Private banking: Here’s how it works

It’s nice to have a go-to person in life, especially when it comes to managing your money — and that’s when doing business with a private bank can help you to achieve your financial goals.

Private banks and wealth management firms, which cater to wealthy individuals, typically assign clients a main representative. They may also use a team approach to provide access to a number of experts on different financial subjects.

Private banking vs. wealth management

Private banking typically entails a private banker helping a customer with only their banking needs. Products it provides may include a checking account or savings account with terms that vary from a standard bank’s products. Private banks, for example, may offer deposit accounts with higher limits.

Wealth management, on the other hand, generally centers on investments, portfolio management and other specialty financial aspects.

Wealth management services can include access to:

• Tax specialists
• Insurance specialists
• Estate planning specialists
• Trust services

“[Private banking and wealth management] are definitely overlapping to some degree and often can be used interchangeably,” says Mike Foy, head of Wealth Management Client Experience Transformation at Citi. (Foy was senior director of wealth management practice at J.D. Power when he was originally interviewed for this story.)

Eligibility requirements for private banking

Private banks and wealth management firms usually require a minimum balance. For private banking, this may include just deposits with the bank or it may also include investments, individual retirement arrangements such as or individual retirement accounts (IRAs) or other types of investable assets.

The minimum amount varies — $1 million is most likely the minimum for most private banks, Foy says. But there are some exceptions. For instance, Chase Private Client requires customers to keep $150,000 worth of deposits and/or investments. Deposits can also be made in a Chase Platinum Business Checking account.

Anyone can sign up for Chase Private Client, but falling below the balance requirement results in a $35 monthly fee.

Private banks typically have a minimum balance requirement — unless investments are involved, but wealth management firms are likely to have a fee-model that charges a certain percentage of the assets being managed.

J.D. Power, for example, classifies consumers with $1 million or more in investable assets as being in the high-net-worth category, and from $100,000 up to $1 million as being in the mass affluent category.

Ultra-high-net-worth is generally those who have more than $10 million in investable assets.

You may qualify, even if you don’t meet the requirements

There might be exceptions to the minimum requirements, if it makes sense in the eyes of the financial institution.

Potential exceptions may be the children of high-net-worth individuals. Private banks and wealth management firms are always thinking about the future — as in wealth transfers. If the money is going to be passed along in the future, these institutions want to make sure the funds stay with them.

It’s also possible for young professionals who don’t meet the requirements yet, but based on their education and career path are on the right path to meeting the minimum, to receive an exception. These are called “the emerging affluent,” Foy says.

“Those kinds of things I think are pretty common as far as exceptions to standard guidelines for levels of wealth that qualify for private banking,” Foy notes.

Advantages of private banking and wealth management

Here are some of the benefits you can expect with private banking.

1. A dedicated representative

The biggest advantage of private banking is having a dedicated person – or a team of people – who already knows your circumstances. Private banking can make it easier to manage your accounts, such as deposit checks, initiate wire transfers and order checks. Some of these might not even require an in-person visit. Because the private banker or wealth management team knows your situation, it saves time. Otherwise, you may have to repeat your situation and preferences every time you need something at the bank.

2. Ability to connect with a network of specialists

The private banker is the quarterback who connects you with others on the team, such as a tax attorney or a trust and estate adviser, Foy says. Having the ability to have your private banker or wealth manager set up meetings with specialists can be a time-saving perk.

“The key to our business success is having a comprehensive and multi-disciplinary set of professionals, who have expertise in a wide range of important financial areas,” says Joe Calabrese, chief operating officer at Key Wealth Management and co-CEO and president of Key Investment Services LLC.

3. Personal attention

For ultra-high-net-worth individuals, the benefits and services might be even more detailed. “At some level, when you go high up the spectrum and you’re talking about a real white-glove type of relationship, you might have concierge services that are even doing more personal, philanthropic support,” Foy says. “Even event planning or helping to make arrangements for vacations. It definitely kind of bleeds into [a] personal assistant outside of any specific banking needs.”

John McGowan, certified financial planner, adviser and founder at Mandala Financial Advisors in Des Moines, Iowa, says he recalls a client in the Midwest who had a second home in Florida.

“A hurricane was approaching, so their private bank relationship manager went over there to their home and made sure that they orchestrated … someone to come in and board up all their windows,” McGowan says.

4. Perks, freebies and potentially better pricing

Private banking could include discounts, ranging from the potential for a free safe-deposit box size to the potential for free checks.

“You’re going to get preferential pricing regardless of whether you’re talking about fees for managing your assets or other services that you get with the institution,” Foy says. Those perks may include a lower annual percentage rate (APR) on a mortgage or home equity loan or a higher annual percentage yield (APY) on a savings account or CD.

Private banks may offer benefits outside of your bank account. For instance, private banks tend to have events for their clients, Calabrese says.

5. Business benefits

Business owners can also benefit from having their personal private banking or wealth management relationship with the same bank as their business account. This relationship may help secure commercial lending opportunities or discounts or benefits on the business banking side. “I think business owners are going to represent a reasonably significant percentage of private banking clients,” says Foy.

Disadvantages of private banking and wealth management

Beware of the downsides to private banking and wealth management.

1. You may be losing out on interest

It might make sense to think twice about private banking if you need to commit a sizable amount of money to an account with a low annual percentage yield.

Or, you can at least aim to put the bulk of your savings in a high-yield savings account earning a competitive APY. Always make sure your money is within Federal Deposit Insurance Corp. (FDIC) limits and guidelines.

Top savings accounts at FDIC-insured online banks have yields that are outpacing inflation.

It’s possible to earn a competitive APY through private banking. But always compare those yields with top yields at online FDIC-insured banks.

2. High management fees

It’s smart to compare fees for having your money managed at a wealth management firm with alternatives. Management fees are typically about 1 percent of investments, usually charged annually, Foy says.

3. Private bankers come and go

Turnover can also be a factor. If your private banker or wealth manager leaves the financial institution, you’ll have to choose whether to stay with the firm or move your business to your representative’s new employer.