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Should I Use a Private Bank to Manage My Finances? Thumbnail

Should I Use a Private Bank to Manage My Finances?

There are many available options for helping affluent individuals and families manage their wealth.   Private banks are one such option for high net worth families.  Whether you have recently formed wealth from the sale of a business, retirement, or inheritance, you may have approached – or been approached by – a representative of a private bank.  

While not all private banks are the same, this option may be appealing to those that want white glove service or like the idea of knowing they are part of a private bank and can have a one-stop shopping experience for many things financial.   There are some disadvantages to take into account and not all private banks are the same so homework is needed before deciding what type of firm to choose to help you and your family.

What are private banks and what do they do?

Private banks are generally wealth management arms of banks that have a team of advisors that attempt to address all of their client’s financial needs by providing an array of financial solutions at that one institution.  These financial solutions range from deposits, credit cards, lending, life insurance, brokerage and investment management, estate and trust administration, and perhaps financial planning. 

Private banks often have “minimums” (i.e., level of investable assets) to become a part of the private bank.  Some of the higher end shops may have minimums of $25 - $50 million while the national private banks have steadily increased their minimums to $5 - $10 million.   The trend in the private bank industry is to continue to increase their minimums or reduce the level of service and/or place junior advisors on the team to serve their clients that may fall out of their “top tier”.   Some regional private banks still serve those clients with $1 million or more, but this is constantly changing.

While private banks differ in terms of how many specialists they have on their team, private banks may have anywhere from two to five individuals working as a team that is assigned to a client.  The team is generally led by a “relationship manager” that acts as a quarterback for the team of advisors.  This relationship manager may go by other titles, but they usually have a generalist background or lending background.  As a large part of their incentive compensation may be tied to new sales, they may be particularly strong at sales.  The team is also complemented by a client service associate that is available to handle routine administrative and banking tasks.  Rather than getting a 1-800 number or a different person each time, the private bank may provide that personal service touch that you are looking for.  In some cases, however, as in all industries, many private banks are creating more national call centers and requiring many of the routine banking requests to be directed to the call centers except for its very top clients.  The national and regional private banks may differ on their approach.

Private banks can provide various advantages, one of which is one-stop shopping.  Rather than needing to contact multiple institutions or professionals to have your investments managed, obtain new life insurance, or refinance a mortgage, for example, a private bank may be structured to be able to fulfill all of these solutions for you.  By merely calling one relationship manager to set the wheels in motion and coordinate other teammates, you may be able to minimize the amount of legwork you have to do to fulfill this need.  This coordination may be especially critical for the busy individual.

Private banks vary in terms of the experience and credentials of their personnel.  The more established private banks will likely assign their more experienced professionals for their larger clients, and private bank clients are not likely to be served by a specialist just out of school (as opposed to the corner retail bank).  Some private banks will have a variety of credentials, including CFP®, MBA, CFA, CTFA, or CLU. Some will have CPAs and JDs on staff, but this is rare to have all of those credentials on one team. With the increasing sophistication of the financial and tax world, it is becoming increasingly important to work with a team that can coordinate things across disciplines.

You may also like the social aspects of being a part of a private bank.  Private banks will often use corporate suites at sporting events or concerts, theater nights, or fine dining at special events to stay in touch with clients.  This can also be an attempt to lead to referrals from existing clients.  Many private banks often have large budgets to entertain existing clients or to woo new clients.  This may get you out to see some concerts or sporting events that you would not otherwise think about attending.

The private banks often claim to offer exclusive pricing or exclusivity in a product.  Caution is warranted, of course, as this is generally marketing in action.  If the private bank suggests that you are getting better rates with one solution since you are part of the private bank, reason would suggest that they are making up for it with considerable profits with the “other” solution.  

Private banks may not be the right fit for everyone, however.  This choice may come at a cost in terms of higher pricing, potentially more conflicts in light of their employees’ incentive structures, and high turnover among employees.  

Growing alternatives to private banks

In recent years, independent advisory firms have sprung up to serve as an alternative to private banks. Registered Investment Advisor (“RIAs”) firms are independent firms and are not beholden to Wall Streets’ sales goals and often can help their clients find solutions outside of their firm – often times at a better fit and better price point than what the one-stop shop private banks may offer.  Since RIAs are typically smaller and independently owned by fewer individuals, the turnover among employees is usually drastically different than private banks.  

RIA firms act as fiduciaries and are legally obligated to act in a client’s best interest and cannot accept commissions on selling product.  Contrast this with most private banks who employ professionals that can receive commissions.  While certain members of the trust department at a private bank should be acting as a fiduciary, the relationship manager or the broker financial advisor may not necessarily be working under the fiduciary guidelines.  While there is not necessarily only one way to provide true advice, it is important to understand the legal standard advisors are working under.

As mentioned, RIA firms tend to be smaller.  While the “resources” may not be as great as the national firms, the use of technology and third-party alliances are generally more than enough for the RIA firm to bring the right resources to bear for the client.  In today’s day and age, RIA firms can bring ample resources to the table.

It is true that some private banks often have more experienced professionals than some RIA firms, but this varies from private bank to private bank and RIA firm to RIA firm.  It is important to look at the experience and perhaps the credentials of RIA firms in determining whether they can serve your family as the level of experience and clientele served ranges widely among RIA firms.  More and more RIA firms have similar experience and credentials as the top private banks can offer (since some RIA firms actually “broke away” from private banks to serve their clients in an independent manner).

RIA firms can still act as the quarterback of a client’s overall financial relationship just as the relationship manager would do for the private bank.  The RIA firm does not have the ability to lend money so this may seem like a disadvantage to the client.  The RIA firm can, however, go outside of the RIA firm to introduce the client to other lending platforms.  As lending is often a commodity, it is generally wise to shop for the best combination of interest rate, other terms, and service.  Similarly, while the RIA firm typically does not provide trust administration, RIA firms increasingly have at their disposal boutique trust administrative firms to serve as trustees over their clients’ trusts.  These boutique trust firms can vary in size and flexibility, and their pricing is often less and their approach is usually more flexible than what the private bank’s trust department may be able to provide.   Indeed, many boutique trust firms can serve as administrative trustee only allowing the client to choose an outside advisor to manage the trust assets – RIA firms often fill that void to manage the trust assets.

Private Banking Alternatives in Tampa and Orlando

Whether a private bank or boutique RIA firm is right for you and your family’s wealth depends on the type of services that you are seeking, what you value, and reasonableness of fees.   Members of The National Association of Personal Financial Advisors are RIA fee- only financial planning firms that act as fiduciaries for their clients.  You can search this link (NAPFA) to find advisors in your area or to find advisors that may be able to work with you by video.  Oasis Wealth Planning Advisors’ multi-disciplined team has over fifty years of collective experience with a wide array of credentials.  The firm serves near retirees, retirees, and widows throughout the Southeast including Tampa and Orlando.