What Is Private Banking and How Does It Work?

What Is Private Banking?

Private banking, sometimes referred to as “relationship banking,” is a service that connects you to a personal representative or team to manage all of your financial needs through the bank. Whether you need to deposit money, transfer funds or apply for a loan, you can call your private banker to handle it.

One of private banking’s biggest selling points is convenience. You don’t have to wait in line at your bank or on hold for phone assistance. One call to your private banker or team is all it takes to handle your banking matters.

A private banker works with you to understand your financial situation and goals and may make suggestions based on the bank’s offerings to help you achieve them. For example, your private banker might manage the process of obtaining a loan and provide you with flexible financing options. You may be able to utilize asset-secured financing for business loans, jumbo mortgages, residential construction loans and more.

Private banking often falls under your bank’s wealth management division, but the services they provide are typically limited to your banking needs. However, wealth management services can help you manage your investments and connect you with financial planners, tax specialists, insurance providers and other experts. These services may overlap with some firms, so your mileage may vary depending on the provider.

Private Banking Eligibility Requirements

Qualifications for private banking differ from one financial institution to another, but you might be required to:

• Hold an account with the bank
• Maintain a minimum balance
• Pay a monthly service fee

Financial institutions also generally require you to hold a significant amount in investable assets. Private banking is generally reserved for high-net-worth and ultra-high-net-worth individuals with $1 million to $10 million or more in investable assets. However, some firms have more lenient requirements. For example, retail banking customers at national commercial banks typically have less than $100,000 in investable assets. And, if you’re nearing the $1 million mark in investable assets, you may qualify for private banking or wealth management services at some major institutions.

Advantages and Disadvantages of Private Banking

Private banking can help you save time and give you access to exclusive services and deals, but consider the risks before proceeding.

Advantages

• Connect with a personal bank representative: You get your own dedicated bank representative or a team of professionals who know your financial needs and personal banking preferences. Your point person can help create a personal financial plan and arrange for exclusive financial services.
• Convenient way to save time: A private banker can assist you with financial planning, home or business financing, everyday transactions like bill payments or deposits, and a whole host of other services. A simple email or phone call to your dedicated contact may be all it takes to complete your most important banking tasks.
• Access to professional services: Services vary depending on the financial institution, but private banking may give you access to investment planning, tax advice, cash-flow management, estate planning and more. You may also receive preferred interest rates and special investment opportunities reserved for clients.

Disadvantages

• Must have considerable assets: Generally, you must have $1 million in liquid assets—such as savings, stocks and bonds—to be eligible for private banking.
• Restricted to in-house options: While private banking gives you exclusive access to professional services and personalized offers, these options are usually limited to those offered by the financial institution. Also, the guidance you receive regarding investments, taxes and other financial matters may be more standardized than you’d find elsewhere.
• Can be expensive: Depending on your bank, you might pay a flat rate, commission or a combination of both. Even a basic package could run you several hundred dollars.

Should You Use Private Banking?

Private banking could make sense if you have a high net worth and want to simplify your financial services by having a single contact person handle your financial needs. If you like the idea of accessing special deals and a suite of professional services—from investing and taxes to insurance and estate planning—private banking could be an ideal option.

On the other hand, you may not want to open a private banking relationship if you prefer working with the very best in all areas of your financial management. While it’s wise to compare offerings at several financial institutions, it’s unlikely one bank will be the best for every product and service.

If you’re not keen on private banking, there are other ways to get personalized financial help. As mentioned, wealth management firms can give you customized investment and tax advice without limiting you to one bank’s offerings. You could also work with an independent financial advisor who can compare products from various companies to find the best options to help you achieve your goals.

The Bottom Line

A private banking service with a dedicated bank representative could help you manage your finances and save time. If you’re interested in opening a private banking account, compare multiple financial institutions to find the best combination of services, minimum balance requirements and the overall banking experience.