Private banking is a general description for , investment and other financial services provided by banks and financial institutions primarily serving high-net-worth individuals (HNWIs) – those with very high income or substantial assets. Private banking is presented by those who provide such services as an exclusive subset of wealth management services, provided to particularly affluent clients. The term "private" refers to customer service rendered on a more personal basis than in mass-market retail banking, usually provided via dedicated bank advisers. It has typically consisted of banking services (deposit taking and payments), discretionary asset management, brokerage, limited tax advisory services and some basic concierge services, typically offered through a gateway provided by a single designated relationship manager.
Historically, private banking has been viewed as a niche that only caters to HNWIs—specifically those with liquidity over $2 million, though it is now possible to open private banking accounts with as little as $250,000 for private investors. An institution's private banking division provides services such as wealth management, savings, inheritance, and tax planning for their clients. For private banking services, clients pay either based on the number of transactions, the annual portfolio performance or a "flat-fee", usually calculated as a yearly percentage of the total investment amount.
"Private" can also allude to bank secrecy and minimizing taxes through careful allocation of assets, or by hiding assets from the taxing authorities. Swiss bank and certain have been criticized for such cooperation with individuals practising tax evasion. Although tax fraud is a criminal offence in Switzerland, tax evasion is only a civil offence, not requiring banks to notify taxing authorities.
In Switzerland, there are many banks providing private banking services. Switzerland has remained neutral since the Congress of Vienna in 1815, including through two World Wars. After World War I, former nobles of the Austria-Hungary moved their assets to Switzerland for fear of confiscation by new governments. The Swiss banks by T. R. Fehrenbach During World War II, many wealthy people, including Jewish families and institutions, moved their assets into Switzerland to protect them from Nazi Germany. However, this transfer of wealth into Switzerland had mixed and controversial results, as beneficiaries had difficulties retrieving their assets after the war. Hitler's Secret Bankers by Adam LeBor After World War II, in eastern Europe, assets were again moved into Switzerland for fear of confiscation by communist governments.
Today, Switzerland remains the largest offshore center, with about 27% ($2.0 trillion) of global offshore wealth in 2009, according to Boston Consulting Group. Offshore wealth is defined as assets booked in a country where the investor has no legal residence or tax domicile.
In Great Britain, private banks were established in the 17th century, in parallel with the development of sophisticated agriculture, managing the assets of the royal family, nobility and the landed gentry.
The United States has one of the largest private banking systems in the world, in part due to the 3.1 million HNWIs accounting for 28.6% of the global HNWIs population in 2010, according to the co-research of Capgemini and Merrill Lynch. Some American banks that specialize in private banking date back to the 19th century, such as U.S. Trust (founded in 1853) and Northern Trust (founded in 1889).
Banks also provide some private banking services at a lower price than traditional private banking. These are called premium banking or priority banking services. They are meant for mass-affluent customers. The accounts do not generate as much revenue as traditional private banking, but given the number of customers, can provide sizeable revenue to the bank.
In 2016, Credit Suisse and UBS replaced the phrase "private banking" with "wealth management"; private banking has faced reputational risk as an area for tax avoidance or even tax evasion.
Indeed, private banking customers are frequently segmented according to their wealth. HNW are customers with a total worth between €500,000 and €5 million; very high net worth individuals (VHNWI), with assets ranging between €5 million and €30 million; and ultra high net worth individuals (UHNWI), with wealth in excess of €30 million.
1 | UBS Global Wealth Management | 2,260.0 |
2 | Morgan Stanley Wealth Management | 1,046.0 |
3 | Bank of America Global Wealth and Investment Management | 1,021.2 |
4 | Credit Suisse Private Banking & Wealth Management | 770.0 |
5 | J.P. Morgan Private Banking | 552.0 |
6 | Citi Private Bank | 460.0 |
7 | BNP Paribas Wealth Management | 413.5 |
8 | Goldman Sachs | 391.8 |
9 | Julius Baer Group | 379.1 |
10 | Raymond James | 366.3 |
This table displays results of one category of the private banking ranking, "Best global private banking services overall 2019".
1 | 1 | UBS |
2 | 3 | Credit Suisse |
3 | 2 | J.P. Morgan |
4 | 7 | BNP Paribas |
5 | 5 | Citi |
6 | 11 | Santander Group |
7 | 4 | Julius Baer |
8 | 6 | Pictet |
9 | 9 | Goldman Sachs |
10 | 8 | HSBC |
Many banks leverage the "parent brand" to gain a client’s trust and confidence. These banks have a strong presence across the globe and present private bank offerings as a part of the parent group. "One Bank approach" is where private banks offer an integrated proposition to meet clients personal and business needs.
Since private banking concerns understanding a client’s need and risk appetite, and tailoring the solution accordingly, few banks define their value proposition along this dimension. Most modern private banks follow an open product platform, and hence claim their advice is unbiased. They believe there is no incentive to push proprietary products, and the client gets the best of what they offer. A few banks claim to have a "strong advisory team" that reflects in the products they offer the client. A couple of banks also define their value proposition on their unified platform, their ability to comply with all regulations, yet serve the client without restrictions.
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