Private Banking vs. Wealth Management - Investopedia

Private banking involves providing financial management services to HNWIs. · Private banking provides investment-related advice and aims to address the entire ... TableofContents Expand TableofContents PrivateBankingvs.WealthManagement:AnOverview PrivateBanking WealthManagement TheBottomLine Wealth WealthManagement PrivateBankingvs.WealthManagement:AnOverview Privatebankingandwealthmanagementaretermsthatoverlap.However,thefinancialservicesofferedthroughprivatebankingandthroughwealthmanagementdifferslightly. Wealthmanagementisabroadercategorythatinvolvesdealingwiththeoptimizationofaclient'sportfolio,takingintoaccounttheiraversionto,orcomfortwith,risk,andinvestingfinancialassetsaccordingtotheirplansandgoals.Wealthmanagementcanbepracticedonaportfolioofanysize,though,asthenameimplies,itisgearedtowardthewell-off. Privatebanking,bycomparison,typicallyreferstoanenvelopesolutionforhigh-net-worthindividuals(HNWIs)whereinapublicorprivatefinancialinstitutionemploysstaffmemberstoofferhigh-net-worthclientspersonalizedcareandmanagementoftheirfinances. KeyTakeaways PrivatebankinginvolvesprovidingfinancialmanagementservicestoHNWIs.Privatebankingprovidesinvestment-relatedadviceandaimstoaddresstheentirefinancialcircumstancesofeachclient.Wealthmanagementgenerallyinvolvesadviceandexecutionofinvestmentsonbehalfofaffluentclients. PrivateBanking Whatexactlyisprivatebanking?Ingeneralterms,privatebankinginvolvesfinancialinstitutionsthatprovidefinancialmanagementservicestoHNWIs.Insomeinstances,anindividualmaybeabletoobtaintheseserviceswithassetslessthan$100,000,butmostprivatebanks(orprivatebankdivisions)setabenchmarkofatleastsixfigures.Privatebankingtendstobeexclusiveandisreservedforclientswithsubstantialamountsofcashandotherassetstobedepositedintoaccountsandtobeinvested. Privatebankingprovidesinvestment-relatedadviceandaimstoaddresstheentirefinancialcircumstancesofeachclient.Privatebankingservicestypicallyaidclientsinprotectingandmaintainingtheirassets.Employeesdesignatedtoaideachclientworktoprovideindividualizedfinancingsolutions.Theseemployeesalsohelpclientsplanandsavefortheirretirementandstructureplansforpassingaccumulatedwealthontofamilymembersorotherindicatedbeneficiaries. Thereareconsumerbanksofeverysizewithprivatebankingdivisions.ThesedivisionsofferconsiderableperkstoHNWIstoobtainthemasclients. PerksofPrivateBanking Privatebankingclientswithlargeaccountsgenerallyreceiveenviableratesandconcierge-likeservice,guaranteeingtheminstantaccesstotheemployeesworkingwiththeiraccounts.Privatebankingclientsneverhavetowaitinlineoruseatellerforservices.Aprivatebankingclientcancontacttheleadadvisorworkingwithhisaccountandcompletejustaboutanytransaction,fromcashingachecktomovinglargesumsofmoneyfromoneaccounttoanother. Theseperksareallpartofthebankinginstitution’splantobenefitfinancially.Bankspursuewealthyclientsbecausetheirbusinessgeneratessignificantsumsofmoneyinprofitforthebank,guaranteesrepeatbusinessandbringsinnewbusiness. PursuingPrivateBankingClients Privatebankingclients,specificallytheultra-wealthy,discussthespecializedandelitetreatmenttheyreceivewithotherwealthyindividuals.Thesearenewpotentialclients.Often,thesenewpotentialclientsarementionedtoprivatebankingdivisionsbycurrentclients.Thedivisionsthensendoutinvitationstopotentialclientsandoftenacquiretheiraccountsthroughsuchinvitations. Privatebankingdivisionsalsofindnewclientsthroughthecourseofcompletingnormallendingactivities.Thebankscanaccesstaxreturnsandadditionalpersonaldocumentsanddiscoverotherpotentialclientsthroughthisinformation.Invitationsarealsoextendedtotheseindividualsandoftenprivatebankingdivisionsacquireclientelebydoingso. Banksdrawalinewhenitcomestoindividualswhoarepursuedandcontactedtobecomepotentialclientsandthislinerestsindifferentplacesfordifferentinstitutions.Themass-affluentmarketisthemajortarget,meaningindividualswithinvestableassetsinexcessof$250,000.Somebankssetamuchhigherbar,targetingonlythoseindividualswhohaveminimumamountsofinvestableassetsinthemillions. Clientsutilizingprivatebankingservicespayforthespecializedtreatmenttheyreceive.Thebankthatwealthyclientsusehasaguaranteeofalargepoolofmoney,intheformoftheclients'substantialcheckingaccountbalances,tolendandutilize.Thebankalsomakesmoneyfromthesteeperinterestchargesonalargermortgageandbusinessloanstakenoutbyrichclients. AssetsUnderManagementandHNWIs