Private banking is like having a personal travel agent for your finances. If you own around $1 million in investable assets (making you a so-called high net worth individual), you can gain access to a team of on-call professionals that can map out strategies to maximize your financial health.
What is private banking?
Private banking is a financial relationship that you have with a specific bank. In exchange for meeting qualification requirements, such as maintaining a hearty minimum balance, and potentially paying a fee, you receive bespoke financial services and one-on-one access to a private banker who acts as your relationship manager.
Financial services can include access to specialists who advise you on a plethora of topics, including banking, estate planning, insurance, loans, retirement and taxes. A private banker could manage a trust for your children and help preserve family wealth.
Note that private banking is not investment management. Your private banker most likely cannot legally advise you on stocks and bonds. To use specialized services, you may incur additional fees based on that advisor’s time and expertise.
How does private banking work?
Opening a private bank account is like opening a regular checking account, except you need to qualify with a minimum asset balance of typically $1 million or more, which is managed by a particular financial institution.
As you consider the moves your relationship manager recommends, take any advice with a grain of salt. Your banker may recommend only products that are managed by that one bank.
“They are limited by regulations, proprietary products, and shareholders,” said Tyler Smith, CFP and founder of BBK Wealth Management.
Private bankers typically do not have a fiduciary duty to their clients, which means they are not obligated to recommend the best investments available on the market. When choosing someone to manage your investments, you should always stick with a fiduciary for objectivity.
Pros of private banking
Expanded customer service
With private banking, you don’t have to sit on hold, waiting for a customer service representative. You have your own personal, expert banker to contact.
Higher rates
Private bank accounts can feature higher interest rates on your deposits. For example, Bank of America offers a 20% interest rate upgrade on its savings accounts for private banking clients. This would boost a regular 2.00% APY up to 2.40% APY.
Discounted loan rates
You can typically find discounted rates on loans and lines of credit for private banking clients. Bank of America provides a 0.25% to 0.375% origination fee reduction or interest rate reduction on purchase and refinance mortgages. Chase offers a 0.25% discount on auto loans.
Fewer nickel-and-dime fees
Many private bank accounts have common fees that are reduced or even waived entirely. For example, Chase waives all ATM fees, both domestic and international, for those with private bank accounts. Otherwise, out-of-network ATMs cost between $3 and $5 each time.
Special invitations
Private bankers can often provide clients with complementary and discounted entry to sports events, concerts, special speakers and more. Citigold Private Clients receive a Cultural Pass, which includes free admissions to the Museum of Modern Art (MOMA), the Solomon R. Guggenheim Museum and the Los Angeles County Museum of Art (LACMA).
Cons of private banking
High cost
Access to private banking isn’t cheap. Many institutions charge up to 1% of your assets under management. There may be a point where the fees negate the benefits associated with private banking.
Limited investment advice
While private bankers may control and manage an individual’s investments, that’s not their primary focus. In fact, the restrictions that a private banker must operate under can impact their effectiveness in this sphere.
Private bankers do not have a fiduciary duty to their clients, which means they are not obligated to recommend the best investments. When choosing someone to manage your investments, you should always stick with a fiduciary because they will be more objective.
Examples of private banking
There are many financial institutions that offer private banking. You can contact your existing bank and ask if they have their own suite of private banking services or consider some of the industry giants below.
- Bank of America Private Bank
- Chase Private Client
- Citigroup’s Citigold Private Client
- Credit Suisse Private Banking
- Goldman Sachs Private Wealth Management
- Morgan Stanley Private Wealth Management
- Raymond James Private Wealth Services
- UBS Private Bank
Requirements for private banking
To open a private banking account, you must meet certain asset requirements, which vary from bank to bank. The starting point is usually $1 million in assets that are connected to the bank.
For example, to open a Citigold Private Client account, you need to maintain a monthly balance of at least $1 million total in your linked investment, retirement and deposit accounts. These accounts must be connected to Citibank. If you have $500,000 in a Chase account, for example, that will not count toward the $1 million requirement.
In general, you and your family can qualify as high net worth with one to ten million in assets and, if you have over ten million, you could qualify as ultra high net worth.
Frequently asked questions (FAQs)
The cost for private banking varies based on the institution. When comparing private banks, make sure to look at their fee structure and understand how much you’ll pay.
Global Finance magazine ranked J.P. Morgan Private Bank as the best private bank in 2023. Other banks on their list include Bank of America and BBVA.
Retail banking is vastly more available and popular, while private banking is only available for the affluent. Many banks have $0 minimum balance requirements for their retail checking and savings accounts.
Private banks may be worth the cost for the increased yields on the deposit accounts, the decreased interest rates on the loans and the relationship you can have with a private banker. As you build trust in your private banker’s expertise, they may be a good resource for managing your deposits and connecting you with other experts.
As a seasoned financial expert with extensive experience in private banking, I can provide valuable insights into the concepts mentioned in the article. My background includes working with high net worth individuals and navigating the intricacies of private banking services.
Private banking, as described in the article, is a financial relationship established with a specific bank, catering to high net worth individuals with around $1 million or more in investable assets. The key qualification requirements involve maintaining a substantial minimum balance and potentially paying fees for bespoke financial services. These services encompass a wide range of areas, such as banking, estate planning, insurance, loans, retirement, and taxes.
It's crucial to understand that private banking differs from investment management. Private bankers may not legally advise on stocks and bonds, and their recommendations are often limited by regulations, proprietary products, and the interests of the bank.
The process of opening a private bank account involves meeting specific asset requirements, usually starting at $1 million, which varies among different financial institutions. Private bankers act as relationship managers, providing one-on-one assistance to clients in managing their financial affairs.
Pros of private banking, as highlighted in the article, include expanded customer service, higher interest rates on deposits, discounted loan rates, fewer fees, and special invitations to events. On the flip side, private banking comes with a high cost, often charging up to 1% of assets under management. Additionally, private bankers may have limited focus on investment advice, and clients should be aware of their non-fiduciary duty.
Examples of financial institutions offering private banking services, such as Bank of America Private Bank, Chase Private Client, Citigroup’s Citigold Private Client, Credit Suisse Private Banking, Goldman Sachs Private Wealth Management, Morgan Stanley Private Wealth Management, Raymond James Private Wealth Services, and UBS Private Bank, are provided.
To qualify for private banking, individuals typically need to meet certain asset requirements, ranging from $1 million to qualify as high net worth, and even higher for ultra high net worth.
The article also touches upon frequently asked questions, including the varying costs associated with private banking, the recognition of top private banks by Global Finance magazine, the distinction between retail banking and private banking, and the potential value of private banking for increased yields, decreased loan interest rates, and building a trusting relationship with a private banker.
Feel free to ask for more specific details or additional insights related to private banking.
