Private Banking Definition

What Is Private Banking? Private banking consists of personalized financial services and products offered to the high-net-worth individual (HNWI) clients of a retail bank or other financial institution. It includes a wide range of wealth management services, and all provided under one roof. Services include investing and portfolio management, tax […]

What Is Private Banking?

Private banking consists of personalized financial services and products offered to the high-net-worth individual (HNWI) clients of a retail bank or other financial institution. It includes a wide range of wealth management services, and all provided under one roof. Services include investing and portfolio management, tax services, insurance, and trust and estate planning.

While private banking is aimed at an exclusive clientele, consumer banks and brokerages of every size offer it. This offering is usually through special departments, dubbed “private banking” or “wealth management” divisions.

Key Takeaways

  • Private banking is an enhanced offering for the high-net-worth individual (HNWI) clients of a financial institution.
  • Private banking consists of personalized financial and investment services and products from a dedicated personal banker.
  • Private banking clients typically receive discounts or preferential pricing on financial products.
  • However, the range of products and investment expertise offered by a private bank may be limited compared to other providers.

How Private Banking Works

Private banking includes common financial services like checking and savings accounts, but with a more personalized approach: A “relationship manager” or “private banker” is assigned to each customer to handle all matters. The private banker handles everything from involved tasks, like arranging a jumbo mortgage, to the mundane like paying bills. However, private banking goes beyond CDs and safe deposit boxes to address a client’s entire financial situation. Specialized services include investment strategy and financial planning advice, portfolio management, customized financing options, retirement planning, and passing wealth on to future generations.

While an individual may be able to conduct some private banking with $50,000 or less in investable assets, most financial institutions set a benchmark of six figures’ worth of assets, and some exclusive entities only accept clients with at least $1 million to invest.

Advantages of Private Banking

Private banking offers clients a variety of perks, privileges, and personalized service, which has become an increasingly prized commodity in an automated, digitized banking world. However, there are advantages to both the private bank clients as well as the banks themselves.


Privacy is the primary benefit of private banking. Customer dealings and services provided typically remain anonymous. Private banks often provide HNWIs with tailored proprietary solutions, which are kept confidential to prevent competitors from luring a prominent customer with a similar solution.

Preferential Pricing

Private banking clients typically receive discounted or preferential pricing on products and services. For example, they may receive special terms or prime interest rates on mortgages, specialized loans, or lines of credit (LOC). Their savings or money market accounts might generate higher interest rates and be free of fees and overdraft charges. Also, customers who operate import-export ventures or do business overseas might receive more favorable foreign exchange rates on their transactions.

Alternative Investments

If they are managing a client’s investments, private banks often provide the client with extensive resources and opportunities not available to the average retail investor. For example, an HNWI may be given access to an exclusive hedge fund or a private equity partnership or some other alternative investment.


In addition to the customized products, there is the convenience of consolidated services—everything under one financial roof. Private banking clients received enhanced services from their private banker that acts as a liaison with all of the other departments within the bank to ensure that the client receives the best possible product offerings and service.

Assets and Fees for Banks

The bank or brokerage firm benefits from having the clients’ funds add to their overall assets under management (AUM). Even at discounted rates, the private bank’s management fees for portfolio management and interest on loans underwritten can be substantial.

In an environment where interest rates in the U.S. have remained low, banks have been unable to charge higher loan rates to grow their profits. As a result, fee income has become an increasingly important financial metric in helping banks diversify their revenue stream. Banks have made strides in expanding beyond traditional banking products, such as loans and deposits, to more service-oriented and fee-based offerings like private banking.


  • One-stop shopping for financial affairs

  • Concierge services and dedicated employees

  • Favorable rates, discounted charges

  • Perks and privileges


  • Less institutional expertise

  • Options limited to proprietary products

  • High staff turnover

  • Possible conflict-of-interest for employees

Disadvantages of Private Banking

Although there are many advantages to private banking, drawbacks do exist to this exclusivity.

Bank Employee Turnover

Employee turnover rates at banks tend to be high, even in the elite private banking divisions. There may also be some concern over conflicts of interest and loyalty: The private banker is compensated by the financial institution, not the client—in contrast to an independent money manager.

Limited Product Offerings

In terms of investments, a client might be limited to the bank’s proprietary products. Also, while the various legal, tax, and investment services offered by the bank are doubtlessly competent, they may not be as creative or as expert as those offered by other professionals that specialize in various types of investments. For example, small regional banks might provide stellar service that beats out the larger institutions. However, the investment choices at a smaller, regional bank might be far less than a major player such as JPMorgan Chase & Company (JPM).

Regulatory Constraints for Banks

Lucrative as private banking can be, it can pose challenges for the institution, as well. Private banks have dealt with a restrictive regulatory environment since the global financial crisis of 2008. The Dodd-Frank Wall Street Reform and Consumer Protection Act, along with other legislation passed in the U.S. and around the world, has resulted in a higher level of transparency and accountability. There are more stringent licensing requirements for private banking professionals that help ensure customers are appropriately advised about their finances.

Real World Example of Private Banking

UBS, Merrill Lynch, Wells Fargo, Morgan Stanley, Citibank, and Credit Suisse are all examples of financial institutions with substantial private banking operations. Another bank that offers private banking is TD Bank (TD), with its TD Wealth® Private Client Group.

Available to clients with at least $750,000 in assets, it offers many services to its clients. Services include money management, strategies for business owners, real estate financing, and custom lending solutions. The private banking team also offers retirement, succession, and estate planning, which help reduce taxes.

The TD website promises that beyond the product offerings, each private client will receive a local relationship manager that will deliver exceptional, customized service as outlined in the quote below.

We build a customized financial strategy that aligns to your individual and/or family goals.

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