Smart Banking: Private banking isn’t just for the 1% anymore

23 November, 2015 (12:41) | Blog | By: admin

By Claes Bell, CFA •

Private bankers are like a luxury resort for finance: You can do pretty much everything you want in one place, but you may end up paying more for it.

Unlike regular old retail banking, private banking incorporates a variety of financial services that may include some or all of the following:

  • Traditional banking services like checking, savings and CDs.
  • Financial advising.
  • Trusts and estate planning.
  • Investing services, including retirement and brokerage accounts.
  • Alternative investments, such as hedge funds.
  • Mortgages, lines of credit and other consumer loans.
  • Insurance products.
  • Business services.

Creature comforts

Private or personal banking is a generally “high-touch” service, meaning you can expect a lot of personal attention and faster service than a typical bank customer.

“Some of the things that you would see are a high degree of personalized service, with attention to the clients that would be customized to that particular client’s needs,” says Deborah Bianucci, president and CEO of BAI, a banking industry research group. “That includes not only the potential of some pricing benefits, but also accessibility for problem-solving or special services.”

Typically, private banking customers have a single point of contact to call, who may be known as a private banker, personal banker or some other title, depending on the institution. When they do need to do business in person, they may visit a quiet, nicely appointed private banking office rather than a typical branch.

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Who gets a private banker?

In the past, private banking was the exclusive domain of very high net worth clients (i.e., people with $1 million or more with the bank), but banks lately have been opening up some private banking features to other customers.

“Things have changed. There are people who have various amounts of banking services depending on the amount of money they have deposited at the bank. So even people with $50,000 can get certain premier banking services,” says Robert Stammers, CFA, director of investor education for the CFA Institute. “You may not get a personal banker assigned to you, but you may have access to certain banking products that normal retail clients don’t.”

Banks also have opened up additional, higher-level services for the very rich with something on the order of $25 million, says Greg Negron, wealth management practice leader at Carlisle & Gallagher Consulting Group.

“It can range anywhere from very ‘low touch’ — quarterly meetings to provide updates — to as ‘high touch’ as not only the client wants, but as the bank is willing to provide,” Negron says. “Once you start getting into $25 million-plus clients, then you start talking about transitioning into multifamily or single-family offices (private firms that manage everything from investments to philanthropy for wealthy families) where you’ve got a dedicated team.”

So if you have the kind of cash that makes you a candidate for private banking, should you take it?

Pros of private banking

  1. Convenience.Having a single point of contact for most or all of your financial transactions can make managing your money much easier, Stammers says.

“The positive is that you have someone that can see the totality of your finances, and they can make adjustments to them right away,” Stammers says. “So if you want to buy a product, if you want to change a checking account, if you want to get a new credit card, if you want to get a personal line of credit, it can be done quickly.”

  1. A comprehensive view for your financial planner.A comprehensive private banking relationship allows a financial adviser to see, in real time, everything from the amount of equity in your house to the REIT allocation in your portfolio, so they may be better positioned to keep you properly diversified.

“Here’s a person that can see everything that you have and can give you advice accordingly,” Stammers says.

  1. Preferential pricing on bank services.In the same way that you can get a burger, fries and a Coke cheaper if you buy them as a combo rather than a la carte, banks are willing to offer some discounts to clients who buy a bundle of services:
  • Lower rates for loans.
  • Higher rates for deposit products.
  • Fees waived for things like currency conversion or wire transfers.

Banks also may be more likely to overlook things like overdrawing a checking account for private banking clients, Stammers says.

“It’s just like how the insurance companies will give you a break if you have your car and your home with them,” Stammers says.

Banks may also take a broader view of a client’s assets when approving a loan, Bianucci says.

Cons of private banking

  1. All your financial eggs are in 1 basket.The impact of wealth mismanagement can be much more severe if all of your assets are in one place.

“If you’ve got a lot of money, you’re only getting advice from one place, so depending on what you’re trying to do, some people like to diversify among investment advice, too,” Stammers says.

  1. Private banking may not always have your best interests at heart.Banks look at private banking as a way to sell more services to their best clients, so investment advisers working for a bank are “going to be motivated to put you into bank products,” Stammers says.

One way to help ensure your investments will be managed with care is to examine the nature of the relationship you’d have with the person minding your investments at a private bank.

Brokers or advisers who are under a suitability standard only have to make sure the investments they recommend are “suitable” for a client (but not necessarily the best available), whereas those under a fiduciary standard are legally required to put the client’s interests ahead of their own and act in the best interest of clients.

  1. You may not get the best products or services for the best price.“You’re usually depending on the bank products, and those aren’t necessarily the best products available,” Stammers says. “The credit card that the bank provides may not have the best interest rate that you could get; it may not have the best rewards program that you could get.”

Because of that, private banking clients should “shop the fee and figure out whether it’s more expensive to be in the personal banking space, if that’s important to them,” Stammers says.

Why banks are ramping up private banking

Many banks have been expanding their private banking offerings, in part because that’s where the money is. Banks aren’t making much money off what we think of as their core products (checking and savings) so trying to expand into other areas of customers’ financial lives makes sense, Negron says.

“If the customer is the pie and there are 10 pieces to the pie, the bank wants to have 8 of those pieces, not just 1 or 2,” Negron says.

Claes Bell, CFA, is the mobile editor for He has appeared as a guest on National Public Radio and Fox Business and has been quoted in numerous publications, including U.S. News and World Report, the Chicago Tribune, The Christian Science Monitor and the San Francisco Chronicle.

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