There are 3 main sources from which Private Banks derive revenue:
Assets Under Management (AUM)
This is the main driver of Private Bank revenue. In essence, Private banks charge a fee for placing an individual’s assets in the custody of the bank. Often referred to as a custody fee, this is calculated as a percentage of the value of the assets placed in the bank’s custody. These usually differ based on the class of assets, and can vary across private banks.
These are fees that Private Banks charge clients to execute transactions such as buying and selling stock. A list of the transaction fees for different asset classes can usually be found on the bank’s website or published material.
Portfolio Management Fees
If the client chooses to hand over the investment decision-making process to the bank (otherwise referred to as discretionary portfolio management), the client is charged a portfolio management fee. These fees cover the development of an investment strategy for the client as well as the optimal allocation of the client’s portfolio.