Author: Philip Brewer / Source: Wise Bread
In the past, if you had $1 million — or better, $10 million — there were private banks and bankers who would provide services you wouldn’t get from an ordinary bank. But thanks to changes in the financial industry, ordinary, non-wealthy people can now access almost all of these services, if they’re willing to do a bit of the legwork themselves.
The sorts of services that private banks provide fall into four general categories: Banking services, investment services, advisory services, and perqs. Of course, they also come at a price, which you can largely avoid if you roll your own.
Banking services
One thing that private banks provide are standard banking services. They receive your deposits, process your payments, transfer your money, offer loans, etc. Your ordinary non-private bank will do all of these things as well, but in the old days, they expected you to show up in-person at the bank. Since you can now do these things online, rolling your own private-bank equivalent is easy.
Let’s say you’re traveling abroad, meet someone lovely that you’d like to spend more time with, and decide to extend your travels. In the old days, a private banker could really help with logistics — get someone to collect your mail, sort through it to find any checks or bills you’d received, and get them deposited or paid as the case may be. If incoming checks didn’t quite cover your new travel expenses, they could also float you a quick loan. They could also get local currency delivered to you.
But now, handling these sorts of affairs is much easier for people to do on their own. Your incoming funds are direct deposited to your account. Your bills are set to be paid automatically, or you can can pay them online. Local currency is as close as the nearest ATM.
Loans, in particular, used to be a major competitive advantage for private bankers. Because your private banker had intimate knowledge of the state of your finances, they were uniquely positioned to be able to immediately approve a loan — either a short-term loan, or a longer-term loan to buy a third home or restructure your business. Now every credit card will allow you to take a cash advance at least as large as a prudent banker would allow. (A very expensive loan, mind you, but one that’ll be approved faster than even a private banker could.)
Investing services
Private banks have an investment arm. The fee they charge is a fraction of your assets under management, but the fee scales down as you have more to invest.
Of course, most banks have investment options nowadays, and every brokerage can provide banking services. They will also manage your money for a fraction of the assets under management. Or, for a much smaller fraction of the money under management, you can create your own investment…
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