Private Banking Vs. Wealth Management | Dechtman Wealth Management (2024)

Do you know the difference between private banking and wealth management? If not, that’s okay. Many people don’t understand the difference or even recognize that there is a difference at all.

In this article, we’ll break down:

• the key differences between private banking and wealth management
• the pros and cons of both, and
• who should utilize which service

By the end of this article, you’ll have a much better understanding of private banking and wealth management services to determine which is right for you.

Words to Know: Assets Under Management & HNWIs

Two terms that often arise when discussing private banking and wealth management are assets under management and HNWIs.

Typically, when people talk about assets under management (AUM), they’re referring to the total market value of investments managed by a financial institution on behalf of their clients. Assets may include:

• mutual funds
• exchange-traded funds
• hedge funds
• private equity
• real estate
• bonds
• commodities, and more

People who have a net worth of over $1 million are referred to as High-net-worth individuals (HNWIs). HNWIs tend to have more complex financial portfolios that require more sophisticated planning than the average person’s portfolio.

The Quick Truth about Private Banking & Wealth Management

We’re about to dive into the differences between private banking and wealth management. However, know that there is a great deal of overlap between the two services, and it is not uncommon for people to use the terms interchangeably.

What Is Private Banking?

Private banking is a financial service provided by banks to high-net-worth individuals, which is generally for individuals with a net worth over $1 million. This suite of services is like the “white-glove” service level of banking.

Private banking, at its core, remains focused on the transactional elements of banking, such as deposits, lending, and other traditional banking services. In addition to offering these transactional services, private banking clients may be provided services such as:

• personalized service from a dedicated banker;
• access to prime rates*, higher APYs**, discounted or waived fees, and customized product offerings;
• direct assistance or introductions to professionals who can assist with broader financial needs;
• offer access to unique investment opportunities and preferential terms on loans

Private banking is offered primarily to affluent individuals and brings a concierge-like feel to banking.

As always, we have to consider the pros and cons. Private banking can be fantastic, but not all that glitters is gold.

Potential pros of private banking

Dedicated service – As a private banking client, you’ll be assigned a dedicated banker. This individual will get to know you and your financial goals. Having that confidant can be helpful if you would rather not manage your finances on your own or appreciate the opportunity to benefit from their insight.

Preferred treatment – Private banks often offer their clients preferential treatment regarding loan terms, interest rates, and access to unique investment opportunities.

Ease and Access – One of the biggest perks of private banking is the level of convenience and access it provides. Having your investment, insurance, and tax planning all under one roof makes communication a breeze.

Potential cons of private banking

High minimums – To qualify for private banking services, you usually need a high net worth and liquidity for investment options, often with high minimum deposits.

Generalist experience – Generally speaking, many of the bankers that offer private banking services are generalists in financial matters. They may be exceptionally well versed with the ordinary. But, let’s face it, finances are rarely ordinary. You might be better off working with a specialist in the areas that are most important to you.

Fees – Private banking services often have higher fees than traditional banking products, quickly eating into your returns.

Lack of Flexibility – When you utilize private banking services, you often lose the opportunity to pursue opportunities outside of that bank’s playground. When a particular fund or product isn’t available through the bank, you may need to work with what they have.

Examples of Private Banks

There are two primary approaches to private banking. First, some banks work with the general population and assist HNWIs with high-level private banking services. These are main street banks that don’t cater specifically to wealthy individuals, but when they identify a customer has a sizable net worth, the bank may introduce them to the benefits of private banking. These are brands like Chase Private Client or Bank of America Private Bank.

The second approach to private banking would be the Goldman Sachs of the world. These private banks cater to affluent individuals and do not manage accounts or assets for people who cannot meet their minimum deposit requirements.

What Is Wealth Management?

While private banking services are typically only available to high-net-worth individuals, wealth management eligibility will be determined by several factors, such as total AUM. Theoretically, anyone with investable assets can qualify for wealth management. Generally speaking, wealth management services are more valuable for anyone with investable assets of $250,000 or more. It is considered the more advanced option when weighing investment advisor services.