Therealmoneymakerforthesebanks,though, isthepercentageearnedonassetsundermanagement(AUM),whichisgenerallyquitelargewithHNWIs.Chargingevenaverysmallpercentagefeeforservicesthatinvolvehugesumsofmoneygeneratessubstantialincomeforthebank. Specializedtreatmentbyprivatebankingdivisionscannotcompletelyhidesomeofthedrawbacks,however.Theturnoverrateatbankstendstobehigh.Aclientmayhavebuiltarelationshipwithanemployeemanaginghisaccountandthenthenextmonththatemployeeisgoneandreplacedbysomeonetheclientlikelydoesnotknow.Theclient'sexperiencewiththenewemployeemayormaynotbewhatheislookingfor,andmanyprivatebankingdivisionsloseclientsoverthis. Ingeneral,privatebankingcanextendtoencompasswealthmanagement,butwealthmanagementfirmscannotprovideclientswithprivatebankingfacilityservices. Thesedivisionsmayoffermanyservices,buttheymaynotbeamasterofallofthem.Banksarenotexpertsateverything,sothelevelofexpertisetheclientreceivesislikelytobelowerthanifhehadusedaspecialistinaparticular area.Finally,privatebankersarepaidbythebank,sotheirprimaryloyaltyistotheiremployerandnottotheirclients. WealthManagement Privatewealthmanagementgenerallyinvolvesadviceandexecutionofinvestmentsonbehalfofaffluentclients.Firmsthatspecializeinthesepracticesaretheprimarysourcesforclientslookingtoinvestinavarietyoffundsandstocks.Wealthmanagementadvisorsalsohelpwithfinancialplanning,manageclientportfoliosandperformavarietyofotherfinancialservicesinrelationtoaclient’sprivatefinancingchoices. Privatewealthmanagementservicesareprovidedbylargerfinancialinstitutions,suchasGoldmanSachs,buttheymayalsobeprovidedbyindependentfinancialadvisorsorportfoliomanagersmulti-licensedtooffermultipleservicesandwhofocusonhigh-net-worthclients. WhataWealthManagementAdvisorCanandCannotDo Awealthmanagementadvisorsitsdownone-on-onewitheachclientanddiscussesgoals,comfortlevelswithriskandanyotherstipulationsorrestrictionstheclientmayhaveinregardtotheinvestmentofhisassets.Thewealthmanagementadvisorthencomposesaninvestmentstrategythatincorporatesallinformationgainedfromtheclienttohelpthe clientachievehisgoals.Theadvisorcontinuestomanagetheclient’smoneyandutilizesinvestmentproductsthatcoincidewiththeclient'sstipulations. Wealthmanagementadvisorscannotalwaysofferclientsthesamespecializedandconcierge-likeservicesthatprivatebankingoffers.However,inmostcases,thesefinancialadvisorsspendagreatdealoftimewithclients.Theseadvisorsalsocannotopenbankingaccountsforclients,buttheycanassistthemindeterminingtherightkindofaccountstoopenatthebankoftheclient'schoosing. TheBottomLine Theprimarydifferencebetweenprivatebankingandwealthmanagementisthatprivatebankingdoesnotalwaysdealwithinvesting.Privatebankstaffmayofferclientsguidanceoncertaininvestmentoptions,butnotallbankswillbeinvolvedintheactualprocessofinvestingassetsfortheirclients.Mostclientsutilizingprivatebankingservicesopendepositaccountsofonekindoranother. Wealthmanagementemployees,includingfinancialadvisors,provideadvicetoclientstohelpthemimprovetheirfinancialstandingandassistclientsininvestingassetswiththegoalofgeneratinghighreturns. ArticleSources Investopediarequireswriterstouseprimarysourcestosupporttheirwork.Theseincludewhitepapers,governmentdata,originalreporting,andinterviewswithindustryexperts.Wealsoreferenceoriginalresearchfromotherreputablepublisherswhereappropriate.Youcanlearnmoreaboutthestandardswefollowinproducingaccurate,unbiasedcontentinour editorialpolicy. TheNielsenCompany."MassAffluenceinAmerica,"Page1.AccessedSept.17,2020. CompareAccounts AdvertiserDisclosure × TheoffersthatappearinthistablearefrompartnershipsfromwhichInvestopediareceivescompensation.Thiscompensationmayimpacthowandwherelistingsappear.Investopediadoesnotincludealloffersavailableinthemarketplace. Provider Name Description RelatedArticles CheckingAccounts 10CheckingAccountstheUltraRichUse Banking TheDifferenceBetweenRetailBankingvs.CorporateBanking CareerAdvice PrivateBanker:CareerPathandQualifications WealthManagement Chasevs.WellsFargoHigh-Net-WorthAccounts:What'stheDifference? Banking WhichAretheWorld's10LargestPrivateBanks? Salaries&Compensation What'stheAverageSalaryforaFinanceMajor? PartnerLinks RelatedTerms PrivateBanking:Howthe1%HandlesMoney Privatebankingconsistsofpersonalizedfinancialservicesandproductsofferedtothehighnetworthindividual(HNWI)clientsofabankorotherfinancialinstitution. more Bank Abankisafinancialinstitutionlicensedasareceiverofdepositsandcanalsoprovideotherfinancialservices,suchaswealthmanagement. more WhatIsWealthManagement? Wealthmanagementisaninvestmentadvisoryservicethatcombinesotherfinancialservicestoaddresstheneedsofaffluentclients. more High-Net-WorthIndividual(HNWI) "High-net-worthindividual"(HNWI)isafinancialindustryclassificationtodenoteanindividualwithliquidassetsaboveacertainfigure. more FamilyOfficesDefinition Familyofficesareprivatewealthmanagementadvisoryfirmsthatserveultra-high-net-worthindividuals. more RetailBanking Retailbankingconsistsofbasicfinancialservices,suchascheckingandsavingsaccounts,soldtothegeneralpublicvialocalbranches. more