The world of finance is complex and not immediately understandable to everyone. Private banking is a term you hear more and more often in connection with finance – but what exactly is private banking?
Private banking is the optimal solution for customers who value individual advice and management of their assets. Private banking services range from wealth planning to finding suitable investment objects. Estate planning and inheritance matters are also handled by the Private Banking team.
However, private banking is not for everyone – there are certain minimum requirements that must be met before you can enjoy these services. However, digitization and new providers are making private banking accessible to a much wider range of customers in Switzerland as well.
In this article, you will learn what private banking means, for whom the offers are suitable, and what you should consider when selecting providers.
The most important at a glance
- Private banking means individual management of private assets.
- Asset or wealth management and investment advice are among the core services of private banking.
- Securities management, such as efficient trading in equities, is one of the most important forms of investment. But private banking also takes into account investment opportunities in real estate, closed-end funds and private equity.
- Today, innovative providers and digitalization are making private banking in Switzerland accessible to broad sections of the population.
- Compared to retail banking, private banking is characterized by exclusive products, individual service, consideration of the client’s wishes, and long-term client relationships.
- Low-priced standard products and financial instruments with short-term profit opportunities are just as unlikely to be found in private banking as offers for interest rate hopping.
Private Banking: Definition & Meaning
Private banking in Switzerland, as in other countries, is a service provided by banks or other financial service providers that focuses on the needs of high-net-worth individuals (HNWIs). These services include a wide range of financial products and services tailored to the specific needs of these client segments.
Private Banking customers generally receive a more comprehensive service than in Retail Banking. This is due to the specific needs of the customers, which are generally more complex than those of average banking customers.
Sophisticated services and investment types
Providers offer a range of services, including investment advice, wealth management, asset strategy, credit and financing solutions, tax advice, estate planning, and other specific services.
Private banking primarily involves strategic wealth optimization and planning. This involves needs-oriented analysis and structuring of all assets. Individual operational asset advice and asset management are also offered. Consulting and support services, such as in real estate management, also fall under private banking. In the case of Family Office, private banking is carried out for the assets of all the members of a family group.
The target group: High-net-worth individuals (HNWIs)
The term High-Net-Worth-Individuals (HNWIs) refers to individuals with high net worth. Typically, HNWIs are assumed to have more than $1 million in assets. HNWIs make up a small share of the population, but they have a large share of total wealth.
It should be noted that there are no rigid boundaries for defining the target group. On the requirements, therefore, see also our comments in the section “Who has access to private banking?”.
Private Wealth Management
Customers whose assets fall below certain lower limits are classified as retail banking. When upper limits are exceeded, international private banks or investment banks refer to private wealth management. This is a financial services sector that deals with the management of the assets of so-called high-net-worth individuals (HNWIs).
Unlike private banking, the range of services also includes advice and management of assets outside the financial markets. These include advice on building and managing art collections and the acquisition of antiques.
Personalized advice: the private banking process
To ensure quality in private banking, the process usually follows the following phases:
- First, you as the customer define your needs and wishes so that private banking can meet your requirements. Keywords in this context are, for example, securing the future, liquidity and retirement. Likewise, generation management can be addressed, where the objectives regarding the transfer of assets to the next generation are discussed.
- This is followed by the development of a concept that corresponds to the investment objectives. This is always preceded by a well-founded analysis, in which, for example, your willingness to take risks and the possibility of taking risks are determined. A liquidity management takes into account the desired and necessary liquidity – your private financial plan.
- In the subsequent execution phase, the financial transactions required to put together the defined portfolio are carried out.
- Finally, the portfolio is reviewed on an ongoing basis and adjusted as necessary to ensure that it reflects current market conditions. Controlling also includes the performance of the individual financial products.
Private Banking: Services at a high level
The services generally include measures for wealth planning and asset management. As already described above in the process, the focus is on working out individual needs. This includes the following essential areas with the corresponding investment forms:
Securities management
- Individual portfolio consulting
- Shares, bonds, debentures, investment funds, ETFs and other financial instruments, including investment and ongoing controlling and updating
Hedging and risk management
- Pension solutions
- Risk insurance
- Property insurance
Liquidity
- Accounts & Deposits
- (Credit) Cards
Real Estate Management
- Consulting for residential and commercial properties
Financing
- short-term, medium-term and long-term loans
- Real estate financing
Equity investments
- Closed-end funds
- private equity
Wealth and succession planning
- Will
- Foundation formation
Precious metals
- Gold as an anchor of stability
- Coins
Who has access to private banking?
Asset management is the most comprehensive service in this area. The private client entrusts the bank with the management of his or her assets in compliance with previously agreed principles and guidelines. Exceptionally high assets are often managed in the bank’s own so-called family office. Alternatively, multi family offices offer asset management services for several, few large assets. In this respect, family offices represent a special segment within private banking.
The term “high net worth individual” is not clearly defined. Banks usually define the term based on the assets they manage for the client. Often, access to private banking only begins with assets of one million francs or more. However, some institutions also have lower limits for individual support. Here, the private banking client often starts with as little as 100,000 francs.
