Private Banking vs Wealth Management: Which One To Choose?

Posted On November 22, 2019

You could be forgiven for being unable to spot many differences between private banking and wealth management. Indeed, both terms share some similarities. However, when push comes to shove, the two investment strategies can yield wildly different results for your finances. 

Wealth management has multiple interpretations but typically focuses on the process of optimising a client’s portfolio while noting each subject’s preferences, aversions and willingness to make riskier investments according to their overall aims and goals. Although wealth management portfolios don’t have to be large to start with, this approach generally favours the well-off. 

Private banking, comparatively, tends to be the solution of choice for high-net-worth individuals who are happy to call upon the aid of public or financial institutions to provide personalised financial care and management services. 

Before we delve into the pros and cons of private banking and wealth management, let’s take a deeper look at the two terms and try to get to the bottom of why these two approaches are looked upon as more favourable by certain investors and less so by others:

Private banking defined

Generally speaking, private banking is centred around financial institutions that provide management services to high-net-worth individuals (HNWIs). Some prospective clients will be able to access this form of service with assets that amount to less than £100,000, but many private banks tend to leave the minimum benchmark at around six-figures. Essentially, private banking is generally exclusive and is more the domain of clients with high volumes of assets ready to be invested. 

Private banking offers investment-based advice for clients and looks at catering to the individual needs of each investor. This approach tends to aid clients in maintaining their assets within a secure place. Each firm will allocate employees who will be dedicated to supporting its clients in providing bespoke financial solutions – whether they refer to retirement planning, saving for the passing of wealth on to family, or for a one-off purchase.

Most household names in banking have dedicated areas that offer private banking, with a series of individual perks for new clients. While the range of products and services offered by private banks don’t generally differ too far from that of a retail bank in terms of current accounts, credit cards, loans and mortgages, a considerably more personalised level of service is typically provided

Wealth management, in a nutshell

Wealth management, on the other hand, caters more towards HNWIs who are seeking advice in the managing of their portfolio in order to achieve a range of different goals – including investment-based growth, transferring assets, curbing taxation and sometimes philanthropic endeavours. 

Wealth Management Firms UK in 2016

(Image showing the number of wealth management firms in the United Kingdom in 2016, by region. Image: Statista)

Some private banks can offer a similar array of services as part of their own wealth management wing, but most dedicated wealth managers wouldn’t take deposits or offer out lending due to being without a banking licence. Furthermore, private banks wouldn’t always be capable of providing guidance on investing – a vital facet of wealth management. 

Services on offer

Though both private banking and asset management share some core services, it’s private banking that offers functions like banking services, asset management, brokerage and tax consultation. Wealth management, on the other hand, typically involves consulting services in concentrations like asset allocation and structuring, tax planning, estate planning, pensions, philanthropy, family arbitrage, art, real estate and the relocation of families and their associated businesses. 

Although many services provided by both private banking and wealth management firms have some similarities, a key difference between the two entities can be found in how private banking doesn’t always cover the topic of investing. Private banks staff can offer clients a degree of guidance towards investment options, but many banks will keep away from the actual process of investing assets on behalf of customers. 

Strategies for your investments

Wealth management conveys a generous level of flexibility and reactivity when it comes to acting in the interest of a firm’s clients. This is because advisors can take up a fully independent view of the underlying assets that form their client’s portfolio in its entirety.

On the whole, private banking forms a considerably slower and heavier process that offers less independence – and some may argue less transparency within the financial mediation of some institutions. Private banking services can become unnaturally influenced by the underlying assets that are encased within a chosen portfolio, with conflicts of interest arising as a result. 

Tailor-made vs packaged investments

Private banking typically offers a one-to-one model that provides bank packages that cater to HNWIs, or those who are even wealthier. Whereas wealth management tends to carry a higher emphasis on providing the right kind of financial advice to help individuals to maintain, conserve and reinforce greater levels of wealth. 

HNWIs

(Chart showing the number of individuals with a net worth of over one million US dollars in the United Kingdom from 2013 to 2023. Image: Statista)

When it comes to wealth management, advisors tend to draw up an operational financial plan that’s crafted carefully on the want, needs, and personal information of the client in question. Investments made with wealth management firms tend to be well-maintained many years into the future with advisors constantly pledging to reassess the status of their clients based on any perceived changes to their personal situations or on fluctuations of their assets. 

While personalised services can seem very appealing to HNWIs, it’s important to consider the time and costs associated with a more intensive form of financial management. Money may be serious business, but it could be beneficial to utilise the tried-and-tested reliability of a private banking package. 

Freedom of independence

Private banking tends to present products that are uniformed into tried and tested services offered up by the bank itself. This approach is cost-effective and carried a much smaller burden for error. 

However, wealth management users will likely see the services of private banking firms as a little bit too limiting. Wealth management firms are independent – as opposed to the commonplace private banking wings of established banks – and so can offer more personalised investment advice and financial management. This allows more flexibility for clients and more opportunities for wealth managers to provide a level of service that truly reflects the wants and needs of users. 

Conscientious wealth managers can also mix and match the various products of different institutions in order to better suit their client. In many cases, the client of a dedicated wealth manager will use multiple institutions for security reasons. 

Fundamentally, both private banking and wealth management carry some admirable perks for respective clients. While private banking is wholly more accessible and less-catered to the uber-rich amongst us, there are certainly some positives surrounding the tried-and-tested array of services they offer that are angled more towards asset management and brokerages. 

Wealth management is a necessary service that’s angled towards aiding the lives of the very rich. Firms can offer a more personalised and bespoke service that advises clients on where to invest their finance – whether it be in art, asset allocation, estate planning or philanthropic endeavours. 

One avenue isn’t necessarily better than the other, so it pays to take a moment to establish your financial goals and choose a service that’s best positioned to help you achieve them.

Written by Daglar Cizmeci
Investor, Founder and CEO with over 20 years’ industry experience in aviation, logistics, finance and tech. Chairman at ACT Airlines, myTechnic and Mesmerise VR. CEO at Red Carpet Capital and Eastern Harmony. Co-Founder of Marsfields, ARQ and Repeat App.

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