|Part of a series on financial services|
Wealth management is an investment-advisory discipline which incorporates financial planning, investment portfolio management and a number of aggregated financial services offered by a complex mix of asset managers, custodial banks, retail banks, financial planners and others. There is no equivalent of a stock exchange to consolidate the allocation of investments and promulgate fund pricing and as such it is considered a fragmented and decentralised industry. High-net-worth individuals (HNWIs), small-business owners and families who desire the assistance of a credentialed financial advisory specialist call upon wealth managers to coordinate retail banking, estate planning, legal resources, tax professionals and investment management. Wealth managers can have backgrounds as independent Chartered Financial Consultants, Certified Financial Planners or Chartered Financial Analysts (in the United States), Certified International Investment Analysts, Chartered Strategic Wealth Professionals (in Canada), Chartered Financial Planners (in the UK), or any credentialed (such as MBA) professional money managers who work to enhance the income, growth and tax-favored treatment of long-term investors.
Private wealth management
Private wealth management is delivered to high-net-worth investors. Generally this includes advice on the use of various estate planning vehicles, business-succession or stock-option planning, and the occasional use of hedging derivatives for large blocks of stock.
Traditionally, the wealthiest retail clients of investment firms demanded a greater level of service, product offering and sales personnel than that received by average clients. With an increase in the number of affluent investors in recent years, there has been an increasing demand for sophisticated financial solutions and expertise throughout the world.
The CFA Institute curriculum on private-wealth management indicates that two primary factors distinguish the issues facing individual investors from those facing institutions:
- Time horizons differ. Individuals face a finite life as compared to the theoretically/potentially infinite life of institutions. This fact requires strategies for transferring assets at the end of an individual's life. These transfers are subject to laws and regulations that vary by locality and therefore the strategies available to address this situation vary. This is commonly known as accumulation and decumulation.
- Individuals are more likely to face a variety of taxes on investment returns that vary by locality. Portfolio investment techniques that provide individuals with after tax returns that meet their objectives must address such taxes.
The term "wealth management" occurs at least as early as 1933. It came into more general use in the elite retail (or "Private Client") divisions of firms such as Goldman Sachs or Morgan Stanley (before the Dean Witter Reynolds merger of 1997), to distinguish those divisions' services from mass-market offerings, but has since spread throughout the financial-services industry. Family offices that had formerly served just one family opened their doors to other families, and the term Multi-family office was coined. Accounting firms and investment advisory boutiques created multi-family offices as well. Certain larger firms (UBS, Morgan Stanley and Merrill Lynch) have "tiered" their platforms – with separate branch systems and advisor-training programs, distinguishing "Private Wealth Management" from "Wealth Management", with the latter term denoting the same type of services but with a lower degree of customization and delivered to mass affluent clients. At Morgan Stanley, the "Private Wealth Management" retail division focuses on serving clients with greater than $20 million in investment assets while "Global Wealth Management" focuses on accounts smaller than $10 million.
In the late 1980s, private banks and brokerage firms began to offer seminars and client events designed to showcase the expertise and capabilities of the sponsoring firm. Within a few years a new business model emerged – Family Office Exchange in 1990, the Institute for Private Investors in 1991, and CCC Alliance in 1995. These companies aimed to offer an online community as well as a network of peers for ultra high-net-worth individuals and their families. These entities have grown since the 1990s, with total IT spending (for example) by the global wealth management industry predicted to reach $35bn by 2016, including heavy investment in digital channels.
Wealth management can be provided by large corporate entities, independent financial advisers or multi-licensed portfolio managers who design services to focus on high-net-worth clients. Large banks and large brokerage houses create segmentation marketing-strategies to sell both proprietary and non-proprietary products and services to investors designated as potential high-net-worth clients. Independent wealth-managers use their experience in estate planning, risk management, and their affiliations with tax and legal specialists, to manage the diverse holdings of high-net-worth clients. Banks and brokerage firms use advisory talent-pools to aggregate these same services.
The Great Recession of the late 2000s caused investors to address concerns within their portfolios. For this reason wealth managers have been advised that clients have a greater need to understand, access, and communicate with advisers about their situation.
Family Wealth Management
James E. Hughes Jr., in his book Family Wealth, defines the wealth of a family as the human and intellectual capital of the family, with financial capital being used to support the growth of the family’s human and intellectual capital.
In the UK alone, an estimated £5.5 trillion is due to be passed between generations over the next 30 years – according to Kings Court Trust – yet according to the Attitudes Survey 2019, only half of Ultra High Net Worth Individuals have a robust succession plan in place. Passing on wealth is a major concern for wealthy families.
The four dimensions of family wealth
- Human: The skill sets, talents, and emotional maturity of everyone in the family.
- Cultural: The overall identity of a family, including communication skills, collective values, and how decisions are made together.
- Social: How a family is connected to its community, and the overall mission of how they’ll contribute to the world.
- Financial: Assets and financial strategy that make up the family’s portfolio and resources for the future.
