Private banking refers to financial products and services designed for individuals and families with a high net worth. Private bankers offer clients traditional banking services such as checking and savings accounts, in addition to custom-designed investment, tax, and estate planning solutions.
What is private banking?
Private banking refers to financial products and services provided to high-net-worth individuals. The actual products and services offered are quite similar to those offered by traditional retail banks, but with a more personalized approach. In fact, most retail banks have private banking divisions. For example, Bank of America offers private banking services through its U.S. Trust division.
Private banking includes common services like checking and savings accounts, but it can also get into more specialized services. For example, Wells Fargo's private bank offers "strategic borrowing" services designed to optimize the cash flows and tax efficiencies of its clients.
In a nutshell, a private banker provides a one-stop custom-tailored financial strategy for its clients, including cash management, investment strategies, and more.
Products and services offered by private banks
While the specific services offered vary from bank to bank, private bankers may offer these services to their clients:
- Deposit accounts (checking, savings, money market, CDs): High-net-worth individuals often qualify for preferential pricing, such as a slightly higher savings interest rate than standard accounts would get.
- Investment planning services: Private bankers draw up custom investment strategies and create portfolios to meet their clients' goals and objectives.
- Real estate financing and advice: Private banks help clients obtain loans for a primary or secondary home, as well as financing for investment real estate.
- Lending: In addition to mortgage lending, private banks often offer specialized types of loans to their high-net-worth clients. These may include aircraft, yacht, and fine art financing. In addition, private banks may offer flexible lines of credit, secured by the client's account.
- Tax planning: Private bankers help clients plan for current tax laws, as well as potential changes in the future.
- Bill and cash flow management: Private bankers help clients manage their everyday cash flow, and may handle bill payments.
- Risk management solutions: Private bankers can help their clients protect against interest rate fluctuations, foreign exchange risk, and liquidity risks.
- Estate planning services: Private banks help clients plan for passing their wealth to future generations.
- Custom credit strategies: The "strategic borrowing" example I mentioned earlier would be a custom credit strategy.
Other types of banking
In addition to private banking, there are several other varieties of banking products and services, including:
- Retail banking: This is what most people think of when they hear the word "bank." Retail banking refers to any banking services that are intended for everyday consumers. This includes checking and savings accounts, credit cards, mortgages, auto loans, CDs, and more.
- Commercial banking: Commercial banking refers to financial services provided to the corporate or institutional world. Many of the products offered by commercial banks are similar to those offered by retail banks, such as savings and checking accounts, but commercial banks may also offer things like foreign trade services, treasury management services, merchant services, and more.
- Investment banking: Investment banks provide services to corporations, governments, and individuals. These services include raising financial capital by underwriting debt or equity issuances, and assisting in mergers and acquisitions. Investment banks can also engage in market-making activities and trading.
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