Private Banking

Financial Dictionary -> Banking -> Private Banking

Banking institutions have developed special policies when it comes to servicing their wealthiest clients, catering to their needs as best as possible. Private banking, in particular, is taking customer care at another level, providing exclusive and exceptional service to 'high net worth individuals' (HNWI). A considerable amount of financial assets is required in order to qualify for the benefits that come when one is regarded as high net worth customer. Banks have different criteria as to who qualifies for their private banking services.

Some private banks offer services only to individuals with investable assets of at least $500.000. The rationale is that persons with high income level are more likely to participate in alternative forms of investment, e.g. real estate and hedge funds. On the other hand, high income level translates into better liquidity.

Through private banking, high net worth individuals are entitled to much more personalized services by professional bank advisers. Nowadays, this service is an absolute necessity for people with high incomes. It is particularly difficult for them to keep an accurate account of their wealth or make the best financial decisions. Private banking is all about finding the perfect financial solution in a discrete way, taking into account the client's individual needs and circumstances. First, the bank's wealth planners review the past and present financial situation of the client, doing their best to come up with an accurate assessment of the client's future requirements. In this way, wealth planners can develop a unique financial plan and solutions based on in-depth knowledge. In addition, they offer tax, investment and accounting services as well as high profile wealth maintenance. Rendering assistance for luxury purchases such as a yachts, family homes, or valuable state of the art pieces is just the tip of the iceberg. Wealth advisers also assist in developing one's retirement plan, making sure that the client will be able to enjoy his extravagant lifestyle in the future. At the same time, advice is offered on asset protection and family inheritance. Moving to another country or simply purchasing property abroad often involves dealing with foreign tax laws, considering other legal implications, and tons of paperwork. Taking care of such details is a responsibility of the private banking advisor. Moreover, he or she is looking for opportunities to buy valuables that are not freely available on the market and negotiates special prices. Personal advisers take care of charity funds and private foundations, creating unique donation projects. Assistance for corporate finance transactions such as mergers, privatizations, and equity placements is also offered as a part of the service portfolio.

The term private refers to minimization of taxes through careful source allocation or tax evasion. Some offshore private banks (as well as the Swiss banks) have been criticized for offering services to customers who practice tax evasion. In fact in Switzerland, banks are not required to inform the authorities about cases of tax evasion. It is not surprising that more than one third of the world's institutional and private funds are held in Swiss banks. Luxemburg is another major center for private banking. In general, most private banks guarantee the confidentiality of their high net worth clients.

According to Euromoney's 2010 survey, the best private banking service for ultra-high net worth individuals is provided by JPMorgan. The bank was successful in keeping its reputation intact and its client's money safe during the financial crisis. Among the largest companies that offer private banking services to high net worth customers are Citigroup, UBS AG, Bank of America Global Wealth, Merrill Lynch, Morgan Stanley Global Wealth Management, Wachovia, and Citi Global Wealth Management.