It’s nice to have a go-to person in life, especially when it comes to managing your money — and that’s when doing business with a private bank can help in achieving your financial goals.
Private banks, as well as wealth management firms, which cater to wealthy individuals, typically assign clients a main representative and may also use a team approach to provide access to a number of experts on different financial subjects.
Private banking vs. wealth management
Private banking typically entails a private banker helping a customer with only their banking. Products may include a checking account or savings account, which may vary from a bank’s regular products. Private bank products, for example, may offer higher limits.
Wealth management, on the other hand, generally centers on investments, portfolio management and other specialty areas.
Wealth management services can include access to:
- Tax specialists
- Insurance specialists
- Estate planning specialists
- Trust services
- Other specialists on the team
“[Private banking and wealth management] are definitely overlapping to some degree and often can be used interchangeably,” says Mike Foy, senior director of J.D. Power wealth management practice.
Eligibility requirements for private banking
Private banks and wealth management firms usually require a minimum balance. For private banking, this may include just deposits with the bank or it may also include investments, individual retirement arrangements – or individual retirement accounts (IRAs) – or other types of investable assets.
The minimum amount varies — $1 million is most likely the minimum for most private banks, Foy says. But there are some exceptions. For instance, Chase Private Client requires customers to keep a $150,000 worth of deposits and/or investment. Anyone can sign up for Chase Private Client, but falling below the balance requirement results in a $35 monthly fee.
Private banks typically have a minimum balance requirement — unless investments are involved, but wealth management firms are likely to have a fee-model that charges a certain percentage of the assets being managed.
J.D. Power classifies consumers with $1 million or more in investable assets as being in the high net worth category, and from $100,000 up to $1 million as being in the mass affluent category.
“So that’s kind of the way we view the world,” Foy says. “Most of our clients who are basically large banks and brokerages tend to view things the same way.”
Ultrahigh net worth is generally the classification for those who have more than $10 million in investable assets.
You may qualify, even if you don’t meet the requirements
There might be exceptions to the minimum requirements, if it makes sense in the financial institution’s eyes.
Potential exceptions may be the children of high-net-worth individuals. Private banks and wealth management firms are always thinking about the future — as in wealth transfers. If the money is going to be passed along in the future, these institutions want to make sure the funds stay with them.
It’s also possible for young professionals who don’t meet the requirements yet, but based on their education and career path are on the right path to meeting the minimum, to receive an exception. These are the emerging affluent, Foy says.
“Those kinds of things I think are pretty common as far as exceptions to standard guidelines for levels of wealth that qualify for private banking,” Foy says.
Advantages of private banking and wealth management
Here are some of the benefits you can expect with private banking.
1. A dedicated representative
The biggest advantage of private banking is having a dedicated person – or a team of people – who already knows your circ*mstances. Private banking can make it easier to deposit checks, initiate wire transfers, order checks and more. Some of these might not even require an in-person visit. Because the private banker or wealth management team knows your situation, it saves time. Otherwise, you may have to repeat your situation and preferences every time you need something at the bank.
2. Ability to connect with a network of specialists
The private banker is the quarterback who connects you with others on the team, such as a tax attorney or a trust and estate adviser, Foy says. Having the ability to have your private banker or wealth manager set up meetings with specialists can be a time-saving perk.
“The key to our business success is having a comprehensive and multi-disciplinary set of professionals, who have expertise in a wide range of important financial areas,” says Joe Calabrese, national head of wealth advisory services at Key Private Bank.
3. Personal attention
For ultrahigh net worth individuals, the benefits and services might be even more detailed. “At some level, when you go high up the spectrum and you’re talking about a real white-glove type of relationship, you might have concierge services that are even doing more personal, philanthropic support,” Foy says. “Even event planning or helping to make arrangements for vacations. It definitely kind of bleeds into [a] personal assistant outside of any specific banking needs.”
John McGowan, certified financial planner, adviser and founder at Mandala Financial Advisors in Des Moines, Iowa, says he recalls a client in the Midwest who had a second home in Florida.
“A hurricane was approaching, so their private bank relationship manager went over there to their home and made sure that they orchestrated … someone to come in and board up all their windows,” McGowan says.
4. Perks, freebies and potentially better pricing
Private banking could include discounts, ranging from the potential for a free safe-deposit box size to the potential for free checks.
“You’re going to get preferential pricing regardless of whether you’re talking about fees for managing your assets or other services that you get with the institution,” Foy says. Those perks may include a lower annual percentage rate (APR) on a mortgage or home equity loan or a higher annual percentage yield (APY) on a savings account or CD.
Private banks may offer benefits outside of your bank account. For instance, private banks tend to have events for their clients, Calabrese says.
5. Business benefits
Business owners can also benefit from having their personal private banking or wealth management relationship with the same bank as their business account. This relationship may help secure commercial lending opportunities or discounts or benefits on the business banking side. “I think business owners are going to represent a reasonably significant percentage of private banking clients,” says J.D. Power’s Foy.
Disadvantages of private banking and wealth management
Beware of the downsides to private banking and wealth management.
1. You may be losing out on interest
It might make sense to think twice about private banking if you need to commit a sizable amount of money to an account with a low annual percentage yield. Or, you can at least aim to put the bulk of your savings in a high-yield savings account earning a competitive APY.
Many online banks have been raising savings account yields since the Federal Reserve began raising rates in March 2022.
2. High management fees
It’s smart to compare fees for having your money managed at a wealth management firm with alternatives. Management fees are typically about 1 percent of investments, usually charged annually, Foy says.
3. Private bankers come and go
Turnover can also be a factor. If your private banker or wealth manager leaves the financial institution, you’ll have to choose whether to stay with the firm or move your business to your representative’s new employer.
