High-net-worth individuals, or HNWIs, are people with 1 million USD or more in investable surplus liquidity. Private banking services serve HNWI clients and manage high-value transactions, taxation, and funds. This post will explain and explore how private banking does its work.
What Is Private Banking?
Private banking is a specialized form of bank-related services focused on the individual needs of high-net-worth individuals. Therefore, private banks cater to the HNWI’s needs using standard bank operations and investment research firms.
The private banks work on a larger scale since they are not retail banks aimed at average bank account holders. After all, retail bank customers belong to low to medium-income groups. Additionally, their risk dynamics are often on the conservative or risk-averse spectrum.
So, retail bank customers have limited investment needs that small and medium research firms can accommodate. However, HNWIs hold massive capital resources and demand access to all investment vehicles, including hedge funds.
Eligibility for Getting the Private Banking Services
Customers of a private bank must satisfy some eligibility terms and conditions if they wish to avail of the HNWI-exclusive investment banking services and research firms. For example, the clients must maintain a minimum account balance as deposits or IRAs (individual retirement accounts/arrangements).
Different private banking support schemes can require additional criteria describing what the HNWI must own in the form of investments. This type of client screening regulation ensures work transparency and risk management in the private banking industry.
Examples of Private Banks and Required HNWI Qualifications
Chase Private Client demands you keep 150,000 USD as the MAB, or minimum account/average balance. Clients who cannot maintain this MAB requirement must pay $35 per month. Meanwhile, JD Power serves HNWI and helps the mass affluent category of clients.
The mass affluent category includes customers whose investable assets range from 100,000 to 1 million US dollars in valuation reports. All private banking support firms also recognize the ultra-HNWI class. i.e., individuals possessing more than 10 million US dollars as investable surplus.
Exceptions in Private Bank Eligibility Terms
Children of HNWI family lines are prime candidates for wealth transfer. Therefore, they will inherit the assets and associated net worth once they grow old, becoming a thinking adult.
Consider how retail banks provide the nomination facility to transfer a bank account’s transaction rights if the original account holder dies. Likewise, the inheritance ecosystem helps private banking support firms streamline the wealth transfer between the family branches in an HNWI family tree.
So, children in these families are exempt from MAB criteria. Ultimately, the private banks want to manage the HNWI capital for multiple generations.
Emerging Affluent in Private Banking
Assume a young and talented professional who might not be a high-net-worth individual or HNWI today. However, you can analyze this person’s academic and professional career trajectory to estimate that s/he will be an HNWI by the end of the next decade.
Emerging affluents or individuals, who have a strong chance of becoming HNWI soon, get exceptions in the eligibility terms put forth by the private banks.
How to Invest in Private Banking
You require 1 million US dollars available as investable assets if you want HNWI-exclusive private banking support services. However, some elite private banks demand an investable surplus of 5 million USD. Therefore, an ultra-HNWI is more comfortable and familiar with how to invest in private banking.
Nevertheless, different private banks can measure the minimum balance criteria uniquely. If you want to invest in private banking, you will want to use investment research services to find out which private banks provide flexible terms.
Otherwise, you will expose your wealth to a high-risk environment where the private bank fails to satisfy your desired return on investment (ROI). For example, hedge funds can reward you with a higher ROI, but the risks associated with these investment routes are also significant.
Conclusion
Private banking does its work by serving HNWIs, or high-net-worth individuals. So, HNWIs often require private banks to manage their assets and high-value transactions. Besides, their banking needs are considerably different than those of retail bank customers.
HNWIs and ultra-HNWIs want access to hedge funds and other large investment vehicles. For example, they can easily afford investment banking services to strategize their portfolio development efforts.
SG Analytics, a leader in investment research services, supports the private banking industry by using and analyzing large coverage universes across several performance indices. Contact us today if you want a data-driven investment strategy that leverages scalable analytical technologies.
