Private Banking: Features And Challenges Explained

Personal banking is all about offering banking, investment, tax management, and other services to high-net-worth individuals. Unlike retail banking, private banking focuses on providing private facilities to the clients, through a dedicated personal banker or relationship manager. They are specifically meant to offer such individual services.

HNIs possess more wealth than the average person. Hence, they can access more and larger investments like hedge funds and real estate. Privilege banking gives HNIs advice and information concerning an appropriate investment option for them.

Features

Eligibility

Clients need to fulfil some requirements for being eligible under priority banking. It generally involves maintaining a minimum balance through deposits, individual retirement accounts, investments, and other kinds of assets. The minimum amount deposited in the account should also include qualifying linked deposits and investments.

Dedicated representative

Every HNI has a dedicated relationship manager or team of people who have a thorough understanding of the client's asset ownership, risk aversion, preferences, and long-term financial goals. The private banker or relationship manager facilitates cheque deposits, conducts wire transfers, orders cheques, etc.

Perks

Preferred banking customers receive many benefits such as lower annual percentage rates for loans, higher annual percentage yield on securities like certificates of deposits, free safe deposit boxes, etc. It is possible since charging such a minimal interest on larger loans generates substantial revenue for the bank.

High management fees

Clients should pay higher fees for the services given by the private bankers.

Target market

The affluent market is the primary target audience of such banking. While executing these normal lending activities, they can access tax documents and other personal documents for finding potential clients. However, the activities are subject to some considerations of conflict of interest.

Challenges

While private banking does offer so many benefits and features, it does face some challenges industrially. They are –

Lead generation

Client acquisition is an essential part of this banking. Most banks generally rely on traditional methods such as referrals and investment divisions to land new clients. The other option is referrals from existing clients. Those who were satisfied with the concept can refer their friends and family members who are HNIs. The other lead generation channels include social media and event marketing.

Regulatory restrictions

The Global Financial Crisis, 2008 led to the collapse of many financial institutes. Owing to this, the Government imposed stricter restrictions which included more transparency and accountability from banks. These regulations have made the licensing of private bankers restrictive. This has, in a way, affected both the nature of the service and career advancement.

Retaining professionals

Private banking is all about the relationship between the HNIs and private bankers assigned to each. However, since the financial crisis, this industry has experienced a high turnover rate. This is partly owing to the restrictive framework. Banks nowadays focus more on talent recruitment, training, and retaining the most qualified professionals.