What is Private Banking and Wealth Management in India

Narendra Kumar

07 Dec, 2020

The term private banking refers to a customized line of banking & financial services offered to private individual banking clients that earn high levels of income &/ or owning sizable investment assets, such as ‘High Net worth Individuals’ (HNWIs). Such private services are distinctive from retail banking services offered or standard wealth management in that clients are assigned relationship managers or private banker that specifically deal with them personally. In general, it is a valued-added banking service in comparison to traditional banking that offers more sophisticated products & more personalized customer service.

The term Wealth Management refers to a professional investment & advisory service that offers financial planning, investment management & other types of specialized financial advice. Wealth management services are usually provided to clients such as high net-worth individuals & business owners, who seek professional financial advice from a financial specialist, generally incorporating all financial assets of the client, with the ultimate goal of growing his or her wealth.

Example of Private Banking and Wealth Management In India

Private banking facility is accessible in most developed economies with private banking services accessible from local, regional & global banking institutions. Private banking^[1] clients can include high -net-worths such as executives, business owners, entrepreneurs & sophisticated investors. Distinguishing it from standard wealth management accessible by retail customers, services provided can include product specialist investment advice, wealth protection advice, succession planning, philanthropy, family governance, wealth structuring as well as access to alternative investment opportunities that are not normally available to retail investors.

Wealth management facilities can be provided by an expert financial services firm or even a unit or subsidiary within a bank. Clients have access to a wide range of financial services from investment decisions & tax planning to real estate management. A customer may require having a minimum financial net-worth to be eligible for these services. The type of clientele & minimum criterion required for qualifying for these services may vary in different institutions & in different countries. Wealth management facilities are especially beneficial when an individual has a large number of assets & needs professional assistance to manage them. In some cases, wealth management services may also be customized to meet the client’s specific requests.

Differences between Private Banking & Wealth Management

• Although both have core-business asset management, Private Banking offers banking services, asset management, & brokerage & presents some simple tax consulting services. The Wealth Manager provides consulting services in areas such as asset allocation, asset structuring, tax planning, estate planning, pensions, philanthropy, family arbitrage, art, real estate, & the relocation of families & their companies.
• Private Banking proposes a one-to-one model, existing bank packages for high-net-worth-individuals (HNWIs) or ultra-net-worth-individuals^[2] (UNHWIs). The Wealth Manager gives greater emphasis to financial advice & concern in the collection, maintenance, conservation, reinforcement & transfer of wealth. He begins by drawing up with the client a financial plan that meets the needs of his family & implements the plan with specialists from all areas involved. Over the years, he is monitoring with the client the evolution of the same & the goals of the family to make the necessary adjustments.
• Private Banking provides its customers with only the products offered by the bank for which they work. While the Wealth Manager, being an independent company, can implement a tailored service & present the products of several institutions, allowing the client to choose the ones that best suit their situation. Often the Customer of a Wealth Manager uses multiple institutions for security reasons.
• The Wealth Management benefits from all the flexibility & reactivity to act only in the best interest of the client since he’s also independent in the choices of the underlying assets that constitute the client’s portfolio. On the other side, Private Banking has slower & heavier processes, less independence & transparency, i.e. underlying assets chosen for the portfolios, generating sometimes conflicts of interest.
• In Wealth Management, everything begins by realizing the reality & concerns of the client, & then designing & implementing a plan to achieve the client’s goals – always focused on guaranteeing a safe & peaceful life for him & his family. During the process, the client is questioned & reflects on sensitive issues that often go unnoticed. In this way, a trusting relationship is created for long years of collaboration between the Wealth Manager, the client & his family. As the service provided by the private banking, requires less time, less involvement & knowledge of the client, as their services are “packages” that are then only adapted to the greater or lesser risk appetite & to the volume of the client’s assets.
• In Wealth Management the client can optimize the costs because he has a wide range of services & providers (banks, insurance companies, etc.) without having to meet with several entities. It also benefits from the negotiating power of the asset manager together, which as an individual client does not have. Though there is a mutual starting point – asset management between both activities, the point that distinguishes the most & which is transversal to the six points mentioned is undoubtedly the independence in the services provided by the Wealth Manager.

The very concept of Private Banking is quite broad. In all its appearances, it implies the service of wealthy clients, but the range of services provided & the principles of building work in different banks can vary significantly. Many banks operating in this segment of the market declare their readiness not only to provide preferential banking services but also to solve issues of managing the entire welfare of the client & his family. In foreign practice, this kind of services is called Wealth Management. The concepts of Private Banking & Wealth Management are not shared by many. They really overlap, but there are small differences in terms of the volume & nature of the services provided.

In the classical sense, Wealth Management is a broader concept, it includes work on optimizing the client portfolio as a whole, taking into account the client’s propensity for certain tools, & also considering his long-term tasks & plans. Private Banking implies the work of a banking organization with wealthy clients, aimed at managing the client’s assets within the bank, providing individual banking solutions on the best banking terms.

Private Banking is directly related to banking, these services cannot exist outside of the banking organization. Private Banking is primarily beneficial deposits, soft loans, top card products, additional non-financial consultations, which are provided for reference, according to the principle of concierge service. In addition, Private Banking means servicing customers on privileged terms compared to other clients, allotted by an employee who is always available & ready to approach the client’s tasks individually. Within Private Banking, investment solutions can also be offered, but they are only an additional part of the product content &, as a rule, are fairly standardized.

Service Wealth Management, on the contrary, can be rendered within the framework of consulting services outside the banking organization. On this principle, for example, multi-family offices are successfully operating. The main focus is to manage the entire wealth of the client. The work is aimed at developing an individual investment strategy that takes into account personal circumstances, long-term & short-term interests, & a comfortable level of risk. At the same time, a full range of available investment instruments is considered, ranging from securities to real estate & investments directly into a running business. Given the scale & variety of investment decisions, Wealth Management services also imply the ability to provide the client with expertise in tax litigation, legal matters, real estate, financial modeling & valuation of the business.