The need for a minimum sum is basically understandable. Compared to retail banking, in particular, a significantly higher expense arises due to:
- individual advice with increased personnel costs
- necessary technical know-how
- independent execution of the necessary financial transactions
- ongoing asset management (controlling and updates)
Naturally, these costs can only be represented above a certain level of assets. For private clients, too, the cost factor would no longer be in proportion to the return if the assets were too low.
Innovative providers enable private banking for broader customer groups
Providers developing digital investment solutions are considered the newcomers in the wealth management rating. However, you should pay attention to subtle but major differences.
While some robo advisors already offer automated investment starting at a few thousand francs, qualified asset managers go well beyond that with their services. The latter use, for example, the know-how and investment philosophy of established family offices. As a result, private banking is being digitized with the aim of opening it up to significantly more customers. This means that the entry hurdle is lowered to 30,000 francs, instead of half a million or even a whole million francs. The offering is thus aimed at technology-savvy customers with a demand for qualified private banking.
What you should look for in a private banking provider
When choosing a private banking provider, it is important that you choose one that meets your needs and requirements. Here are some points to consider when choosing a private banking provider:
- Quality of advice – Expertise in the financial market: private banking is a matter of trust. Even though the Internet is becoming increasingly important in obtaining information and banking transactions are also being carried out online, the quality of personal advice should be the top priority, especially for larger sums of money. Therefore, pay attention to which know-how the advice is based on at the provider. What expertise can the acting persons demonstrate in the areas of asset management and wealth planning?
- Access to high-yield financial products that also focus on wealth preservation: In private banking, wealth optimization is primarily about achieving a balance between income and security. The assets should at least be preserved in inflation-adjusted terms. The provider therefore needs comprehensive research in addition to a sound investment strategy. In this context, pay attention to existing ratings or assessments of whether the provider has met this requirement in the past.
- Security and continuity: As a private banking client, it is important to know that your assets are in safe hands. It is therefore advisable to obtain detailed information about security before deciding on a provider. This includes, for example, ensuring that transactions are carried out via secure access channels.
- Individual and innovative concepts that take your wishes into account: Digitization and individuality do not have to be a contradiction in terms. Innovative providers make it possible, for example, to take into account desired investment topics such as health or environmental protection within the portfolio.
- Independence instead of product sales: The products must be selected exclusively with the focus on the customer and be based on independent decision-making criteria. If a provider only offers its own funds or only standard products, this should be questioned critically. So check on the basis of the financial products offered whether the provider puts them together independently of banks.
- Transparency in investment forms and asset development: What applies to independence in terms of product selection should also apply to ongoing reporting on your asset development: Transparency. Therefore, make sure you have predefined reports from which you can observe the development of your assets at regular intervals. In this context, transparency also means information about transactions that have been carried out.
- Trust as a basis for long-term cooperation: Let the approach work for you right from the start. Do you have the feeling of being surrounded by the necessary competence? Do you trust the investment proposals? Only when trust is established will you perceive the private banking services as a welcome relief.
What is the alternative to private banking?
Anyone looking for adequate support in wealth planning and asset management should first think about their needs. This includes, in particular, the question of whether you are concerned purely with investing money or whether other topics such as inheritance, foundations, retirement planning and taxes are relevant.
The next step is to know the options, depending on the size of the assets. The decision for private banking will always remain a personal one. For example, if you yourself have in-depth expertise in the securities business, you may want to manage it yourself in the future.
If you have smaller assets or only want to have a smaller sum managed by a third party for the purpose of optimization, the robo advisor market now offers a wide range of options. Depending on the provider, the entry barriers are already very low at around CHF 2,000. In return, there is automated asset management with standard products, where you can deposit your desired risk tolerance.
Frequently Asked Questions (FAQ)
What temporal form of customer relationship is private banking about?
Compared to retail banking, private banking is about a long-term customer relationship. The advice is aimed at long-term wealth preservation. In retail banking, the focus is on the products, which is why it is more common to switch providers here (for example, by comparing interest rates on call money).
How safe are private banks compared to big banks?
Basically, investments at private banks in Switzerland are just as safe as at big banks. All banks in Switzerland have access to the esisuisse deposit guarantee for amounts up to 100,000 Swiss francs. Custody assets are also always owned by the client. This means that in the event of bankruptcy, they would be segregated from the bankruptcy estate and paid out to the customer immediately.
For whom is private banking particularly suitable?
Provided that the minimum investment amounts are reached, private banking is suitable for most customers. After all, few have the expertise and experience in the financial world to work continuously and reliably on asset optimization. The less know-how and time available, the more Private Banking is the right option.
Is private banking more costly than retail banking?
When viewed as a fee percentage, private banking has higher fees. Ultimately, the high-cost service must be paid for. However, this does not mean that using private banking ultimately means a poorer return – the rule is the opposite. Through product- and bank-independent advice, planning and decision-making, more suitable forms of investment are found on the one hand, and their suitability is constantly checked on the other.
