Private Banking Vs. Wealth Management

Do you know the difference between private banking and wealth management? If not, that’s OK. Many people don’t understand the difference — or even recognize that there is a difference at all.

In this article, we’ll break down:

• the key differences between private banking and wealth management
• the pros and cons of both, and
• who may benefit from each service

By the end of this article, you should have a clearer picture of the differences between private banking vs. wealth management. Ultimately, this information may help you evaluate which type of support best aligns with your financial needs and goals.

Words to Know: Assets Under Management & HNWIs

Two terms that often arise when discussing private banking and wealth management are assets under management and high-net-worth individuals (HNWIs).

Typically, when people talk about assets under management (AUM), they’re referring to the total market value of investments managed by a financial institution on behalf of their clients. Specific assets may include:

• stocks
• bonds
• mutual funds
• exchange-traded funds (ETF’s)
• hedge funds
• private equity
• real estate
• commodities, and more

In the big picture, AUM refers to a very broad range of assets. Nearly every asset an institution or advisor might manage for their clients falls into the AUM category.

People with a net worth of at least $1 million, excluding the value of their primary residence, are referred to as HNWIs. There is a subgroup within this category as well: ultra-high-net-worth individuals (UHNWIs).

Exact definitions of UHNWIs vary, but industry research, including Capgemini’s World Wealth Report, generally places the lower threshold at $30 million in investible assets.

HNWIs, and especially UHNWIs, often have more complex financial portfolios and planning considerations. Managing these portfolios frequently involves more moving parts and specialized oversight than the average investor needs. This is where the foundational demand for private banking solutions and wealth management services comes from.

The Quick Truth about Private Banking & Wealth Management

We’re about to dive into the differences between private banking and wealth management. However, know that there is a great deal of overlap between the two services. Understanding what sets wealth management and private banking apart is especially important when choosing an option on the individual level.

What Is Private Banking?

Private banking is a financial service commonly offered by banks for individuals with significant assets, often those with a net worth exceeding $1 million. These services are typically designed to provide more direct support and customized banking assistance. The key fact to note here is that private banking centers on bank-related financial activity – lending, deposits, managing accounts, and similar offerings.

At its core, private banking centers on traditional banking functions and account-related services. These include foundational processes like deposits, lending, and other traditional banking services. In addition to offering these transactional services, private banking clients may be provided services such as:

• personalized service from a dedicated banker;
• potential access to preferred lending rates*, higher APYs**, reduced fees, and customized product offerings;
• direct assistance or introductions to professionals who can handle broader financial needs;
• offer access to specific investment opportunities and potentially favorable loan terms

Banks often provide private banking services to individuals with significant assets and deliver more direct support through customized services or closer coordination across banking relationships. Banks routinely use private banking solutions to build stronger relationships with clients who maintain significant assets.

As is so often the case, we have to consider the pros and cons. Private banking can be meaningful for some, but it’s important to carefully evaluate both the advantages and limitations.

Potential pros of private banking

Dedicated service. As a private banking client, you’ll be assigned a dedicated banker. Gradually, this individual should develop a deeper understanding of your banking preferences and evolving financial needs. Working with an experienced banking professional could be helpful if you prefer that additional support and guidance with your day-to-day money matters.

Preferred treatment. Private banks may offer their clients access to different loan terms, interest rates, or investment offerings depending on eligibility requirements.

Ease and Access. One commonly cited benefit of private banking is the added convenience and direct access it can provide. Keeping multiple banking services planned through one institution might streamline your communications and account management.

Potential cons of private banking

High minimums. To qualify for private banking services, you usually need a high net worth and liquidity for investment options, often with high minimum deposits.

Generalist experience. Generally speaking, many private bankers work across a wide range of money-management topics rather than any specialized planning areas. They may be exceptionally well-versed in the ordinary, day-to-day processes of banking. However, they may not offer the same depth of future-focused financial planning services as a dedicated wealth management team.

Financial situations and money-related decisions frequently become more layered over time. You may benefit more from working with professionals who specialize in the areas most connected to your overall wealth strategy.

Fees. Private banking services often carry higher costs than traditional banking products, quickly eating into your returns. Make sure you understand the fees associated with any private banking services before committing to them.

Lack of Flexibility. When using private banking services, some products or solutions may be available only through the institution. When a particular fund or product isn’t available through the bank, you may need to consider alternative options offered by that institution

Examples of Private Banks

There are two primary approaches to private banking.

First, some banks work with the general population and assist HNWIs with high-level private banking services. These are main street banks that don’t cater specifically to wealthy individuals.

However, when they identify a customer has a sizable net worth, the bank may introduce them to the benefits of private banking. These are brands like Chase Private Client or Bank of America Private Bank.

The second approach is the exclusive private bank model. Institutions that cater specifically to ultra-high-net-worth individuals and do not manage accounts for clients who cannot meet their usually high minimum requirements.

What Is Wealth Management?

Private banking services are typically only available to high-net-worth individuals. However, wealth management eligibility will be determined by several factors, such as total assets under management (AUM).

Theoretically, anyone with investable assets can qualify for wealth management. While eligibility varies by firm, wealth management services tend to provide more value to those with more substantial investable assets and interconnected financial structuring needs. It’s often viewed as a more comprehensive approach to investment advisory and financial planning.

At its core, wealth management focuses on helping people manage their assets in ways that support their long-term financial goals. The services you’ll receive will vary from one wealth management firm to another. That’s by design, as these firms tend to have a strong foundation in the general nature of wealth management along with special areas of deep knowledge.

Typically, you’ll work with a wealth manager who becomes well-versed in your financial priorities and planning strategies in the months ahead. This is your point person.

