Private Banking: Efficient wealth management for the discerning customer

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 aimed at 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, digitisation 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 digitalisation are making private banking in Switzerland accessible to broad sections of the population.
• Compared to retail banking, private banking is characterised 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 optimisation 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.

Reading tip: FinSA and FinIA in practice: rules of conduct for wealth managers

Personalised advice: the private banking process

In private banking, the process usually follows these phases:

1. The process begins by recording needs and objectives. 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.
2. 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, risk tolerance and risk capacity are assessed. A liquidity management takes into account the desired and necessary liquidity - your private financial plan.
3. In the subsequent execution phase, the financial transactions required to put together the defined portfolio are carried out.
4. Finally, the portfolio is reviewed on an ongoing basis and adjusted as necessary in line with 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 digitised 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 selecting a private banking provider, the following points are worth examining:

• 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?
• Research and investment strategy: In private banking, wealth optimisation is about the relationship between return and risk. Whether the assets are preserved in real, inflation-adjusted terms depends on market developments. In addition to a sound investment strategy, the provider needs comprehensive research. Existing ratings or assessments give indications of whether the provider has met these requirements in the past.
• Security: This covers how the provider holds the assets and whether transactions run via secure access channels.
• Individual and innovative concepts that take your wishes into account: Digitisation 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. What matters is whether the selection is made independently of banks and how the provider handles its own products.
• 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 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 optimisation, 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?

The esisuisse deposit protection covers account balances at Swiss branches of up to 100,000 Swiss francs per customer and bank, regardless of whether the bank is a private bank or a big bank. Securities held in a custody account are segregated assets: they belong to the client, not the bank, and do not fall into the bankruptcy estate if the bank fails. The part of a balance above 100,000 Swiss francs is not covered.

For whom is private banking particularly suitable?

Private banking requires a minimum investment amount, which differs from bank to bank. It is aimed at clients who have a bank look after their assets on an ongoing basis instead of managing them themselves. Anyone who manages their assets themselves can do without this service.

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. In return, clients receive ongoing service and reporting. How the higher fees affect the net return depends on the portfolio and on how the markets develop.