Private Banking is a highly personalized banking service offered to individuals who specifically invest an amount above U$S1M. The most noticeable difference between retail and personal banking services is that private customers receive customer service on a 1-1 basis through a relationship manager or personal banker. Wealthy individuals with personal accounts can expect to meet with their bank contact in person, and have direct phone access to a relationship manager. Usually the private banking branch of the bank is separate from the retail banking branch and the service is completely different.
A private bank is one that is not incorporated. Private banks are preferred by conservative investors because directors are held personally accountable, and more likely to be vigilant in managing client funds. Such financial institutions are sometimes family-owned and cater only to the very wealthy. One of the reasons why wealthy people choose them is because of their confidentiality – a pledge to keep customer records secret. For some it is a matter of not being targeted by criminals, lawsuits or corrupt governments. Others use this secrecy to shield income and avoid taxes from authorities such as the IRS.
Due to the strict bank secrecy laws and the sophistication of Swiss financial services, many of the world’s private banks are found in Switzerland. Smaller banks in countries such as Switzerland are also more likely to keep their customer records secret because they limit their operations within the country’s bank secrecy laws.
Not only do private banks provide private banking services – in fact some of the largest providers of private banking and wealth management services such as UBS, Credit Suisse and Barclays are not privately owned. Private clients of these giant banks can take advantage of their in-house trading and research departments, and sometimes choose to have almost all of their assets managed by the bank. Thus they expect returns much higher than those offered by an ordinary savings account or certificate of deposit.
Types of Private Banking Services
Usually only very affluent clients seek wealth management – where private bankers manage investment portfolios for a family or an individual. The fee for this service varies from bank to bank and is charged annually as a percentage of the total amount invested. The return of the portfolio will also depend on the standard of the private banking service. While some will provide excellent returns, others will continue to charge high fees while investing client funds in the bank’s own investment funds, regardless of whether it is beneficial to the client or not.
A popular alternative to wealth management is self-directed private banking, where the client manages their own portfolio, at times seeking advice from the bank. The advantages of this type of account are lower fees and more personal control.
Inheritance and tax planning are additional personal banking services provided either directly or by referral for an additional fee.
