The world of private banking has not always been open to all. Traditionally, private banks have catered to a very exclusive clientele. Specifically, people in the high-net-worth bracket (those with CHF 1 million or more in investable assets). But what exactly is private banking? How does it differ from everyday banking, and what makes it so compelling? And how might it also be available for you in the future?
What is private banking?
Private banking is so private that hardly anyone with a “normal” salary that doesn’t belong to the high-net-worth category really knows what it is. You probably think of marble offices with chandeliers, impeccably dressed bankers with suitcases and a secret vault in the basement. Which might be true.
Private banking is deeply connected to the very origins of the modern banking system developed in 12th century Venice. Tasked with managing the finances of wealthy individuals and families, advisors from private banks would provide counsel on financial matters, conduct banking tasks and help with other services.
Today, private banking still involves banking services, as well as investment, real estate and concierge services (like booking luxury hotel rooms or picking up a Rolex) for high-net-worth individuals (HNWIs). These special services and the personal support of real human financial advisors differentiate it from mass-market retail banking.
“Basically, you join a club”, says Victor Cianni, Head of Investments at Alpian to explain the appeal of private banks.
Retail banking vs. private banking
Private banking customers have access to experienced financial advisors who understand their specific needs and goals to create financial strategies just for them. In many cases, they would also execute all financial decisions on their behalf (this is called discretionary mandate). Just like in ancient Venice.
Retail banks, on the other hand, also known as personal banks or consumer banks are open to pretty much everyone, providing the general public with standard banking services, like savings accounts, debit and credit cards, and loans. Along with these services, modern digital banks also allow customers to pay bills and transfer funds through their smartphones. But what happens when customers have needs that these standard services don’t cover? That’s where private banking comes in.
Benefits of private banking
As we saw, private banking is not about wealth management alone. It is rather the non-investment services that make it so appealing to high-net-worth individuals. Here is a list of services that people can expect when joining a private bank:
- Access to exclusive investment offering (private equity deals, real estate opportunities, niche asset managers)
- Access to a network of the most skilled people in the industry, worldwide
- Access to exclusive events in some of the most prestigious places on earth
- Conciergerie services (like booking a hotel room for your family)
- Non-traditional services (like art collection lending, jet and yacht financing, or setting up multi-jurisdictional trusts and philanthropies)
- Networking options (through your banker, you get to meet other millionaires/billionaires of your kind and this is very powerful)
- People who safeguard your money. Highly affluent people from all over the world regard Switzerland as a safe place to park their money
- …. and more
In a nutshell:
Service is key in private banking. Victor Cianni explains: “The bank is coming to you. This is not something a retail bank would do.” Many private bankers travel 2000kms overnight because their clients want to discuss investments on a Sunday morning around their pool or create a 60 pages analysis in 24 hours and jump on a plane to present it while the client was having dinner in their hotel.
The barrier to private banking
When looking at all the services offered by private banks, it does not come as a surprise that private banking is not available to everyone.
While it is possible to open a zero-balance retail bank account, most private banks require you to make a minimum initial deposit ranging from CHF 500,000 to CHF 1 million. But with this amount of money, you will only be a very small fish, and private bankers won’t care about you that much. For most private banks, their clients only get interesting with deposits starting at CHF 5 million.
Breaking the barrier to private banking
The high initial deposit limits the number of clients who can access expert financial advice, personalised services and a smoother journey to wealth offered by private banks.
However, there is a shift happening in the market. More and more, forward-facing banking services are taking steps to make these exclusive private banking services more inclusive.
This shift is also powered by new technologies like AI (artificial intelligence) that arise. Globally, wealth management services are exploring ways to leverage technology to fulfil the demands of this burgeoning market. A report by Refinitiv claims that 86% of wealth management firms consider servicing clients as a highly important digital capability to acquire.
To sum it up:
In the coming years, financial services that can deliver the convenience of digital banking with the expertise and personalised service of private banking (without the high initial deposits) have the potential to change banking and investing as we know it – and finally deliver on the promise of a truly personalised and democratised journey to wealth for everyone.
Alpian has submitted an application for a full banking license to Switzerland’s Financial Market Supervisory Authority (FINMA). Content of this publication is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice.