Private Banking vs Wealth Management

Private Banking vs Wealth Management

Owing to its sound financial regulation and economic stability, Singapore is considered one of the leading countries for private banking and wealth management. 

With strong capital markets and a growing suite of priority clients, the country has everything it takes to be the global leader in these segments. 

So what does it mean for the customers? What are the services provided within the scope of private banking and wealth management, and how do they qualify for it?

Simply speaking, having a significant amount of money in your bank account (cash or investments) puts you in a slot where you’re treated as premium customers by the banks.  

Private banking (also referred to as priority banking) and wealth management are essentially personalized banking services provided to such customers, the exact term used differs across financial institutions though the common segmentation is tied to assets under management held. 

While both terms are often used interchangeably, certain distinctions make them two separate branches of banking. 

The article walks you through an introduction on both, along with the other details like the type of clients catered and services provided by these two. 

What is private banking?

Private banking is a suite of financial services and products provided to affluent customers of the banks. 

The objective is to provide exclusive services like customized banking solutions, global benefits, etc., along with expert assistance to high net worth individuals (HNWIs). 

Most private banks have their benchmarks for identifying high-value customers. 

These customers receive investment-related advice that is targeted towards an end to end management of the financial circumstances of the client. 

Banks have dedicated employees who work on a one to one basis with their clients to provide customized financing solutions. 

While financial institutions may charge a small fee for private banking, the perks sometimes outweigh the cost. 

Customers receive enviable offers and rates. Additionally, private banking provides one to one contact in the form of employees or personal managers working on their accounts. This allows them to contact the advisors for any transactions like cheque encashing, cash transfers, etc. 

Needless to mention, it is not required to wait in queues for regular banking services. 

Who offers private banking services?

Personalized banking or private banking services are offered by most retail banks as well as certain specialized banks. Financial institutions with the relevant operating license may also offer these services.

Most consumer banks, irrespective of their size have preferred banking or private banking divisions. 

Clients catered by private banking

As mentioned earlier, private banking is usually reserved for the affluent and high net worth clients. The minimum amount of wealth required to be a private banking client varies from one bank to another. 

However, there is usually a benchmark of a 6-figure sum in cash or investments for most banks. Some financial institutions set a higher bar, say a 7-figure amount, or even targeting individuals with minimum investable assets running to tens of millions. 

The clients could be an individual, or a business entity. As long as they pass the minimum required benchmark set by the bank, they will be treated as private banking clients.

Private banking services

The service rendered to clients is often more personalized and of a comparably higher level of dedication than regular retail banking clients.

Here is a list of products/services offered in private banking:

• Savings account and current account.
• Credit cards and cheque books.
• Loans and mortgages.
• Overdraft facilities.
• Priority service – not required to wait in queues.
• Private placement programs.
• Higher interest rates/returns for investments.
• A dedicated officer to serve the client.
• Concierge-like services, i.e., assigned bank officer or advisor, can execute almost any transaction for the client.
• Individualized financial solutions.
• Wealth management (if there is a division for this in the bank).

Any products suggested to a client will be from the financial institution’s repertoire since the assigned private banking officer will be acting mainly in the interest of his/her company.

What is wealth management?

Simply put, wealth management is an investment advisory service with the primary goal of growing and protecting a client’s wealth. Similar to private banking, these services are usually reserved for accredited investors such as affluent or HNWIs.

Wealth management covers the client’s entire portfolio management, including financial planning, taxations, estate management and planning, business investments, etc. This could range from consultations on investment options, retirement planning, distribution of wealth amongst family members or beneficiaries, etc. 

As opposed to private banking, wealth management services are more about the advisory component. Your wealth management advisor will not be able to open your bank accounts or get your banking transactions done but will work with you on a one to one basis to help you determine the types of investments or accounts that are best suited for your needs. 

Who offers wealth management services?

Wealth management firms, and large financial institutions with a wealth management division, offer these services.

However, various independent financial firms may also sometimes provide these services to attract clients. Additionally, independent wealth advisors and portfolio managers (holding the required license) may also offer these services. 

There are many financial institutions offering wealth management services, especially in Singapore which is a major financial hub. However, these service providers’ proficiency may not always be equivalent to a specialized wealth management firm.

Clients catered by wealth management firms

Wealth management firms offer their services to accredited investors. These could include individuals, families, or even trust groups. 

When a bank provides these services, the clients usually include business entities or affluent individuals.

Wealth management services

• Legal and estate planning
• Accounting and tax services
• Charitable giving plans
• Help with starting or selling a business
• Examination of healthcare and social security benefits
• Investment management and advice, including retirement planning

Wealth managers locate and liaise with professionals of related fields to ensure that the above services are fulfilled for their clients in the best possible manner.

Wealth management products

These may or may not be directly offered by wealth management firms and financial institutions.

• Insurance
• Liquid assets
• Home finance
• Short-term investments
• Long-term investments

Summary of comparison between private banking and wealth management

Here’s a table summarizing the key differences between the two:

	Private Banking	Wealth Management
Definition	Refers to the provision of individualized financial solutions	Refers to the complete management of a client’s financial portfolio
Scope of service	Narrower –       Primarily focused on banking products and services.	Broader –       Extends to all aspects of wealth such as tax planning, retirement, succession planning, as well as philanthropy –       Liaising with professionals of multiple fields is often required to serve the client
Main objective	Provides personalized banking solutions with high touch points.	Helps to manage, grow and preserve the overall wealth of a customer.
Type of organizations	Banks and financial institutions.	Wealth management firms, banks, and financial institutions.
Types of client	Affluent individuals and business entities.	High net worth individuals, families, and trust groups.
Types of asset	Banking products and solutions.	All classes of assets.
Compensation term of the firm or servicing manager	Based on income generated from clients’ assets credited with the bank and commission from product sales and transactions.	Retainer fee along with a price for an asset under management, which favors impartiality in recommendations.

Conclusion

Individuals who qualify for Accredited Investors status would typically have access to both private banking and wealth management services, but the latter offers more bespoke solutions and services than the former. 

While it is true that private banking may also provide guidance on broad-scale investment options, it is not involved with the actual investment process for the client. They often choose private banking for the sheer comfort of easy banking services like opening accounts, fund transfers, etc. 

Wealth management, however, has a far broader scope than private banking. It caters to the set of clients who are not just looking for convenient banking services but higher-level consultations on investing assets and improving their overall financial standing. 

 Other related articles:

• What is Wealth Management?
• Asset Management vs Wealth Management
• 10 Game-Changing Wealth Management Trends in 2020
• Wealth Management – Why Singapore?
• 5 Reasons Wealth Management is Important in Today’s World