Wealth management and private banking – what are the differences?

Who is the best person to contact if you want to make your money grow or manage your assets, a private banker or a wealth manager? How do the two differ? For many, the difference between private banking and wealth management is unclear. The myLIFE team is here to guide you, although we cannot claim to have the definitive answer.

Private banking and wealth management – like many people, you consider these activities very similar and are a little confused about the differences. Indeed, these two activities have much in common and many private banks offer wealth management services and, more generally, estate management activities. The reverse is also sometimes true, but this is less common.

The confusion between the two is sometimes fuelled by the fact that some professionals use these terms interchangeably. However, in theory at least, there are some differences which it is useful to be aware of when choosing the service provider best suited to your requirements.

Generally, you will need assets of at least €500,000 to become the client of a Luxembourg private bank.

Private banking

Strictly speaking, a private bank is a bank for people who are well off, or very well off. It offers similar products to an ordinary retail bank, such as bank accounts, credit cards, personal loans and mortgages, etc. However, whilst a retail bank is accessible to every type of client, generally speaking, you will need assets of at least €500,000 and in some cases much more, to become the client of a Luxembourg private bank. This is because the service level offered is higher, broader and much more personalised.

Private banks often offer more exclusive support, higher value-added services (such as a concierge service), more advantageous terms (e.g. on loans), events invitations, etc. It is not unusual for a private bank to include estate management in its services range, which may be carried out by internal experts, with the help of external partners, or via a mixture of the two. Whilst these banks are generally able to put their clients in contact with highly qualified professionals, they cannot cover the full range of potential services in-house. This is why they often cooperate with third-party specialists in specific and very complex areas where they do not have the required expertise.

Private banks seek to attend to their clients’ every need, providing a dedicated relationship manager to offer daily support. The role of this relationship manager is to rapidly mobilise experts who can efficiently and swiftly respond to client requests.

Wealth management

Wealth management and, more generally, estate management concerns high-net-worth and ultra-high-net-worth individuals looking for support and advice in managing a large portfolio of assets, in order to protect their value and promote their growth. To a large extent, this support relates to investment in its broadest sense and to estate planning, but also to asset transfers, tax optimisation, philanthropy, etc. As companies operating exclusively in this field do not have a banking licence, they cannot offer lending or deposit services.

Companies exclusively active in wealth management do not have a banking licence and cannot offer lending or deposit services.

With regard to investments, investing with a wealth manager may often give you access to advanced strategies, portfolio models and investment opportunities that are not available to individuals managing their own investments. This also applies if you choose to manage your investments via your private bank, whether via an advisory agreement or a discretionary management agreement. One key element relates to the independence of advice offered by wealth managers. Whereas a private bank may tend to focus on in-house funds, a wealth manager is indifferent to the source of the underlying assets making up client portfolios. In response to this criticism, many private banks have set up an open architecture system, i.e. they can offer their clients third-party products and services as well as in-house products and services on a fully transparent basis.

What’s the best option?

Whilst wealth managers and private banks target similar clients, there are some differences in the services offered. Wealth management is a more comprehensive financial service covering all of a client’s assets considered from every aspect. It generally implies advisory services in areas such as asset allocation and structuring, tax planning, inheritance planning, pensions, philanthropy, family arbitration, art, real estate and the relocation of families and their associated businesses. A private bank, meanwhile, provides premium banking services and specialised support or brokerage services in addition to traditional banking products and services. Many also offer wealth management services.

So if you have sufficient assets, you can take advantage of better support and a broader range of products and services. If you would also like active help in managing your investments and every aspect of your estate at every stage of life, it makes a lot of sense to think about wealth management services. One way is not better than the other, it all depends on your requirements. One potential solution is to choose a bank that is in a position to offer both premium services to its wealthy clients and wealth management services to those who need it.