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Understanding the Difference Between Private Banking and Investment Management

March 24, 2022

When considering private banking and investment management, there are similarities in the kinds of services both offer and how they may benefit their customers or clients, but there are also significant differences. To determine which would be the better fit for your specific needs, it is important to understand what each type of financial service has to offer, and the limitations of each.

Private Banking vs. Wealth Management

Private banking generally caters to a type of customer referred to as a “high-net-worth individual,” or HNWI. This term is typically used to designate a person who has a minimum of $1 million in investable wealth (like bonds or stock positions) or liquid financial assets. Private banking institutions employ staff who help manage the finances of the HWNIs that the bank serves, and provide various services that might be attractive to affluent clients.

Investment or wealth management services are typically more varied, and generally involve managing a client’s financial portfolio in an effort to maximize potential earnings (often through investments) while mitigating any risk or exposure to loss. This typically entails identifying attractive investment opportunities that could realize a high return on a client’s initial investment, evaluating these opportunities in terms of possible risk, and determining which investments best fit the financial goals of the client.

Private Banking: Preservation and Protection

Private banking includes a range of banking and financial management services and generally caters only to customers who have considerable personal wealth, chiefly in the form of cash. Private banking tends to be exclusive to clients with “six-figure” assets, or at least $1 million dollars in wealth that can be invested or deposited.

Typical services offered by private banking institutions tend to be more geared toward protecting a client’s assets and safeguarding them for the future. Though private banking institutions may also offer investment services and advice, they are generally more focused on avoiding loss and preserving a client’s assets so that they will be available for future use, for instance as a retirement fund or in the form of an inheritance.

The Many Perks of Private Banking

Private banking institutions offer a range of services intended to attract individuals with considerable personal wealth to secure them as clients. These services can include things like lending at excellent interest rates, risk management analysis and insurance against investment loss, mortgage services to aid in purchasing homes or other properties, as well as a more traditional range of banking services like personalized deposit, checking, CD, or money market accounts.

Private banking clients also enjoy a much more exclusive level of service, with greater access to employees, from tellers all the way up to account managers and financial advisors. The wealthy client of a private bank will never have to wait in line to conduct banking business and can call on senior bank personnel for assistance in things like moving funds across various accounts within the bank or transferring funds out of the bank.

Investment Management and the Pursuit of Opportunities

Though some aspects of private banking can touch on investment and wealth management, there are marked differences between the two kinds of institutions. Investment management services focus on providing advice regarding attractive opportunities for growth and the execution of investments or the purchase and sale of things like stocks, bonds, or other funds.

Investment advisors not only oversee these kinds of transactions but also manage a client’s entire investment portfolio and assist with things like making sure any taxes or fees are handled appropriately.

While consumer banks may offer private banking services to their wealthier clients, investment and wealth management services tend to be offered by larger financial institutions that work more exclusively with clients who enjoy considerable wealth. Investment management services can also be provided by independent professionals who are licensed to manage investment portfolios and other similar services to clients with high net worth.

Customized Investment Strategies

Investment management advisors consult directly with their wealthy clients to answer important questions like what that client hopes to achieve through investments, what their larger financial and personal goals are, how much risk they are willing to tolerate, and any limitations or other preferences a client may have regarding how their money is utilized.

These investment managers will collect all of this information and develop a comprehensive investment strategy tailored to each client’s specific circumstances and preferences. In many cases, investment managers may then pursue investment opportunities without further direct interaction with the client but will secure or liquidate positions in various investment products that they believe would be beneficial to their client’s overall goals.

Similar Services, Important Differences

Though private banking services may offer some insight into investment and facilitate a client’s interest in pursuing these kinds of opportunities, this is not typically their main focus. They may offer guidance or advice on the suitability of various investments, but will typically not directly handle investing a client’s money. Private banking services are more attractive to people with conservative goals, who wish primarily to protect their wealth and ensure it will be available in the future.

Conversely, investment and wealth management professionals may provide more extensive investment advice and be aware of a wider array of investment opportunities, but they cannot provide banking services like opening accounts or transferring money for their clients. The types of services offered by investment managers are more suited to those who seek high returns on investment and are willing to risk their savings in the attempt.

Our Approach

If you are researching the best option for your situation, be sure to read up on First Western Trust’s philosophy on providing the best of private banking and wealth management. We have developed a proprietary approach to managing your wealth that we call ConnectView®.

Our team of experts takes a holistic view of your unique situation across four quadrants: Financial, Experiential, Relational and Legacy Wealth. We believe that each financial situation is unique and deserves a customized plan, and we work to form close relationships with our clients through our unique team-based approach designed to enable our clients to realize their best possible lives.

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