One of the oldest sectors within the financial industry, private banking has often been described as secretive, though bankers may prefer the term discrete. Anika Sidhika brings you this explainer
In private banking, wealthy clients, often referred to as high net worth individuals (HNWIs), are matched with individuals or teams who manage all their financial matters on their behalf within the firm.
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To get help or complete transactions, clients can bypass the teller by calling their private banker immediately. Private bankers are in a unique position to offer advice because they are already aware with their clients’ individual financial situations.
Although private banking’s concierge feature is one of its selling points, a private banker offers a variety of services. In addition to serving as the point of contact for clients, a private banker can plan for specific products outside of the company’s standard offerings, pay invoices, and offer wealth management services.
Briefly noted, the service offers customers a single point of contact for the majority of their financial needs.
How does private banking work?
Private banking considers all aspects of finances. Regardless of whether the customer is an executive, an entrepreneur, or the head of a family business, private banking examines the options that best match their needs.
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There are variations in private banking services amongst players. Although many institutions that offer the solution are likely to offer the following products and services:
- General financial planning;
- Investment support;
- Wealth management;
- Insurance services;
- Estate planning;
- Lending;
- Tax planning, and
- Credit as well as much more.
The positives and negatives
Advantages
Only one point of contact. With private banking, you have access to a devoted private banker who can address your concerns, address your financial problems, and make referrals to bank experts. As a result, you may have to explain your money less frequently and banking privacy may be improved.
Advantages for entrepreneurs. Managing your personal and business finances can be challenging, but a relationship of this kind can help you find a balance between growing your business and optimising your personal income.
Alternative investment possibilities. Private banking provides access to privileged hedge funds and private financing possibilities.
Resources and fees of banks. The customer funds are added to the bank’s or brokerage’s overall assets under management (AUM), which benefits both entities. Portfolio management expenses and interest on loans approved by the private bank can be high, even at discounted rates.
Disadvantages
Employee retention. Even in the top departments, turnover among employees is widespread at financial companies. Additionally, there could be worries of betrayal and conflicts of loyalty: The private banker receives compensation from the financial institution instead of the client, in contrast to an independent money manager.
Absence of transparency. Private banking is an upscale industry, thus it’s not always possible to get a detailed breakdown of services and costs. Without a complete understanding of the available options, finding the perfect fit for your needs could be challenging.
Regulatory limitations for banks. As profitable as wealth management can be, it can also provide issues for the firm. Since the 2008 global financial crisis, the financial setor has faced a stringent regulatory environment.