In addition to helping you with your money management, they can also coordinate with other professionals in your network. Or they may work with financial professionals employed by the firm itself to provide services such as:

• financial planning
• investment management
• tax planning
• insurance consulting
• estate planning

Additional services, such as philanthropy planning, family office services, and Medicare planning may also be available, depending on the wealth manager. How beneficial these services are for you will primarily depend on your unique financial needs and goals.

In the big picture, the private banker vs wealth manager distinction isn’t too difficult to understand.

Wealth managers should focus on growing and protecting your assets, ideally with a broader, more holistic approach. Private bankers are more focused on traditional banking services that are tailored to the needs of their HNWI clients. It’s often a broader scope for wealth management and a narrower one for private banking.

What wealth management advisors can and cannot do

There are some important limitations on what wealth management advisors can do. For example, they cannot:

• guarantee any results
• provide legal services or advice without a license to practice law
• perform accounting duties
• act as a depository or provide transactional banking services

What they can do:

• advise you to build a financial future tailored to what you need.
• work to build a diversified portfolio guided by your goals
• partner with other professionals to provide a well-rounded suite of services
• stay aware of market trends and news
• monitor ongoing strategies and adjust planning considerations as your goals evolve

What services do wealth managers offer?

The services offered by wealth managers will vary based on the firm, but they typically include:

Investment management. This is the primary service provided by private wealth management professionals. They work with clients to manage investment portfolios around their objectives, risk tolerance, and time horizons.

Financial planning. Wealth managers can help you plan for both near-term and long-term financial milestones. Areas of financial planning they assist with may include budgeting, retirement planning, estate planning, and more.

Tax planning. Wealth managers, in some cases, work with your CPA or tax professional on tax-aware wealth strategies.

Insurance consulting. An experienced wealth manager will understand the marketplace’s different insurance products and services. Disability coverage and other insurance-related products can play a role in a client’s broader wealth strategy.

Estate planning. Wealth managers often collaborate closely with estate planning attorneys and tax professionals to support clients’ long-term estate plans.

Philanthropy planning. Wealth management professionals can help you plan for charitable giving during your lifetime and after your passing. They can help structure charitable gifts and identify potential tax planning opportunities as part of your overall wealth plan.

Family office services. Wealth managers can provide various services to families with complex financial needs, such as bill paying, estate administration, and more.

Medicare planning. Some experienced wealth managers can help you plan for the financial element of your health care needs as you age.

Who should use wealth management services?

Those with extensive financial holdings and several interconnected financial matters may benefit from wealth management support. However, wealth managers in many cases tailor services to meet your unique needs and goals.

If you’re not sure if wealth management or private banking is better for you, it’s a good idea to have some conversations to learn more about your options.

First, speak with a financial advisor at a wealth management firm to get more information. Then, talk with a banker about their private banking offerings. Compare what each provides and the priorities of each time of service.

One way to better understand the value difference between wealth management vs. private banking is to speak with the professionals who offer each. This first-hand experience can help you make a more informed decision.

As financial and money-related situations become more involved, professional guidance can provide additional perspective and structure. The most important thing is that you do your due diligence. Careful, well-informed guidance can help bring additional structure and perspective to your complicated financial decisions.

Private Banking vs. Wealth Management: Which Service Does What?

There are some key differences to be aware of when it comes to private banking vs. wealth management banking services.

Private banks typically focus on deposit-taking, lending, and other traditional banking services. They do often offer some kind of investment component, but options may be limited to those the associated financial institution provides.

Wealth management, on the other hand, is a broad category that can encompass everything from investment management to financial and estate planning. Their role often extends beyond banking into other aspects of personal finance.

Private wealth management vs. investment banking

Let’s clear up one more common question related to these types of financial services: What is wealth management vs. private equity and investment banking?

Wealth management focuses on helping clients manage wealth across different stages of life. Investment banking, in its standard definition, is a type of banking used by organizations to raise capital and access specialized advice for detailed and involved business transactions.

Investment banking is rarely necessary for most people, including many affluent households. Most HNWIs don’t need to use the services of investment banks in their personal financial lives. These wealthy individuals may use investment banking for business purposes, but this is largely separate from managing their personal finances.

Simultaneous private banking and wealth management

If you’re considering private banking vs. wealth management, there is no reason you can’t consider utilizing both services, even simultaneously.

These services can work alongside one another, depending on your financial concerns and preferences. In other words, you don’t have to choose private banking or wealth management as you build your financial strategy. You might find value in combining financial direction and advisory support with enhanced banking relationships.

While wealth management and private banking can provide some level of support, private bankers don’t offer the same comprehensive guidance as wealth managers.

Wealth management professionals look at your full picture, not just investments. However, it’s very convenient to be able to discuss money management and investment strategies when you are at the bank managing your money.

Takeaway: Private Banking vs. Wealth Management

Wealth management and private banking commonly serve clients with larger balances and more detailed planning considerations. Their specific goals and the services they provide are distinct. There is a noticeable crossover between the two, but the differences are clear.

Private banking centers on traditional banking services geared toward clients with high net worth. Wealth management is centered on preserving and growing wealth over time.

When deciding which is right for you, it’s essential to consider those personal needs and goals.

Private banking could appeal to you if you’re primarily interested in traditional banking services like deposits and loans. Discover the benefits of wealth management with a complimentary assessment with Dechtman Wealth Management.

Schedule your complimentary, no-obligation conversation to discuss your finances and future plans.

*Prime rates are the interest rates at which banks lend to customers with good credit

**APY (annual percentage yield) is the real rate of return earned on an investment