Wealth management vs private banking: what’s the difference?

Summary 

• Wealth management encompasses comprehensive financial services, including investment management and estate planning for wealthy clients.

• Private banking focuses primarily on personalised banking and investment services for individuals with a high net worth.

• Wealth management services charge clients based on assets under management (AUM), typically ranging from 1% to 1.5% annually.

What is wealth management?

Wealth management is a comprehensive service that addresses all aspects of a client's financial life. 

It includes investment management, tax, estate, financial planning and retirement planning. The primary goal of wealth management is to grow and preserve a client's wealth over the long term.

In the UK, wealth management companies are regulated by the Financial Conduct Authority (FCA). This ensures that wealth managers adhere to strict standards and provides clients with some protection and confidence in their services.

If a certified wealth manager works with a client who owns a successful business, they might help diversify investments, set up trusts for any children, and develop a tax-efficient retirement plan. 

The pros of wealth management

There are many advantages to wealth management services, including offering:

• A holistic approach: Wealth managers look at the entire financial picture.

• Customisation: A wealth manager’s services are tailored to individual needs and goals.

• Expertise: You can gain access to a wide range of financial professionals.

• Long-term planning: You can focus on sustained wealth growth and preservation.

The cons of wealth management

However, there are some disadvantages, including:

• Cost: Comprehensive services can be expensive.

• Minimum asset requirements: Most firms only accept clients with significant assets.

• Potentially misaligned incentives: Wealth managers may earn commissions on financial products, potentially leading to biased recommendations.

How do wealth management services choose their clients?

Wealth management firms typically target high net worth individuals (HNWIs) and ultra-high net worth individuals (UHNWIs).

They seek clients with substantial financial assets, often with minimum thresholds ranging from £500,000 to several million pounds.

Clients can choose a wealth manager themselves or use a financial adviser to find one. Financial advisers can provide referrals based on their knowledge of various wealth management companies and their specialisations.

Any new clients need to provide comprehensive financial information, including their income, assets, liabilities, and future financial goals so a wealth manager can create a tailored financial plan.

How do wealth management services charge their clients?

Wealth management services typically charge clients based on a percentage of assets under management (AUM). This fee usually ranges from 1% to 1.5% annually, depending on the firm and the portfolio size.

In addition to AUM fees, a wealth manager may charge flat fees for specific services, such as financial planning or estate planning. These fees can be tied to the complexity and scope of the services provided.

What is private banking? 

Private banking offers personalised financial services to HNWIs, focusing primarily on banking and investment services.

Clients receive bespoke banking solutions, including tailored lending options, investment products, and personalised financial advice.

Private banks in the UK are regulated and protected by the Financial Services Compensation Scheme (FSCS), which ensures that clients' deposits are safeguarded up to a certain amount.

A private banking client may receive a tailored loan for a property purchase, access to exclusive investment opportunities, and personalised advice on managing their finances to achieve specific goals.

The pros of private banking

There are many advantages to private banking, including offering:

• A personalised service: Clients receive dedicated relationship managers.

• Access to exclusive products: Access to unique investment opportunities and banking solutions.

• Convenience: You can access integrated financial services via private banking.

• Privacy: You can benefit from enhanced confidentiality for financial transactions.

The cons of private banking

However, there are many disadvantages to consider, including: 

• Narrow focus: The focus is primarily on banking and investment services rather than comprehensive financial planning.

• A lack of transparency: You may not get a complete service or visibility on fees.

• Conflict of interest: Few private bankers are fiduciaries.

• Generalist approach: You may access less specialised expertise than a dedicated team of advisers.

How do private banking services choose their clients?

Private banks often find clients through referrals from existing clients, financial advisers, and partnerships with other financial institutions. 

Compared to wealth management, private banking focuses more on exclusivity and personal service.

While both services cater to HNWIs, private banks tend to emphasise personalised banking relationships and access to unique financial products.

Clients can choose a private bank directly or work with a financial adviser to identify one that fits their needs. Financial advisers can provide recommendations based on their knowledge of various private banks and their offerings.

To qualify for private banking services, clients must provide detailed financial information, including their proof of assets, income, and financial objectives.

How do private banking services charge their clients?

Private banking services charge clients in several ways, often using a combination of fee structures. 

One common method is through a percentage of AUM, similar to wealth management. In addition to AUM fees, private banks may charge fees for specific investment and advisory services

These charges can vary significantly between private banks and depend on the level of service and exclusivity offered.

Unlike wealth management, which often includes a broader range of financial planning services, private banking fees are more closely tied to the specific banking and investment services provided.

What is the difference between private banking and wealth management?

While private banking and wealth management cater to HNWIs, they differ in scope and focus.

Scope of services:

• Wealth management: Comprehensive financial planning, investment management and tax planning.

• Private banking: Personalised banking and investment services.

Client relationship:

• Wealth management: You can access a broad team of financial professionals.

• Private banking: You can get a dedicated relationship manager.

Do I need private banking or wealth management?

Choosing between private banking or wealth management depends on your financial needs and goals.

You should consider private banking if:

• You need personalised banking solutions.

• You seek exclusive investment opportunities.

• You prefer a dedicated relationship manager.

You should consider wealth management if:

• You want comprehensive financial planning.

• You need advice on investments, taxes, and estate planning.

• You prefer a holistic approach to managing your wealth.

Understanding your financial situation and goals will help you decide which service aligns best with your needs.

Both options offer valuable benefits, but the right choice depends on your unique circumstances.

Get expert financial advice

Understanding the distinctions between private banking and wealth management will help you find tailored financial solutions that align with your financial goals and preferences.

Whether you prioritise comprehensive financial planning or personalised banking services, making an informed choice ensures effective management of your wealth and financial wellbeing.

Let Unbiased connect you with a financial adviser for expert financial advice, so you can make well-informed decisions about managing your money.