Private banking is a specialized form of financial management that caters to high-net-worth individuals or families. It provides personalized financial and banking services, surpassing the offerings of conventional retail banking.

Broadly speaking, private banking encompasses several banking services, including wealth management, investment advice, estate planning, and more. According to research firm IBIS World, the size of the private banking industry increased by 13.2% to $114.9 billion in 2022 (in terms of revenue generated from private banking services).

In this article, we are going to examine what private banking is, how it works, its pros and cons, and, finally, the current state of the private banking industry.

Key takeaways:

• Private banking is a specialized financial service tailored for high-net-worth individuals seeking personalized financial management beyond traditional banking.
• Private banking includes comprehensive wealth management, covering financial investments, asset protection, tax planning, and long-term financial strategies.
• Eligibility typically involves a minimum investable asset requirement (usually around $1 million), alongside income or net worth thresholds.
• The private banking sector is rapidly growing, with top banks managing trillions in assets. UBS Group leads with $3.9 trillion in AUM, followed by HSBC at $3 trillion and Goldman Sachs at $2.5 trillion AUM.

What is private banking?

Private banking is a financial service tailored for affluent individuals seeking personalized financial management beyond the scope of conventional banking services. Originating from ancient times when wealthy families employed private bankers, the sector has transformed into a comprehensive suite of financial offerings.

Below, you can find out more about common services offered as a part of private banking.

Wealth management

One of the hallmark services within private banking is comprehensive wealth management. This encompasses not just financial investments but also asset protection, tax planning, and long-term financial strategizing.

Wealth management can be especially tricky when it comes to taxes, which is especially the case with crypto taxes – every country does its own thing, and it can feel impossible for a regular person to stay on top of the latest regulatory changes without seeking services from specialized crypto tax accountants.

Investment advice

Private banking institutions provide specialized investment advice, leveraging their expertise to offer tailored investment solutions that align with the client’s financial goals and risk tolerance. For example, a wealth management expert can help clients decide whether to pursue long-term dividend stock investments or take on calculated risk by investing in a new trendy thing like AI stocks.

Since companies and families that use private banking services are wealthier than most, their private banker can also point them to less common investments that require a significant amount of capital, such as private credit.

Estate planning

A crucial facet of private banking involves estate planning services, ensuring the smooth transition and management of wealth across generations, often involving complex legal and tax considerations. It is worth noting that families that are especially wealthy (typically at least $50 million in investable assets) use family offices for most estate planning and other private banking services.

A family office is a privately held company that manages the financial affairs of a wealthy family. They typically handle investment management, wealth planning, tax planning, and philanthropy. Family offices can also provide other services to their families, such as estate planning, education planning, and concierge services.

The difference between private banking and family services is primarily in that private banking services are usually offered by large banks that offer specialized products to wealthy individuals, whereas family offices are companies owned by said wealthy individuals to manage their wealth exclusively.

What are the requirements for private banking?

The requirements for private banking services vary depending on the specific bank or wealth management firm, but typically include the following:

• Minimum investable asset requirement: This is the most important requirement for private banking eligibility. Most private banks require a minimum investable asset level of $1 million, but some may have lower or higher thresholds. Investable assets typically include cash, stocks, bonds, real estate, and other investments, including cryptocurrencies.

• Income or net worth requirement: In addition to the minimum investable asset requirement, some private banks may also have an income or net worth requirement. Income requirements typically range from $200,000 to $500,000 per year, while net worth requirements may range from $2 million to $10 million.

In addition to the above requirements, some banks may also require that clients have a certain level of investment knowledge and experience, and they may also consider a client’s tax status and residency when determining eligibility.

It is worth noting that eligibility requirements between banks vary greatly, and it’s beyond the scope of this article to list requirements for various banks. If you need more information about a particular bank, we suggest you get in touch with them directly.

Advantages and disadvantages of private banking

Private banking offers personalized financial management, catering to individual needs and financial goals. Clients receive tailored advice, concierge-like services, and access to exclusive investment opportunities, often with lower fees.

However, high entry requirements, potential conflicts of interest between clients and banks, and high turnover within banking departments are some of the most apparent trade-offs when evaluating private banking services.

Pros of private banking:

• Personalized services
• Client-specific financial strategies
• Access to exclusive opportunities
• Concierge service
• Lower fees

Cons of private banking:

• High minimum investment
• Potential conflict of interest between clients and banks
• High turnover among successful private bankers

Private banking sector overview

The private banking sector is growing very rapidly, with top banks managing more than $15 trillion in assets for their private banking clients as of 2022. The largest private banking division in terms of AUM belongs to UBS Group (UBS), which has $3.9 trillion in AUM. HSBC (HSBC)came in second, with a total AUM of $3 trillion. Goldman Sachs (GS) placed third with an AUM of $2.5 trillion.

Biggest private banks in the world by AUM. Source: Statista

The bottom line

In essence, private banking is a specialized domain that offers exclusive financial services, catering to the unique needs of high-net-worth individuals. With its personalized approach, diverse services, and access to exclusive opportunities, private banking remains a cornerstone of wealth management for wealthy clients.

For additional reading about the banking sector, in particular, which banks to avoid due to bad practices, check our list of the worst banks in America.

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