All right – It’s time to tackle private banking.
What is private banking?
Private banking is often used almost synonymously with wealth management.
It’s the origin of banking itself. When the old Venetians started what today has become banks, it was by taking wealthy people’s money, keeping it safe, and making the money grow through investments.
That is what private banking is today as well. The difference between setting up a standing order and deposit funds every month into an investment fund or pool operated by your bank, is that private banking is tailored to you and someone takes care of your money, hence the connection to wealth management.
The term private banking often leads to confusion with banking privacy or banking secrecy. Private banking does not itself mean higher banking secrecy. The word private in this case denotes banking tailored to you as a private individual.
Where is private banking offered?
Private banking isn’t limited to offshore jurisdictions. But although it’s offered nearly everywhere nowadays, the finest private banking today is found in Switzerland, Liechtenstein, Luxembourg, Andorra, Monaco, Gibraltar, Singapore, and Lebanon.
Noteworthy Private Banks
Below are some private banks or banks that offer private banking that I consider noteworthy. A lot of them operate in more than one jurisdiction, with Switzerland, UAE, and Singapore having significant overlapping.
Some Hong Kong banks have recently upped the game in their private banking services. It’s likely next in line to join the aforementioned.
There are some decent private banks in the Caribbean, primarily Cayman Islands and Bermuda. Many are subsidiaries of banks listed above or other private banks from other large financial centers. There are also a number of smaller ones and while they do a good job, they are generally a far cry from the big ones.
How much money is required?
This is the million dollar question, isn’t it.
There are basically four tiers of private banking.
Some of the smaller Swiss private banks will consider clients for as little as 10,000 CHF. This is also the starting point for private banking in some other countries (for example Scandinavian countries). The service you get isn’t that much better than normal retail banking. You may not even get an account manager. This level of private banking can be attractive to those with above-average salaries looking for someone to help grow their savings, but who do not need much interaction with the bank.
In the span of 100,000 – 1,000,000 EUR/CHF/USD, you will be attractive to the majorit of private banks. You won’t get the full VIP treatment, but your money will be well taken care of and you will get some degree of personalized service. In terms of number of clients, this is where most private banking clients are.
Once you exceed one or two million EUR/CHF/USD, more or less all private banks will take you on. You will have an account manager, high personalization of services, and you may even be able to negotiate lower rates and commissions.
There are a handful of banks that require tens or hundreds millions and some that require hundreds of millions.
How does a private bank operate?
Dedicate private banks or private bank divisions of banks operate quite differently from regular retail or business banks.
This will be very generic since individual, tailored services are what private banking is all about, but here I will go through some main characteristics of private banking.
The most common type of private banking is discretionary private banking or wealth management, where you deposit funds into an account and the bank takes care of the rest. You agree with the bank on a personal investment portfolio based on factors such as risk, moral concerns (whether to invest in certain industries, such as tobacco or arms manufacturing), financial goals, and your expectations.
The level of interaction between you and the bank after the initial consultation varies greatly depending on the bank and your own needs. Many private banking clients are happy to let the bank take care of everything, while some clients want to be more involved in the process. This is where picking the right private bank is important. If you want to have frequent interaction and updates from your bank (with information that you cannot get from the internet banking – if offered), you need to pick a bank that offers that as a service.
The term broker is sometimes used almost interchangeably with private banking. This is a more engaged form of private banking, where your banker will call you from time to time to discuss trades that the banker thinks you might be interested in.
I mentioned earlier that private banking is sometimes confused with high-privacy banking and banking secrecy. Some banks offer private banking behind a veil of somewhat strengthened privacy. The actual, underlying bank accounts on which the private banking relationship is based may not always be in the client’s name. These accounts are sometimes numbered accounts or pseudonym accounts and sometimes a legal entity is created to act as beneficiary of the account. The latter can be a company (sometimes going so far as using bearer shares), a trust, a foundation, or deviations thereof. Nominees may also be involved.
A private bank expects accounts to have very little activity in terms incoming and outgoing wire transfers, and essentially no transfer to or from third parties. Because of this and as long as the client stays within reasonable limits, it’s not unusual for private banks to offer transactions free of charge.
Who uses private banking?
Quite simply, those with the capital necessary and a desire to grow their capital by using someone else’s expertise on the matter.
Private banking isn’t only aimed as natural persons. Private banking is increasingly being offered to businesses as a way to grow their capital reserves.
How do I open a private banking account?
This is very similar to How to Open an Offshore Bank Account. The difference is the higher minimum deposit and because private banking accounts are rarely used for third-party transaction and generally have a lower risk profile, remote account opening tends to be possible in more cases than other types of banking services.
The question is if one wants to deposit a a large part or all of one’s wealth to a bank without a face-to-face meeting on the bank’s premises.
Very high-end private banks sometimes offer to come and meet the client in person anywhere in the world.