Even though Wealth Management and Private Banking share some similarities, their offers are designed for different kinds of clients or financial goals.
Even though many use both terms interchangeably, there are several differences when it comes to choosing the right service that better fits your financial goals. In this article, we help you determine which one is the right one for your portfolio.
In this article, we’ll break down:
- The meaning of private banking and wealth management services
- The differences in services, with pros and cons of both
- Which service is the right one for you
While many of us typically turn to a bank to look for advice on how to proceed with our finances, there are specialised solutions for clients whose demands require tailored services. For those who have more than six figures to invest, a more detailed approach to their financial needs is available namely, wealth management and private banking. The terms often overlap since many private banks also offer their clients wealth management services, and some wealth managers can provide loan facilities through their relationships with banks. Even though they share some similarities, their offers are designed for different kinds of clients or financial goals.
What is private banking?
Private banking usually entails various retail banking services typically reserved for high-net-worth (HNW) or ultra-high-net-worth clients (UHNW). Normally, prospective clients will be expected to satisfy certain criteria, including investable assets of more than £1m, a significant level of borrowing (i.e., £1.5 – £2m for property loans) and/or significant salary deposits.
The service includes all the features of a regular bank, however, given that it is an exclusive offering, customers are provided with specialist private bankers who act as their relationship manager coordinating their requirements. They also benefit from complex lending services offered at favourable interest rates and exclusive credit cards. For instance, ‘Lombard’ lending is available enabling clients to borrow against their investment portfolio (it will need to be invested through the bank’s wealth management service, also known as ‘assets under management’) and using other collateral, such as prime London property. Clients can also use the bank’s wealth management services including discretionary investment management and financial advice.
The private bank aims to provide high net-worth clients with an exclusive one-stop shop albeit at a reassuring price.
What does a wealth manager offer?
Wealth management firms are experts in financial advice, planning services and investment management. A wealth manager can develop a plan that is exclusively yours incorporating all aspects of your financial affairs, including your investment assets, retirement planning, estate planning, tax planning, protection alongside any property assets, business interests and company shares you own.
In respect of your assets, they can then proactively manage your cash-based investments according to your agreed risk profile reporting the performance of your portfolio to you regularly.
Depending on the firm, wealth managers offer various levels of investment services including Execute Only, Advisory and Discretionary Portfolio Management.
Execute Only is, as it sounds, a facility that enables the investor to choose their investments and make trades. The second service level, Advisory, is where the investment manager seeks the authorisation of the investor prior to buying assets. Last but not least, Discretionary Portfolio Management is where investors provide the investment manager with a mandate to manage their portfolio on their behalf. Some sophisticated and enthusiastic investors like to choose the former services, but many others choose to benefit from the full expertise of the investment team by choosing Discretionary, placing their belief in the investment manager and their team of analysts to develop and manage their portfolio successfully for them. Fees are usually charged as a percentage of invested assets.
In short, a wealth manager will be a guiding hand for you and your finances helping you to establish and then achieve your goals.
Is private banking or wealth management the right option for me?
Private banking services are designed to offer HNW/UHNW clients an exclusive relationship with the bank drawing upon multiple services which might include wealth management but not exclusively. It is not designed specifically to offer financial advice or investment management. To illustrate this further, some banks have successful stand-alone wealth management businesses that serve both private banking clients and non-private banking clients.
In conclusion, if you wish to have all your assets and banking services in one place, and can satisfy their opening criteria, you should consider private banking. Also, if you simply wish to have an exclusive banking relationship, choose private banking. However, if you are looking for expert investment management and financial planning and you don’t need to combine banking, you should consider a wealth manager. Your relationship with a wealth manager is focused purely around your investment portfolio and your financial planning needs, they can offer you access to advanced strategies and investment opportunities to make the best out of your financial resources.
