Wealth management
Encyclopedia
Wealth management is an investment advisory discipline that incorporates financial planning, investment portfolio management and a number of aggregated financial services. 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 be an independent Certified Financial Planner, MBAs, Chartered Strategic Wealth Professional, CFA Charterholders
or any credentialed professional money manager who works to enhance the income, growth and tax favored treatment of long-term investors. Wealth management is often referred to as a high-level form of private banking
for the especially affluent. One must already have accumulated a significant amount of wealth for wealth management strategies to be effective.
and financial planning services delivered to high net worth investors. Generally, this includes advice on the use of trusts and other estate planning
, vehicles, business succession or stock option planning, and the 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 were received by the 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 there are two primary factors that distinguish the issues facing individual investors from those of institutions.
The term was first used by the elite retail (or "Private Client") divisions of firms such as Goldman Sachs
or Morgan Stanley
(before the Dean Witter Reynolds
merger), to distinguish themselves from mass market offerings, but since has spread throughout the financial services industry. 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 used to describe the same type of services, but with a lower degree of customization and delivered to mass affluent
clients. At Morgan Stanley
, "Private Wealth Management" is the retail division focused 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 new entities were devoted to educating the ultra wealthy investor and providing a network of peers for the ultra high net worth individual and their families. Their growth since the 1990s indicates a market eager to become more informed about private wealth management.
Wealth management education for private investors with substantial wealth is offered by several leading universities. The first such program was offered by the American Academy of Financial Management (now rebranded as the International Academy of Financial Management) who offers the CWM Chartered Wealth Manager Program and then the Wharton School of the University of Pennsylvania
. Since 1999, over 5000 people from over 100 countries have completed the IAFM CWM Wealth Manager program. At Wharton, 520 investors from 29 countries have completed the course. The five-day program is offered twice a year and is a continuing partnership with the Institute for Private Investors. Both The University of Chicago and Stanford University
also offer 5 day programs. In 2009, Columbia University
offered a three day program on value investing
designed for high net investors Wealth management can be provided by large corporate entities, independent financial advisers or multi-licensed portfolio managers whose services are designed 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 events of 2008 in the financial markets caused investors to address concerns within their portfolios. "The past 18 months have challenged traditional thinking about investing and asset allocation, diversification, and correlation. For individual investors, risk tolerances have been tested, investment assumptions have been overturned, and fundamental truisms have been questioned." For this reason wealth managers must be prepared to respond to a greater need by clients to understand, access, and communicate with advisers regarding their current relationship as well as the products and services that may satisfy future needs. Moreover, advisors must have sufficient information, from objective sources, regarding all products and services owned by their clients to answer enquiries regarding performance and degree of risk-at the client, portfolio and individual security levels. "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'.”
Today wealth management advisors must have access to an objective content repository. This repository must contain a current and readily available profile of the clients holdings.
High net worth individual
A high-net-worth individual is a person with a high net worth. In the private banking business, these individuals typically are defined as having investable assets in excess of US$1 million. As explained below, the U.S...
(HNWIs), small business
Small business
A small business is a business that is privately owned and operated, with a small number of employees and relatively low volume of sales. Small businesses are normally privately owned corporations, partnerships, or sole proprietorships...
owners and families who desire the assistance of a credentialed financial advisory specialist call upon wealth managers to coordinate retail banking
Retail banking
Retail banking is banking in which banking institutions execute transactions directly with consumers, rather than corporations or other banks. Services offered include: savings and transactional accounts, mortgages, personal loans, debit cards, credit cards, and so forth.-Types of...
, estate planning
Estate planning
Estate planning is the process of anticipating and arranging for the disposal of an estate. Estate planning typically attempts to eliminate uncertainties over the administration of a probate and maximize the value of the estate by reducing taxes and other expenses...
, legal resources, tax professionals and investment management. Wealth managers can be an independent Certified Financial Planner, MBAs, Chartered Strategic Wealth Professional, CFA Charterholders
Chartered Financial Analyst
The Chartered Financial Analyst Program is a graduate level self-study program offered by the CFA Institute to investment and financial professionals...
or any credentialed professional money manager who works to enhance the income, growth and tax favored treatment of long-term investors. Wealth management is often referred to as a high-level form of private banking
Private banking
Private banking is banking, investment and other financial services provided by banks to private individuals investing sizable assets. The term "private" refers to the customer service being rendered on a more personal basis than in mass-market retail banking, usually via dedicated bank advisers...
for the especially affluent. One must already have accumulated a significant amount of wealth for wealth management strategies to be effective.
Private wealth management
Private wealth management (PWM) is the term generally used to describe highly customized and sophisticated investment managementInvestment management
Investment management is the professional management of various securities and assets in order to meet specified investment goals for the benefit of the investors...
and financial planning services delivered to high net worth investors. Generally, this includes advice on the use of trusts and other estate planning
Estate planning
Estate planning is the process of anticipating and arranging for the disposal of an estate. Estate planning typically attempts to eliminate uncertainties over the administration of a probate and maximize the value of the estate by reducing taxes and other expenses...
