The worlds of private banking and wealth management frequently overlap, often to the point whereby the terms themselves seem to become interchangeable or indistinguishable. However, it should be noted that this is not necessarily the case, as private bankers and wealth managers typically assume different roles in relation to their clients` needs. In fact, it could be argued that each respective profession occupies an entirely different employment category. For instance, wealth management typically falls into the “interactional” occupational sphere; their responsibilities being to work with the client to understand their needs, resources, goals, and risk appetite. With this in depth understanding of the clients’ needs, the wealth manager builds and periodically maintains a financial plan or strategy to assist the client in reaching their goals. Private banking, rather than being “interaction” focused, leans more towards the “transactional” category of service. A private bank typically provides their HNWI (high net worth individuals) clients with boutique concierge banking solutions, with features and services at a substantial upgrade to what most people normally experience with their local retail bank. A not dissimilar example would be the difference between flying Economy class, or Business Class.
While it is possible that they do provide such services, it should already be evident that the main difference between the two is that private banking does not always engage in actively investing their clients’ assets. Some banks will circulate among their clients a unique investment or financial product offering from the bank itself, but they usually will not take an active role in managing the client portfolio. Wealth managers, on the other hand, do exactly that. Employees of wealth management firms, as well as independent financial advisers, spend their days working with clients to better understand their specific needs, and then recommend appropriate investment solutions and portfolio strategies, often keeping in mind the frequently prioritized tax planning and estate planning objectives.
Overall, depending on the institution, private banks can extend their range of services into the arena of wealth management; whereas wealth managers almost never engage in private banking functions. Wealth management companies and financial advisors, rather than attempting to become banks themselves, typically partner with a private bank or a custodian bank to provide basic banking platform functionality for their clients with respect to the investment or financial planning needs. There are no shortage of asset managers in Japan, particularly in Tokyo, but the wealth management space catering to foreign or expat clients is still a small one.
The term ‘private banking’ itself is long associated with having an air of exclusivity or superiority, and not without good reason. Some of the more well-known private banking institutions maintain minimum account balances of many hundreds of thousands of dollars just for their version of a checking account. Other private banks will not even take a phone call unless you are able to place one million USD on deposit. When a private bank engages in an advising role they will often provide one client with access to an entire team of staff, sometimes each staff member responsible with one key banking or investment function. As is the case in managing large amounts of private wealth, amounts large enough to earn consideration from a private bank, the money is often not intended to be completely used up in the single client`s lifetime. Because of this, one key function of the private bank that engages in advising roles is to provide estate planning services to assist in accumulating and transferring wealth to family members or other beneficiaries.
In addition to the possible advisory services provided, the higher end private banks stand out in their exceptional customer service. Similar to being able to call the concierge desk at one of world famous five-star hotels and, in principle, make any nearly request; private banking clients are one phone call away from executing nearly any fiscal request imaginable. Providing arguably over-to-top service is often the way the bank indirectly pursues new clients. The types of HNWI that would place his or her money on deposit with a private bank would also likely spend their working and personal lives with other HNWI`s; and are often more than happy to share with their friends the stories of the treatment they have received. As they say: “you get what you pay for”, and the banks are also benefiting from this relationship. Managing such large accounts provides significant residual business for the bank. One of the main drawbacks of working with a large brand name private bank is the high employee turnover. It is not at all uncommon for a client to build a strong relationship with an advisor, only to have that employee one day switched out and replaced with a complete stranger. In addition, the advisors working for the private banks are exactly that: working for the private banks. Employee compensation, be it bonuses or promotion potential, is often tied to the ability to cross-sell the bank’s clients with the bank’s own investment products, which may not necessarily be the best option in comparison to all that is available elsewhere.
Wealth management, on the other hand, is the purely interactional branch of the financial services industry which specializes in working directly with clients and their needs. ‘Wealth managers’ can provide investment execution services, ensuring the clients transaction are done efficiently and in a timely manner, as well as provide advice or recommendations as to which asset purchases are most appropriate given the client and the market.
Engaging a financial advisor through a wealth management firm provides an opportunity to retain professional services from an expert in solving financial problems. Niche market education, as well as shared experience from working with hundreds of other clients, arms a wealth manager with all the tools to help crystallize your financial goals into an understandable, and attainable reality.
Rather than functioning as a financial concierge service, taking requests in the manner of the private bank, the wealth manager typically focuses the advisory and service around face to face meetings to discuss at length the client’s current situation as well as future plans. Wealth management firms can take the form of multinational fortune 500 companies, or small independent privately-owned firms servicing the local area, as if often the case in Tokyo. In either case, the approach is quite similar, with client discussions highlighting risk management, goal-based planning, tax planning and financial well-being.
[ Sources ]
– Mihelis, Georgios, et al. “Customer satisfaction measurement in the private bank sector.” European Journal of Operational Research 130.2 (2001): 347-360.
– Jennings, William W., Stephen M. Horan, and William Reichenstein. “Private Wealth Management: A Review.” Research Foundation Literature Reviews 5.1 (2010): 1-68.
– Meyer, David R. “Private wealth management in Asia.” Handbook of Asian Finance: Financial Markets and Sovereign Wealth Funds 1 (2014): 17-36.