At its core, wealth management is about helping people grow and protect their assets. What services you’ll receive will vary from one wealth management firm to another. However, you’ll usually have a wealth manager who gets to know you and your investment goals and strategies over time. This is your point person. In addition to helping you with your general money management, they can also coordinate with other professionals within your lineup, or they may work with financial professionals employed by the firm itself to provide services such as:

• financial planning
• investment management
• tax planning
• insurance consulting
• estate planning

Additional services such as philanthropy planning, family office services, and Medicare planning may also be available depending on the wealth manager. How beneficial these services are for you will primarily be based on your unique financial needs and goals.

What wealth management advisors can and cannot do

There are some important limitations on what wealth management advisors can do. For example, they cannot:

• guarantee any results
• provide legal services or advice without a license to practice law
• perform accounting duties
• act as a depository or provide transactional banking services

What they can do:

• help you create a plan to reach your financial goals
• build a balanced and diversified portfolio
• coordinate with other professionals to provide a well-rounded suite of services
• stay aware of market trends and news
• monitor strategies and progress toward financial goals

What services do wealth managers offer?

The services offered by wealth managers will vary based on the firm, but they typically include:

Investment management – This is the primary service provided by private wealth management professionals. They strive to help you grow your assets and protect your investments through various investment strategies.

Financial planning – Wealth managers can help you plan for your short-term and long-term financial goals. Areas of financial planning they assist with may include budgeting, retirement planning, estate planning, and more.

Tax planning – Minimize your tax liability through various strategies that can be employed by and between your financial and tax advisor.

Insurance consulting – An experienced wealth manager will understand the marketplace’s different insurance products and services. From short and long-term disability to financial products, they’ll be able to help you identify the insurance solutions you need to protect your assets and loved ones.

Estate planning – Wealth managers and tax professionals can help you plan for the distribution of your assets after your death.

Philanthropy planning – Wealth management professionals can help you plan for charitable giving during your lifetime and after your passing.

Family office services – Wealth managers can provide various services to families with complex financial needs, such as bill paying, estate administration, and more.

Medicare planning – Some experienced wealth managers can help you plan for the financial element of your health care needs as you age.

Who should use wealth management services?

Wealth management services are most beneficial for anyone with $250,000 or more in investable assets. However, wealth managers can customize services to meet your unique needs and goals.

If you’re not sure if wealth management or private banking is better for you, it’s a good idea to have some conversations. First, speak with a financial advisor at a wealth management firm to get more information. Then, talk with a banker about their private banking offerings. The best way to determine the value difference between wealth management vs private banking is to speak with the professionals that offer each.

We believe it is crucial to entrust your financial success to specialists who have the experience and expertise to help you grow and protect your wealth. The most important thing is that you do your due diligence and find the services that will guide you toward your financial goals with confidence.

Private Banking vs. Wealth Management: Which Service Does What?

There are some key differences to be aware of when it comes to private banking vs. wealth management. Private banks typically focus on deposit-taking, lending, and other traditional banking services, while wealth management is a broad term that can encompass everything from investment management to financial or estate planning and more.

The services offered by wealth managers will vary based on the firm, but they typically include:

Investment management: This is the primary service private wealth management professionals provide. They will help you grow your assets and protect your investments through various investment strategies.

Simultaneous private banking and wealth management

If you’re considering private banking vs. wealth management, there is no reason you can’t consider utilizing both services, even simultaneously.

While wealth management and private banking can offer financial planning services, private bankers typically do not provide the comprehensive suite of services that wealth managers do.

Wealth management professionals are better suited to help you plan for your financial future because they have a more holistic approach that considers all aspects of your financial life. However, it’s very convenient to be able to discuss money management and investment strategies when you are at the bank managing your money.

Takeaway

Wealth management and private banking services deliver convenience and opportunity to the affluent. When deciding which is best for you, it’s essential to consider your needs and goals.

Private banking could be a good fit if you’re primarily interested in traditional banking services like deposits and loans. If you’re looking for someone to help you manage your investments and grow your wealth, wealth management may be the way to go.

Discover the benefits of wealth management with a free assessment with Dechtman Wealth Management. Schedule your free, no-obligation 15-minute phone call via Calendly, and we’ll help set you on a path for success.

*Prime rates are the interest rates at which banks lend to customers with good credit

**APY (annual percentage yield) is the real rate of return earned on an investment