At least until recently, it largely consisted of banking services (deposit taking and payments), discretionary asset management, brokerage, limited tax advisory services and some basic concierge-type services, offered by a single designated relationship manager.

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.

Private banking takes a holistic approach to your finances. Whether you’re an executive, entrepreneur or owner of a family business, private banking considers the solutions that best fit your unique needs.

Banks also provide a sampling of the private banking services at a lower price point than traditional private banking. These are called premium banking or priority banking services. They are meant for mass-affluent customers. The products offered to premium banking customers are the same as that for private banking customers with the exception that they do not include hedge funds or facilities to manage one's own business accounts. Specialized services include investment strategy and financial planning advice, portfolio management, customized financing options, retirement planning, and passing wealth on to future generations. In short, it is wealth management at a much smaller scale.

Advantages of Private Banking

Private 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.

- Single point of contact.

Private banking provides access to a dedicated private banker who can address concerns, troubleshoot financial challenges and refer you to experts within your bank. That can increase banking privacy and reduce the number of times you need to explain your finances.

- Benefits for business owners.

Juggling your personal and company finances can be challenging, but a private banking relationship can help you find the balance between maximizing your personal finances and growing your business.

- Access to alternative investments.

Private banking can open the door to exclusive hedge funds and private capital opportunities.

- Privacy

Privacy is the primary benefit of private banking. Customer dealings and services provided typically remain anonymous. Private banks often provide high net worth individuals with tailored proprietary solutions, which are kept confidential to prevent competitors from luring a prominent customer with a similar solution.

Disadvantages of Private Banking

Although there are many advantages to private banking, drawbacks do exist to this exclusivity.

- Lack of transparency.

Due to the elite nature of private banking, a complete list of services and fees isn’t always available. Finding the best fit for your needs may be difficult without a full picture of products.

- Potential conflict of interest.

Although some private banks claim to follow a fiduciary standard, few certified private bankers are fiduciaries. That means your banker may prioritize their interests ahead of yours. According to a 2021 study from the accounting and consulting firm Crowe, 62.4% of financial institutions have pay-for-performance incentives.

- Private bankers are generalists.

While a certified private banker may be able to connect you to a private mortgage or investment banker, you could receive better service if you assemble your own team of financial advisors, CPAs, mortgage brokers and business consultants.

Private Banking vs. Wealth Management

The line between private banking and wealth management can be blurry. Merrill Wealth Management, a Bank of America Company, provides access to both Merrill Investing and Bank of America banking services. Merrill Wealth Management even outsources its philanthropic solutions to Bank of America’s Private Bank, but they are still separate services.

Both private banking and wealth management offer financial planning and investment management, and each may include portfolio management, tax and estate planning. Yet while some wealth management programs operate within large banks, wealth management firms aren’t required to operate under banking charters as private banks are. And, wealth managers often lack access to all of a client’s financial accounts. Meanwhile, many private bank clients rely on their certified private banker to manage their day-to-day funds, overseeing checking, savings, CDs and investments.

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