High-touch money management: What to know about private banking


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It’s nice to know that when you have a question, you can get answers from someone you know and respect. It’s also great when that person already knows your specific situation.

In the financial world, wealthy individuals have this in private banking and wealth management.

Private banks and wealth management firms usually give these clients a main representative and may even use a team approach to give their clients a number of experts on different financial subjects.

Private banking typically entails a private banker helping a customer with only their banking. Wealth management, generally, centers on investments, portfolio management and other specialty areas. Wealth management specialists can include tax specialists, insurance specialists, estate planning specialists and other specialists on the team.

“(Private banking and wealth management) are definitely overlapping to some degree and often can be used interchangeably,” says Michael Foy, senior director of J.D. Power wealth management practice.

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 – or individual retirement accounts (IRAs) – or other types of investable assets.

The minimum amount required varies — $1 million will most likely be the minimum level for most private banks, Foy says. But there are some exceptions; for instance, Chase Private Client requires an average daily balance of only $250,000 or more. This balance may include qualifying linked deposits and investments.

As opposed to private banks, which usually just have a minimum balance requirement – unless investments are involved – wealth management firms are likely to have a fee-model that charges a certain percentage of the assets being managed.

J.D. Power classifies people with $1 million or more in investable assets as being in the high net worth category, and $100,000-under $1 million as being in the mass affluent category.

“So that’s kind of the way we view the world,” Foy says. “Most of our clients who are basically large banks and brokerages tend to view things the same way.”

Ultrahigh net worth is generally the classification for those who have more than $10 million in investable assets.

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

It’s possible for there to be exceptions to the minimum requirements, if it makes sense in the financial institution’s eyes.

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 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 says.

Pros 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 deposit checks, initiate wire transfers, order checks and more. 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 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.

3. Personal attention

For ultrahigh 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 personal assistant outside of any specific banking needs.”

4. Perks, freebies and potentially better pricing

Private banking could include discounts, ranging from the potential for a free safe-deposit box of a certain 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. This may potentially 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.

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,” Foy says.

Cons of private banking and wealth management

Beware of the downsides to private banking and wealth management.

1. You may be losing out on interest

If you have to commit a sizable amount of money to an account with a low annual percentage yield, it might make sense to think twice about private banking. Or, you can at least aim to put the bulk of the savings in an account earning a competitive APY.

“The forgone interest is an opportunity cost,” says Greg McBride, CFA, Bankrate chief financial analyst. “In this environment, there are yields out there exceeding 2 percent. And that’s really where people should be aiming for in terms of what they want to be earning on their cash.”

2. High management fees

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

3. Private bankers come and go

Turnover can be a factor as well. If your private banker or wealth manager leaves the financial institution, you’ll have to choose whether to stay with the institution or move with your representative.