Who Uses Private Banks?
Private banking is the term used to describe the financial services and wealth planning structures provided by banks to high net worth individuals (HNWIs) and ultra-high net worth individuals (UHNWIs). It refers to the more exclusive and personalised nature of the services offered in comparison to the mass market services available through retail banking.
Typically, HNWIs have accrued more wealth than the average person. Thresholds vary from bank to bank and there is no precise definition of how wealthy an individual must be to classify. As a general rule, HNWIs have financial assets, excluding their primary residence and businesses, totalling a value greater than US$5 million. With the number of millionaires and billionaires increasing year on year, banks are increasing the thresholds for clients to qualify for private banking.
Financial services offered to HNWIs include:
- Investment advisory
- Discretionary asset management
- Trading and execution services
- Alternative investment solutions (Hedge Funds, Real Estate, Private Equity)
- Insurance solutions
- Family office services (Wealth and estate planning, tax planning)
Which countries have the most HNWIs?
The majority of HNWIs reside in the US, Japan, Germany and China, four of the world’s global economic powers, however, the fastest growth of new wealth creation has been in Asia and Latin America.
Ultra-High Net Worth Individuals
With a record number of people now being classed as HNWI around the world, different classes of wealthy individuals are emerging and different terms have been created to distinguish between them. A superclass of HNWIs known as ultra-high net worth individuals (UHNWIs) is growing and encompasses individuals who typically have assets valued at US$30m and above.
Financial services offered to UHNWIs cover those offered to HNWIs but also include advisory on philanthropy, family services (governance, family office, and business) and finance to fund luxury purchases such as art, aircraft, and yachts.
UHNWIs typically have demanding lifestyles so they rely on a trusted advisor to support them with their financial management. Some banks have ‘family office’ teams which provide services to preserve, manage, and invest their wealth and assets, while also having access to the bank’s product range and investment capabilities. Families may operate their own family office but given the costs of operating such a structure, this is usually a practice reserved for top tier UHNW families.
Which countries have the most UHNWIs?
Approximately half of all UHNWIs reside in North America and a quarter in Europe. The United States is home to the highest share of UHNWIs, China the second-highest (13%) and the United Kingdom follows in third (4%).
Examples of High and Ultra-High-Net-Worth Individuals
The number of clients with traditional family wealth is decreasing while the number of investors with new money is rising. Typical examples of individuals which make up the private banking client base include:
- Business Owners
- C-Level Executives
- Top Professionals (such as lawyers, doctors, and architects)
- Inheritance Clients
- MNCs Executives
- PEPs (Politically Exposed Persons)