Private banking is the core of banking, tax management, investment, and various financial services to HNWIs (high net worth individuals). Unlike mass-market retail banking, private banking emphasizes providing customized financial services through their dedicated advisors. HNWIs possess adequate wealth compared to an average person. They also have access to large investment varieties like real estate and hedge funds. The role of banks is to match individuals with an appropriate investment option and process. The best private banking services focus on just that.
Advantages of Private Banking
The best private banking services target affluent individuals because it gives them significant returns as well as guarantees them, clients. Some of the major benefits of private banking include as following:
- Customer Privacy: Customer’s privacy is the topmost concern of private banks. Banks provide their clients with proprietary products, which are confidential and prevents competitors from selling the same type of products to the same clients again. Also, high net worth individuals are easily attracted to the privacy culture in private banking as they conceal all personal information that may give an undue advantage to business rivals. So, it is evident that clients like to use Master Debit Card of such banks only.
- Discounts: Banks offer discounts to HNWIs in the form of rewards for a large volume of business. Services like tax preparation, estate management, master debit card, and corporate checking are provided at a relatively lower cost than the actual cost of the product. Clients involved in import and export businesses may also receive attractive discounts and foreign exchange rate.
- Higher Return on Investment: Banks allocate the best performing personnel to private banking division and help them manage HNWIs accounts. This practice ensures consistent higher returns outperforming market performance. From a private bank, clients can expect a return of 7% to 13%, which can go up to 30%. Owing to extensive resources, clients may also get exclusive access to some of the top-performing hedge funds through bank affiliation.
Common Challenges of Private Banking
Even the best private banking services face challenges. Most of these obstacles are the result of the 2008 Global Financial Crisis, whereas a few are systemic to the profession. The challenges include as follows:
- Regulatory Obligations: As a result of the 2008 Global Financial Crisis, major financial institutions either became insolvent or collapsed. Subsequently, governments enacted strict regulations for more accountability and transparency. These regulations made private banking professionals licensing more restrictive, which affected their career growth.
- Lead Generation: Private banking depends heavily on client acquisition. It is a major problem affecting all businesses. Most banks depend on conventional methods of customer acquisition such as referrals from core banking and investment division. Customer referral is the other method to acquire new clients. Other channels of lead generation are social networking, client referral marketing, and event marketing. If one bank can get maximum customers through referrals, customer satisfaction is evident.
- Staff Retaining: Personal relationship between the advisors and HNWIs is the core of private banking services. However, private banks are facing high turnover only because of the restrictive regulatory framework. Banks emphasize more on talent recruitment, and training, instead of retaining their qualified professionals. Though the scenario has changed and banks are now trying to offer better compensation packages with incentive programs to their employees, the gap still exists.