PRIVATE BANKING

Private banking is defined as personalised financial services a bank reserves specifically for HNIs (High Net-worth Individuals) clients. These “services” include everything from a preferred interest rate on accounts to a dedicated account manager to wealth management and estate planning services. This can be a good alternative for HNI clients who want to manage their funds and wealth under one roof, but it is not without trade-offs. In this article, we will understand how it works and gain knowledge about its pros and cons of private banking. 

WHAT IS PRIVATE BANKING?

As discussed, private banking consists of exclusive merits and perks available to wealthy clients at a bank which may be either a division of a large private bank or a private bank itself. HNI clients can be business owners, foundations or individuals. The range of services available to them generally inculcate the below:

• Personalised banking services 
• Dedicated client support 
• Investment management 
• Customised credit solution
• Preferred interest rates on loans and bank accounts
• Higher limit on payments, ATM, withdrawals and transfers.
• Pricing discounts on foreign currency purchase
• Tax planning
• Treasury management 
• Custody services 
• Advisory services for family offices and law firms 
• Wealth and Trust planning

For instance, if you have at least Rs.10,00,000 across all deposits, investment accounts and retirement at Citibank, you are considered a Citigold Private Client. Their status gets  you a dedicated relationship manager and wealth advisor, as well as 24/7 support, waived bank account fees, special access to concerts and lounges while travelling and advanced wealth management.

WORKING OF PRIVATE BANKING

Let us assume private banking as a courtship. Banks want their wealthiest clients to stay with them so they grow their Asset Under Management (AUM) and make more money. In exchange, the banks focus on deepening relationships with these clients by offering them with special discounts, perks, and tools to help them streamline their rather complex wealth.

These individuals may have a dedicated familiarity with their accounts, overall financial picture and personal situation. This person acts as the client’s liaison helping them facilitate bank account transaction and whichever wealth management service they require.

MERITS OF PRIVATE BANKING

1. Dedicated account manager:

HNIs can now say goodbye to spending hours with the customer service or chatting with a different teller every time you pop by your local bank branch. With private banks, HNIs have direct access to a manager who is intimately familiar with your condition.

2. All services under one roof:

With private banks coming into picture, your bank becomes a one stop shop for all your needs related to finance. And if you already have a team of financial experts you know and trust, your bank will work with them too.

3. Special benefits:

As an HNI who is a client of a private bank, you will enjoy priority customer service, lower rates on loans, higher interest on deposits, customer lending solutions, higher transfer limits among others. 

DOWNSIDES OF PRIVATE BANKING

1. Watch out for conflict of interest:

At the end, your manager or dedicated expert advisor is employed by the bank, not you. As such, they may be obligated to push proprietary products or meet certain criterias (Even if it is not in best interest of yours)

2. Account managers come and go:

A study on work-related pressure and stress in the banking industry suggested that employees in this sector have higher levels of stress and may leave because of the same. If your manager decides to quit, you may end up having to opt between getting a new manager or following an old one to their new bank which can be complex.

3. Potential for higher fees:

You can pay more for private banking services or lose them straight, if you no longer meet the minimum requirements. For instance, Standard Chartered charges quarterly which Barclays might charge you on monthly basis. And each bank for each add on service might charge extra fees for the same which can be high.