The 3 Forces of Family Wealth Management
- Wealth Creators – usually the first generation patriarch or matriarch who through their entrepreneurial efforts created the money that is the basis of the family fortune and legacy.
- Wealth Inheritors – those family members who are not direct wealth creators, such as a surviving spouse, children, extended family members, and other beneficiaries.
- Various Wealth Advisers – those involved in the planning and execution of investment strategies, tax strategies, trust and estate strategies and management, and day-to-day transaction tracking and cash management.
As the term wealth management has become more common, some companies have shifted towards a model which asks clients about life goals, working environments, and spending patterns as a way to increase communication. In 2014 Barron's reviewed "Wealth Management Unwrapped", a book addressed to investors without endorsing any one firm or strategy. Increasingly the industry recognized wealth management was more than an investment advisory discipline. In 2015, United Capital rebranded their wealth management services using the term "financial life management", which, according to the company, was intended to more clearly define the difference between wealth management companies and more affordable brokerage firms. The same year Merrill Lynch began a program, Merrill Lynch Clear, which asks investors to describe life goals, and includes an educational program for clients' children.
Private banking and wealth management rankings
According to Euromoney's annual Private banking and wealth management ranking 2013, which consider (amongst other factors) assets under management, net income and net new assets, global private banking assets under management grew just 10.8%YoY (compared with 16.7% ten years ago).
The largest private banks and wealth managers in the world as of 2018 are as follows:
|2018 Rank||Company||Assets Under Management (AUM)|
|2||Bank of America Merrill Lynch||$1,080 billion|
|3||Morgan Stanley||$1,045 billion|
|4||Credit Suisse||$792 billion|
|5||J.P.Morgan Private Bank||$526 billion|
|6||Citi Private Bank||$460 billion|
|7||BNP Paribas||$436.7 billion|
|8||Goldman Sachs||$394.3 billion|
|9||Julius Baer||$388.3 billion|
|10||China Merchants Bank||$292.8 billion|
World Wealth Report 2013
The 2013 World Wealth Report, released in June 2013, showed that despite the turbulence of the global economy, particularly in the Eurozone, both the population and wealth of global HNWIs reached significant new highs in 2012. Even though the year got off to a shaky start, HNWIs ultimately benefitted from strong market returns in spite of sluggish global GDP growth. The report was widely welcomed as good news for the private wealth management sector.
The 2013 edition of the World Wealth Report also included the inaugural Capgemini, RBC Wealth Management and Scorpio Partnership Global HNW Insights Survey. The survey represents one of the largest and most in-depth surveys of high-net-worth individuals ever conducted, surveying more than 4,400 HNWIs across 21 major wealth markets.
This survey-driven section of the report aimed to provide perspectives from the world's wealthy. Key findings included:
- In Q1, 2013, around 61% of HNWIs said they have trust and confidence in their wealth managers and firms, an increase of roughly four and three percentage points respectively, from 2012.
- 75.4% of HNWIs around the globe cited confidence in their ability to generate wealth over the next year.
- 52.6% of HNWIs gave their advisors and support staff a strong performance rating for service.
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To the inefficiency of political control of government, which is the principal cause of unsound conditions, they would grant the additional authority and responsibility of wealth management.
- Wealth Management Technology Spending Through 2016 (July 2012)
- Yeh, C: "Investors Challenge Market 'Truths'", CFA Institute Private Wealth Management, August 2009.
- Costa, L: "Questions Replace Investment 'Truths': A Comment", CFA Institute Private Wealth Management, May 2009. Quote:"This state of affairs poses a dilemma for wealth managers, who, for a generation, have adhered to the core principles of asset allocation and earned their keep by preaching the mantras of 'buy and hold', 'invest for the long term', and when things get tough, 'stay the course'."
- James E. Hughes Jr. '"Family Wealth: Keeping It in the Family", John Wiley & Sons, May 2010
- Francis Menassa (June 11, 2019). "How Planning For Succession Can Preserve Family Wealth For Future Generations". ValueWalk. Retrieved June 11, 2019.
- "The four dimensions of family wealth: How to create a living legacy and invest in the next generation - Today's Hotelier". Today's Hotelier.
- Sherilyn Casiano (April 14, 2015). "The 3 Forces of Family Wealth Management". The European Financial Review. Retrieved April 14, 2015.
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- Welch, Scott, "Perspectives on Serving the Ultra-High-Net Space An Interview with Jean L.P. Brunel and Charlotte Beyer" IMCA Wealth Management Monitor, Jan/Feb 2016
- Gil Weinreich (March 25, 2015). "United Capital's Duran: Wealth management is dead. Long live life management!". ThinkAdvisor. ALM. Retrieved September 17, 2015.
- Annual private banking industry assets under management
- "The 15 biggest wealth managers in the world". Business Insider. Retrieved June 1, 2018.
- World Wealth Report 2013
- World Wealth Report 2012, Figure 11
- Butler, Jason (2014). The Financial Times Guide to Wealth Management: How to plan, invest and protect your financial assets. FT Publishing International. ISBN 978-1-292-00469-3.
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