, vehicles, business succession or stock option planning, and the 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 were received by the 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
CFA Institute
CFA Institute is headquartered in the United States of America at Charlottesville, Virginia, with offices in Hong Kong and London. Formerly known as the Association for Investment Management and Research , CFA Institute awards the Chartered Financial Analyst designation...
curriculum on "Private Wealth Management" indicates that there are two primary factors that distinguish the issues facing individual investors from those of institutions.
- Time horizons are different. Individuals face a finite life as compared to the potentially infinite life of institutions. This fact requires strategies for transferring assetAssetIn financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...
s at the end of an individual’s life. These transfers are subject to laws and regulations that vary from locality to locality and therefore the strategies available to address this situation vary. - Individuals are more likely to face a variety of taxes on investment returns that vary from locality to locality. PortfolioPortfolio (finance)Portfolio is a financial term denoting a collection of investments held by an investment company, hedge fund, financial institution or individual.-Definition:The term portfolio refers to any collection of financial assets such as stocks, bonds and cash...
management techniques that provide individuals with after tax returnTax returnA tax return is a tax form that can be filed with a government body to declare liability for taxation in various countries:* Tax return * Tax return * Tax return * Tax return...
s that meet their objectives are necessarily going to be specific to these tax structures.
The term was first used by the elite retail (or "Private Client") divisions of firms such as Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
or Morgan Stanley
Morgan Stanley
Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
(before the Dean Witter Reynolds
Dean Witter Reynolds
Dean Witter Reynolds was an American stock brokerage and securities firm catering to retail clients. Prior to its acquisition, it was among the largest retail firms in the securities industry with over 9,000 account executives and was among the largest members of the New York Stock Exchange...
merger), to distinguish themselves from mass market offerings, but since has spread throughout the financial services industry. Certain larger firms (UBS, Morgan Stanley
Morgan Stanley
Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
and Merrill Lynch
Merrill Lynch
Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
) have "tiered" their platforms – with separate branch systems and advisor training programs, distinguishing Private Wealth Management from "Wealth Management", with the latter term used to describe the same type of services, but with a lower degree of customization and delivered to mass affluent
Mass affluent
Mass affluent and emerging affluent are marketing terms used to refer to the high end of the mass market. It is most commonly used by the financial services industry to refer to individuals with US$100,000 to US$1,000,000 of liquid financial assets, although the exact definition varies...
clients. At Morgan Stanley
Morgan Stanley
Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
, "Private Wealth Management" is the retail division focused 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 new entities were devoted to educating the ultra wealthy investor and providing a network of peers for the ultra high net worth individual and their families. Their growth since the 1990s indicates a market eager to become more informed about private wealth management.
Wealth management education for private investors with substantial wealth is offered by several leading universities. The first such program was offered by the American Academy of Financial Management (now rebranded as the International Academy of Financial Management) who offers the CWM Chartered Wealth Manager Program and then the Wharton School of the University of Pennsylvania
Wharton School of the University of Pennsylvania
The Wharton School is the business school of the University of Pennsylvania, an Ivy League university in Philadelphia, Pennsylvania. Wharton was the world’s first collegiate business school and the first business school in the United States...
. Since 1999, over 5000 people from over 100 countries have completed the IAFM CWM Wealth Manager program. At Wharton, 520 investors from 29 countries have completed the course. The five-day program is offered twice a year and is a continuing partnership with the Institute for Private Investors. Both The University of Chicago and Stanford University
Stanford University
The Leland Stanford Junior University, commonly referred to as Stanford University or Stanford, is a private research university on an campus located near Palo Alto, California. It is situated in the northwestern Santa Clara Valley on the San Francisco Peninsula, approximately northwest of San...
also offer 5 day programs. In 2009, Columbia University
Columbia University
Columbia University in the City of New York is a private, Ivy League university in Manhattan, New York City. Columbia is the oldest institution of higher learning in the state of New York, the fifth oldest in the United States, and one of the country's nine Colonial Colleges founded before the...
offered a three day program on value investing
Value investing
Value investing is an investment paradigm that derives from the ideas on investment and speculation that Ben Graham and David Dodd began teaching at Columbia Business School in 1928 and subsequently developed in their 1934 text Security Analysis...
designed for high net investors Wealth management can be provided by large corporate entities, independent financial advisers or multi-licensed portfolio managers whose services are designed 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 events of 2008 in the financial markets caused investors to address concerns within their portfolios. "The past 18 months have challenged traditional thinking about investing and asset allocation, diversification, and correlation. For individual investors, risk tolerances have been tested, investment assumptions have been overturned, and fundamental truisms have been questioned." For this reason wealth managers must be prepared to respond to a greater need by clients to understand, access, and communicate with advisers regarding their current relationship as well as the products and services that may satisfy future needs. Moreover, advisors must have sufficient information, from objective sources, regarding all products and services owned by their clients to answer enquiries regarding performance and degree of risk-at the client, portfolio and individual security levels. "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'.”
Today wealth management advisors must have access to an objective content repository. This repository must contain a current and readily available profile of the clients holdings.
Further reading
- Beyer, Charlotte B. (2008). "A Retrospective and A Prospectus for the Future", The Journal of Wealth Management, Winter 2008.