Wealth management
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Wealth management (WM) or wealth management advisory (WMA) is an investment advisory service that provides financial management and wealth advisory services to a wide array of clients ranging from affluent to high-net-worth (HNW) and ultra-high-net-worth (UHNW) individuals and families.
It is a discipline that involves structuring and planning wealth to help grow, preserve, and protect it, while also passing it on to the family in a tax-efficient manner and in accordance with their wishes. Wealth management brings together tax planning, wealth protection, estate planning, succession planning, and family governance.
Private wealth management
High-net-worth investors seek private wealth management. 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 higher level of service, product offerings, and sales personnel than average clients received. 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" first appeared 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 also created multi-family offices.
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." The latter term denotes 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 more than $20 million in investment assets. In comparison, "Global Wealth Management" focuses on accounts under $10 million.
In the late 1980s, private banks and brokerage firms began offering seminars and client events to showcase the sponsoring firm's expertise and capabilities. Within a few years, new business models 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 and 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 focused on high-net-worth clients. Large banks and large brokerage houses develop segmented marketing strategies to sell both proprietary and non-proprietary products and services to investors identified as potential high-net-worth clients. Independent wealth managers use their expertise in estate planning and risk management, along with their affiliations with tax and legal specialists, to manage the diverse holdings of such clients. Banks and brokerage firms also use advisory talent pools to aggregate and deliver these 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.
Life goals
As awareness of wealth management has become more common, some companies have shifted towards a model that asks clients about life goals, working environments, and spending patterns as a way to increase communication. The industry-recognized wealth management was more than an investment advisory discipline. In 2015, United Capital rebranded its wealth management services as "financial life management", which, according to the company, was intended to more clearly distinguish wealth management companies from 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. For clients looking to leverage their wealth for the sake of achieving philanthropical and charitable goals, social finance investments may be included.
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:
| Rank | Company | Headquarter | Assets under management |
|---|---|---|---|
| 1 | UBS | Switzerland | $2,403 billion |
| 2 | Bank of America Merrill Lynch | United States | $1,080 billion |
| 3 | Morgan Stanley | United States | $1,045 billion |
| 4 | Credit Suisse | Switzerland | $792 billion |
| 5 | J.P.Morgan Private Bank | United States | $526 billion |
| 6 | Citi Private Bank | United States | $460 billion |
| 7 | BNP Paribas | France | $436.7 billion |
| 8 | Goldman Sachs | United States | $394.3 billion |
| 9 | Julius Baer | Switzerland | $388.3 billion |
| 10 | China Merchants Bank | China | $292.8 billion |
See also
Further reading
- Spear's Wealth Management Survey, . Spear's Magazine.
- Harrington, Brooke (2016). Capital Without Borders: Wealth Managers and the One Percent. Cambridge, Massachusetts: Harvard University Press. ISBN 978-0-674-74380-9. OCLC .
- Sharma, Raj; jSieg, Andy (2022). The Purposeful Wealth Advisor: How to Build a Rewarding Career While Helping Clients Achieve Their Dreams. Herndon, VA: Amplify Publishing. ISBN 978-1-63755-548-4. OCLC .
External links
Data related to Wealth management at Wikidata