Is private banking only for the rich?

I bet you must have thought of private banking at some point, assuming that it’s a secret society of the rich.

If that’s what you think, you’re not entirely wrong. Although it might not be as secretive (today) as you might have imagined, private banking is for the rich.

This article looks at the what’s and how’s of private banking and see if it’s a good option for you to park your wealth.
_________________________________________________________________

Key Takeaways

• Private banking is primarily useful for high-net-worth individuals.
• Institutions, such as banks (large and small) and family offices, provide private banking or private wealth management.
• Private bankers generally charge a small fee based on the assets under management.
• Private banking is a subdomain of private wealth management
  ______________________________________________________________

Let’s start with the basics.

What is meant by private banking?

In one sentence, customized banking & financial services for millionaires.

A private banker is basically a relationship manager, doing wealth structuring/planning for the rich.

How does a private bank work?

It gives financial management services to the High Net Worth Individuals (HNWIs), to protect and maintain their assets.

These banks usually designate employees to each clients’ portfolio who provide individualized financing solutions.

How much money do you need for private banking?

The minimum amounts vary.

You should have high levels of income or a sizeable investment asset(s) to avail these services.

For example, at Lloyds Bank, you need a minimum deposit of £250,000 or a mortgage of at least £750,000.

Private banking at Barclays is more expensive; you need a minimum of $1 million dollars.

(Previously it was $500,00 but in 2014, Barclays dropped customers with less than £500,000.)

How do private bankers get paid?

Base salary + commissions

These commissions are based on assets under management (AUM) fee.

Of course, this formula is not written in stone, private banking salaries vary across banks.

According to Glassdoor, In the US, the average annual base pay for a private banker is $79,715, with $23,000 per year in additional compensation such as fees, bonuses, and commissions.

Private banker salaries at RBC (Royal Bank of Canada) range from $109,689-$117,600 annually, plus commissions of $33K — $36K.

How much money do you need to bank with Coutts?

Coutts, the eighth oldest bank in the world, requires at least £500,000 in cash or £5m in assets to open an account.

Private Banking vs Wealth Management

Private banking falls under the umbrella term of Wealth Management, which caters mostly to individual investment needs.

Private banking and wealth management overlap a lot but they have slight differences.

Is private banking wealth management?

Broadly speaking, yes.

Segregated accounts are central to Wealth Management but not every private bank puts your money in them.

What are private banking products?

The product details vary and you have to find the private banking services suitable for you. Some standard ones are:

• Deposit accounts (checking, savings, money market, CDs): You will probably get a better treatment (e.g. higher interest rate) if you bring in a lot of money.
• Investment planning services
• Real estate financing and advice
• Lending
• Tax planning

What are the benefits of a private banker?

Many.

In fact these benefits are how private bankers attract customers. With a private banker you get:

• A dedicated representative
• Connection with specialists (regional, market/commodity specific experts etc.)
• Personal care (according to your situation about your life/finances)
• Perks and discounts on banking products.
• Business benefits (commercial lending opportunities or discounts on business banking)

The underlying factor is that the banks want to make the life of the busy and rich clients as comfortable as possible.

Which private banking is the best?

I would ask you a question in return, actually two:

1. How much money do you have?
2. Where are you located?

Lloyds might be a perfect fit for a Londoner but not for a billionaire industrialist from India.

So the answer is that it depends on your needs.

The controversial part of private bank accounts is that not all of them are segregated and that’s a problem.

When you accumulate wealth of upwards a million dollars, you need to keep it in an account that is safe even from the bank.

For example, in case your bank files for bankruptcy, your segregated account remains safe.

Is private banking worth it?

Absolutely.

You not only want your wealth to be safe but to grow. And the horizon of private banking services is expanding.

Asia’s private wealth is booming, China, has made stunning economic progress in the last 30 years and it’s pumping out millionaires.

Naturally, these people need private wealth management solutions. Read Who’s who in private banking Singapore for an insight into Asia’s private banking.

Also, check this extensive Private Banks List from around the world.

So, is private banking for you?

If you like the VIP treatment by paying extra (a lot of extra charges) then you should go for it. However, not all private banks are the same.