Meaning, Scope of Wealth Management

Wealth management is a consultative process. It involves consultations with affluent clients, discussions on their financial needs and goals.

Wealth management (WM) or wealth management advisory (WMA) is a form of investment management and financial planning that provides solutions to a wide array of clients ranging from affluent to high-net-worth (HNW) and ultra-high-net-worth (UHNW). It is a discipline which incorporates financial planning, portfolio management and a number of aggregated financial services offered by a complex mix of investment banks, asset managers, custodial banks, retail banks, and financial planners. 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.

HNW individuals, 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.

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.

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.

Advantages of Wealth Management

• Wealth management plans are tailored to client-specific needs. The financial products are combined to effectively reach the financial goals of the client.
• The advisory services entail the handling of client sensitive information. Investment advisors have to maintain the confidentiality of information obtained during the course of financial planning and advisory services.
• A wealth management advisor utilizes the diverse financial disciplines such as financial and accounting, and tax services, investment advice, legal or estate planning, and retirement planning, to manage an affluent client’s wealth as a bundle of services.
• Wealth management practices and the corresponding services may differ from one location to another, depending on the state of the economy, per capita income and saving habits of the people.
• Wealth management is different from investment advice. The former is a more holistic approach in which a single manager coordinates all the services needed to manage their money and plan for the client’s needs, including the current and future needs of the client’s family.
• While most wealth managers provide services in any financial field, some wealth managers specialize in specific areas of finance. The specialisation would be based on the area of expertise of the wealth manager.
• Wealth management services are usually appropriate for wealthy individuals who have a broad array of diverse needs. The advisors are high-level professionals and experts.
• Wealth managers may work individually as a single person, or as part of a small-scale business or as part of a larger firm. Based on the nature of the business, wealth managers may function under different titles, which include financial consultant or financial adviser. A client may receive services from a single designated wealth manager or may have access to the members of a specified wealth management team.

Wealth managers perform the following tasks:

• Spotting investment opportunities.
• Providing curated estate planning services.
• Providing tax planning services.
• Buying and selling of stocks.
• Advising clients about financial products and services.
• Managing portfolios.
• Assessment of risks associated with decisions