Buyer Beware: Everyone Gets Paid.

Why “Low Fees” at Private Banks Rarely Mean Low Cost

About This Article

This article is part of an ongoing series focused on helping high-net-worth and ultra-high-net-worth families better understand the structural incentives that shape financial advice, banking relationships, and long-term outcomes.

Rather than advocating for or against any particular institution or model, the objective is to provide clarity around how various participants in the wealth ecosystem are compensated—and how those incentives can influence recommendations, pricing, and strategy.

An informed client is better positioned to:

• Ask the right questions

• Identify potential conflicts

• Combine institutional resources with independent judgment

• Make deliberate, long-term decisions aligned with their objectives

This perspective is intended to support thoughtful governance, not replace professional legal, tax, or investment advice.

Executive Summary

Private banks often promote low or even negligible investment management fees, paired with integrated services such as lending, estate planning guidance, tax coordination, and family advisory support.

While this model can be convenient and effective, low visible fees should not be mistaken for low overall cost.

This article explains how private banks are primarily monetized at the relationship level rather than through portfolio management alone—via lending spreads, proprietary product distribution, cash balances, and asset consolidation. It explores why investment management is frequently used as a gateway rather than a profit center, and how embedded economics can materially affect outcomes over time.

For high-net-worth families, the key risk is not working with a private bank, but misunderstanding where incentives reside and how costs are ultimately incurred. True sophistication lies in recognizing these dynamics and using private banking deliberately, with appropriate oversight.Private banks frequently position themselves as offering institutional-quality investment management at minimal cost—paired with estate planning guidance, tax coordination, lending solutions, and family advisory services, all delivered under one roof.

On the surface, the value proposition is compelling.

However, sophisticated families should understand a critical reality:

When visible investment fees appear unusually low, the economics have simply been shifted elsewhere.

This is not an indictment of private banking.
It is a caution against misunderstanding how private banks are compensated.

The Illusion of Low-Cost Investment Management

Many private banks advertise investment management fees that appear highly competitive by any standard:

• 0.30%–0.60% on sizable portfolios

• In some cases, no explicit advisory fee at all

This naturally leads clients to believe they are receiving:

• Institutional pricing

• High-touch advisory

• Integrated services at minimal cost

In practice, investment management is rarely the core profit center.

It is the entry point.

Where Private Banks Actually Generate Revenue

1. Lending Spreads: The Primary Economic Engine

Private banks are fundamentally balance-sheet businesses.

Once assets are consolidated, clients are typically offered:

• Securities-backed lines of credit

• Residential and commercial mortgages

• Bridge financing and structured lending solutions

The spread between the bank’s cost of capital and the client’s borrowing rate often generates more profit than portfolio management fees ever could.

Low advisory fees create the perception that borrowing is a value-added benefit rather than a profit center.
The spread itself is rarely scrutinized.

2. Product Manufacturing and Distribution

Many private banks are not only advisors—they are also manufacturers.

Common examples include:

• Proprietary investment funds

• Structured notes and yield-enhancement strategies

• Principal-protected products

• Insurance-linked or balance-sheet-backed solutions

These offerings often embed:

• Internal margins

• Issuer economics

• Distribution incentives

They are presented as solutions rather than products, and their true cost is rarely transparent to the end client.

3. Client Cash as a Hidden Asset

High-net-worth families often maintain:

• Significant idle cash balances

• Operating liquidity

• “Dry powder” awaiting deployment

From the client’s perspective, this represents prudence and flexibility.

From the bank’s perspective, it represents highly valuable, low-cost funding.

The difference between what clients earn on cash and what the bank can deploy it for quietly subsidizes the broader relationship.

4. “Free” Professional Services That Are Directional, Not Executional

Private banks frequently promote:

• Estate planning support

• Tax coordination

• Trust, philanthropy, and governance guidance

What is often overlooked:

• These services are advisory, not executional

• Legal and tax responsibility is explicitly disclaimed

• Implementation is deferred to external professionals

The guidance has value—but it is directional and designed to reinforce asset consolidation rather than replace independent counsel.

The Relationship P&L Clients Never See

Private banks do not evaluate profitability by individual service.

They evaluate profitability at the relationship level.

A client who:

• Pays low investment fees

• Borrows consistently

• Maintains cash balances

• Utilizes FX, custody, trust, or insurance services

Is highly profitable—even if the portfolio management fee appears modest.

This internal cross-subsidization explains how so much can appear “included.”

The Structural Incentive Mismatch

Because private banks earn the majority of their economics from:

• Lending

• Product distribution

• Balance-sheet utilization

• Asset retention

Their incentives naturally favor:

• Consolidation over coordination

• Complexity over simplicity

• Retention over portability

This does not mean advice is incorrect—but it does mean it is not structurally neutral.

Why Sophisticated Families Still Choose Private Banks

Despite these realities, private banks remain attractive for many families because they offer:

• Convenience

• Speed of execution

• Integrated lending solutions

• Administrative simplicity

For some, these benefits justify the opacity.

The risk lies not in using a private bank—but in assuming that low visible fees equal true alignment.

Buyer Beware: The Question That Actually Matters

The wrong question is:

“What is my investment management fee?”

The right question is:

“How is my entire relationship being monetized?”

Families who understand this can:

• Use private banks deliberately

• Recognize embedded conflicts

• Supplement with independent oversight where appropriate

Those who do not may pay far more than they realize—just not where they are looking.

Key Takeaway: Everyone gets paid

Nothing in private banking is free.
It is simply priced in places clients are least inclined to examine.

Understanding that distinction is not cynicism—it is sophistication.

Take Action

What do you think? Does this fit with your views? Let’s have a conversation. Reach out to me directly by email at brett@senatuswealth.com.