Private banking vs wealth management. These are terms that often overlap and are used interchangeably. This is partly because the majority of major private banks – UBS, Credit Suisse, Julius Baer, Coutts etc – also offer a wealth management service, as do the large high street names like HSBC and Barclays.
However, not all private banks offer wealth management and certainly not all wealth managers offer private banking. Private Banker International examines the differences between the two and how the grey area is likely to become less monochrome in the years ahead.
What is private banking?
In the simplest terms, private banking is like normal banking but with more money. While most retail bank accounts can be opened with loose change, private banking clients are required to possess a sizeable amount of wealth.
How much wealth varies from one bank to the next but generally speaking, the benchmark is a six-figure sum in cash or seven figures in assets. While the products that a private bank provides do not differ greatly from that of a retail bank (current accounts, credit cards, loans, mortgages etc), a more personalised and dedicated level of service is provided.
And what about wealth management?
Wealth management is aimed at high-net-worth individuals (HNWIs) looking for advice and assistance in managing their substantial portfolio in line with their goals. This includes growth through investment, transferring assets, minimising the bite of the taxman and, occasionally, charitable giving.
While private banks may offer these services as part of a wealth management unit, dedicated wealth managers do not take deposits or offer lending because they do not have a banking licence. Similarly, while private banks do not necessarily offer guidance on investing, this is fundamental to a wealth management service.
Private banking vs wealth management: who does what?
The majority of the world’s largest financial institutions offer both private banking and wealth management services, but there are a number of well-known exceptions.
Hampden & Co is one of the UK’s newest private banks and does not offer wealth management. Another new player, Metro Bank is a high-street bank that offers private banking but has not yet ventured into wealth management. Some of the oldest banks in the world, like C. Hoare & Co (founded 1672), are also private banking only.
On the other side of the coin, Close Brothers, Rathbones and Brooks Macdonald are examples of pure wealth managers who do not offer banking services. Their clients will typically use them to expand their portfolios while using a private bank for the day-to-day management of their finances.
Private banking PR
Many major banks are now increasingly more vocal about wealth management than private banking. Deutsche Bank and RBC, for example, both have separate .com’s set up for their wealth management offering but not private banking. UBS meanwhile does not even have private banking among the services listed on its homepage.
This may indicate they feel the term “private banking” looks increasingly passé in 2019, suggesting high-browed elitism or even secrecy. In a post-2008 world, financial institutions may have decided that private banking is more of an under-the-counter service than something they should display proudly in their shop window.
Wealth management experts
Wealth management, by comparison, sounds open and inclusive and is generally free of 2008-induced baggage. Its egalitarian standing is also helped by the prevalence of investment apps such as Nutmeg and Betterment, bringing people who are not ultra-wealthy or institutional investors into the wealth management sphere.
Certain private banks may well begin to see wealth management a more lucrative area, particularly if they think it has increased resonance with the younger generation.
Credit Suisse, for one, has publically pivoted to wealth management in recent years, as part of the top-to-bottom restructuring under CEO Tidjane Thiam, which has seen reduced operations in South Africa, Canada, Brazil and Russia.
As the increasing costs of a more stringent regulatory environment and the demand for transparency mount up, Credit Suisse’s strive for specialism may be one that other private banks find themselves compelled to follow.
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