Wealth managers and private bankers both work on behalf of high net worth (HNW) families and individuals to provide a wide range of advisory and banking services. Wealth managers guide investors through decisions on how to allocate their assets and balance a portfolio of funds. Private bankers provide custodial services on behalf of individual investors and fund managers. They are also involved in facilitating the conversion of assets in accounts the client intends to use for funding new investments.

HNW individuals will likely work with both types of professionals to manage their financial portfolios. Still, understanding the differences between wealth management vs. private banking and the roles they play will ensure you’re working with each one effectively.

Wealth management vs. private banking: understanding the client

HNW individuals fall under one of two umbrellas of wealth management: discretionary and non-discretionary. Discretionary clients give wealth managers a greater range of control over investment decisions. As asset managers, they can execute a stock trade on behalf of the client without additional clearance. They study the various stock, bond, and private markets and make tactical buy and sell recommendations under a quicker approval process.

Non-discretionary clients, as it implies, do not grant their wealth advisors full discretion to execute investment decisions. These HNW individuals have investment policies that tend not to make as many tactical adjustments involving trades as their counterparts. Non-discretionary manager fees tend to be a little lower since they aren’t taking an active role in daily investment decisions. 

Portfolios under non-discretionary agreements have a higher percentage of assets under advisement (AUA) than assets under management (AUM). No matter the investor type, private banking services is key to tying together all aspects of an investor’s financial services needs.   

When do you need wealth management?

Clients who seek out wealth managers generally already have large sums of capital invested in securities products, real property, cash, and other assets. Other HNW clients are looking for wealth advisors because they’re either expecting or have recently experienced a major liquidity event. Some examples of liquidity events include receiving an inheritance through a trust or a proprietor selling their stake in a business.

Newly attained wealth comes with a tremendous amount of pressure for it not to lose value, and everyone’s situation is different. Family inheritances can be beneficial, but they come with responsibility and high expectations. Family attorneys cannot provide wealth management or private banking services. Beneficiaries face circumstances in which an older relative’s customary approach to managing their finances aren’t suitable for their needs today.  

Experienced wealth managers take a detailed assessment of the client’s total financial position, income, and monthly liquidity needs to create a strategic plan. This plan typically includes:

Wealth managers tend to look at the big picture and assist you with lifelong planning decisions for yourself, your children, and the succession of your estate. Wealth management builds long-term relationships HNW clients based on providing holistic investment advice.

Wealth advisors play an important role in financial institutions because they have the best position at the company to cross-sell other services products that the bank provides. As such, wealth management overlaps private banking.

Roles of private banking

Private bankers establish and maintain the relationship of the custodian with the bank. They play a critical role in ensuring the bank remains compliant with verifying the sources of client cash and investment accounts. U.S. government agencies require financial institutions to comply with a wide range of anti-piracy and anti-money laundering (AML) laws. The Securities Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), Office of Foreign Assets Control (OFAC), and the Internal Revenue Service (IRS) each has a separate role in governing reported income, funding accounts, and how the sources of these assets are tracked.

Private bankers establish the more familiar checking and depository accounts. They also help to set up loan accounts to fund vehicle purchases, jumbo mortgage loans, and international wires, for example. The private banker works closely with clients’ CPAs to ensure they have the documents they need in a timely fashion to file taxes. Private banking relationships give clients priority access to meet with a banker, shortening the usual wait time.

Wealth managers help with investing on the front end by guiding their clients through tax-friendly investment decisions. Seasoned wealth managers help clients manage their tax bills. Through strategic timing and position value, they mitigate the impact of capital gains taxes on short-term and long-term investments.

Wealth management and private banking working in tandem

It’s important to understand wealth management vs. private banking, as they are both important services for HNW individuals and families. 

Wealth advisors put together a holistic financial road map, which may include family planning, college savings, insurance and investment strategy, estate planning and the bulleted list above. Private bankers give clients one contact person at the bank and additional services to best address the sometimes-complex banking needs of wealthy clientele. They specialize in prioritizing access to various services from throughout the bank. 

Working with a private banker and wealth manager in tandem is recommended to manage the various facets of your financial portfolio.

SD Mayer provides the holistic wealth management services you need as an HNW investor. SDM Wealth Advisors offer decades of experience in a full-service wealth management firm in San Francisco’s Financial District, with a supporting office is in Menlo Park. Contact us today to speak with a professional staff member who can answer your questions and help you on your way to a stronger financial portfolio.

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