checking

Private banking offers perks to wealthy

As for who exactly the banks would target, "different banks drew the line at different places," Baughman says. Some private banking divisions target what Baughman calls the "mass-affluent market" with investable assets of $250,000 to $1.5 million, either held at the bank itself or at other institutions.

Other banks set a higher bar for entry; U.S. Trust looks for clients in the range of $3 million to $10 million, Farber says.

Paying for the perks

What does the bank get in exchange for offering private banking perks?

For one thing, the promise of a large pool of cheap money in the form of wealthy clients' sizable checking account balances, on which they often pay little to no interest.

Then, there's the money the bank makes off the interest charged on the larger mortgage and business loans taken out by wealthy clients. And don't forget about the real prize: a percentage of assets under management, which can add up quickly for high-net-worth clients.

However, private banking also comes with some drawbacks, Baughman says.

"There's a lot of turnover in those roles at banks," Baughman says. "You may build a relationship with Bobby, and then he's gone, and then you get Suzy who comes in and who knows what your experience is going to be like? Banks aren't that good at managing that transition, in my experience."

Also, Baughman says, banks may end up being a jack of all trades, but a master of none.

"Banks can't do everything great," he says. "They're not experts in everything, so the level of expertise in some areas is going to be less than if you went out and found a specialist in that area."

Finally, remember that like many other types of financial institutions, depending on how they're paid, a private banker ultimately is paid by the bank, not you.

"Their No. 1 responsibility is to their employer rather than the customer. Buyer beware in all instances when dealing with that," Baughman says. "In the back of the mind -- and I sat in that chair -- you're also thinking, 'What fee is generated from this?'"

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