What is the difference between wealth management and private banking?

Wealth management caters to a broader set of services compared to private banking.

Private banking provides personalized banking and financial services to high net worth clients and manages their investments. Other services provided by private banking are protection and growing assets, financial solutions, retirement plans etc., with high level of confidentiality. These individuals participate in many alternative investments like real estate and hedge funds with the advice of a relationship manager assigned to them. Private banking helps to minimize taxes by vigilantly allocating the assets and resources.

Wealth management gives financial services, investment advice, tax and accounts services, retirement and other plans.

Wealth of an individual, company, community or a country can be calculated by taking market value of all assets (physical as well as tangible) owned minus all the debts.

Wealth management helps to enhance one’s financial situation. Wealth managers provide client centered advice that is suitable for their client’s portfolio.

Both the terms are sometimes used interchangeably and the services provided by each of them also overlap. Main and most important differences between private banking and wealth management can be summarized as:

1. Private banking provides a limited range of services including banking, asset management, brokerage, tax consultation and some other financial services. Wealth management provides a wide range of services from asset allocation, asset structuring, tax advice and consultation, retirement planning, pensions, inheritance allocation and real estate advice etc.

2. Private banking gives one to one advice, proposing to utilize existing services of their institution to its clients. Wealth management emphasizes on collection, maintenance, fruitful utilization, transfer and reinforcement of wealth. Experts from different areas are involved in drawing the financial plan that best suits the needs of the client and his business. Wealth manager then closely monitors the implementation of the plan and makes adjustments where needed.

3. Private banking managers can only suggest products and services that their bank offers. Wealth managers are free to suggest their clients’ to chose from services and products provided by other institutions.

4. Private bankers are less independent as compared to wealth managers. Wealth management is more reactive and flexible towards the interest of the clients while private banking is not.

5. Wealth managers understand the concerns of the clients in the first place and then they plan and implement a financial plan for the client and develop a long term relationship of trust and loyalty with the client. In private banking, managers are bound to offer the services and products of their bank which eliminates the need to understand and deeply involve themselves in the clients’ concerns.

6. Private banking usually will not deal with investment decision on client’s assets, on the other hand wealth manager will always focus to help and assist clients in investment decisions with the expectation of higher returns on their assets.

7. An important difference is that a private banking institution can expand its services to provide wealth management to its clients but wealth management firms can not extend to provide private banking services.

8. Private banking is reserved for clients with sizable amount of cash and assets to be deposited and invested with the bank. Most of the companies that provide private banking also provide wealth management services to its clients. UBS, Credit Suisse and JP Morgan are the leading companies in the market.

(credit: Nael Shahbaz)

The financial industry is encountering a slow but effective evolution, with the global economy progressing to greater heights. With this come offering of multiple financial services that will help make the most of investment management with high returns, based on risk assessment and probable market conditions.

Amongst the different progressions of the financial industry come the services of private banking and wealth management. Both services are similar in nature creating a confusing juxtaposition between them. However, there is a considerable difference between both services offered.

Given below are the chief differences:

The range of services: Both services possess core business management. Private banking offers banking services, asset management, brokerage and simple tax consultation services. Private wealth management offers asset allocation and structures, tax planning, pensions, estate planning and family arbitrage amongst many others.

Approach: With private banking services, an approach of a one to one model if often followed. Through this process, existing packages are offered to target mainly high-net-worth-individuals (HNWIs) or ultra-net-worth-individuals (UNHWIs).Private wealth management focuses more on the financial advice and concern in the collection, maintenance, and conservation of wealth. A financial plan is drawn and directed to meet the needs of the client’s family with inputs from specialists in other relevant involved areas. While the execution of the plan is in the process, the necessary adjustments are implemented for higher returns.

Independence: Private banking offers fixed products and services propounded tendered by the given financial institution. Wealth Management on the other hand, implement a tailored service, presenting services or products of multiple institutions. This allows clients to choose opportunities favourable with respect to their own financial profile and matching their financial goal.

Investment strategy: Private management incorporates a more complex process, with a higher dependence and low transparency on the bank’s offerings as opposed to one’s own choice. For example, underlying assets fixed for certain portfolios offered by the bank may not match the client goal, thus creating a conflict of interest. Wealth Management focuses on incorporating flexibility and reactivity based on the interest of the clients. This is based on the basis of the client’s choice of the underlying assets that constitute one’s own respective portfolio.

Exclusive Focus on Relationships: The services offered through Private Banking often offer packages that adjust with client’s risk appetite and existing assets. The resulting by service offered involves less time, less involvement and awareness of client. Investment management through wealth management focuses on the reality and execution of the client’s goal. During the process, the client is questioned¸ reflecting even sensitive issues that often go unnoticed.

There will be a common starting point between both services based on asset management. However, distinguishing the difference between the services is mentioned in the point above.

(Credit: KPW)


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