Wealth Management Learning Objective

Wealth management refers to the provision to private individuals of financial services that have the goal of preserving and enhancing those clients’ wealth.  It delivers a wide range of services that enable an individual to manage their financial affairs and assets effectively, such as:  tailored banking products; managing the investments; allowing them to lend against investment portfolios in the most secured and safe manner to allow them to be leveraged; investment products in areas such as foreign exchange, structured investments, property and non-conventional investments like venture capital, private equity, hedge funds, real estate investment trusts, commodities as well as assets such as metals, coins and art, trusts and estate management; tax planning; estate planning.

The provision of these services is typically divided according to wealth, with clients classified as highly influencial in society, high net worth or even ultra-high net worth.
What value is applied to define each segment will clearly change from market to market, but the below gives an explanation of the asset profile of individuals making up each segment:

• Upper ends of the middle class– investable assets over US$100,000.
• High net worth individuals – investable assets of over US$1 million.
• Very high net worth individuals – investable assets of over US$5 million.
• Ultra-high net worth individuals – investable assets of over US$30 million.

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There is a wide range of firms that provide wealth management services to clients. They may be referred to as wealth managers, stockbrokers or private banks, each of which specialise in different segments of the market. Private banks provide a wide range of services for their clients, including wealth management, estate planning, tax planning, insurance, lending, enhanced credit lines. Their services are normally targeted at clients with a certain minimum sum of investable cash, or minimum net wealth. Private banking is offered both by domestic banks and by those operating in a different jurisdiction from the client’s home country – usually one with a favourable tax structure. Each of these firms will usually undertake portfolio or investment management. Portfolio management is the management of an investment portfolio on behalf of a client or institution with a primary focus on meeting their investment objectives. Portfolio management can be conducted on the following bases:

• Where the portfolio manager makes investment decisions within parameters laid down by the client.
• Where the client makes all of the investment decisions, with or without seeking advice from the portfolio manager. The portfolio manager usually has the choice of investing directly in a range of assets classes and/or indirectly via several individuals come together to pool their money for investing in a particular asset(s) and for sharing the returns arising from that investment as per the agreement reached between them prior to pooling in the money.  Wealth managers increasingly use platforms to efficiently distribute and operate their services. Platforms are online services used by intermediaries to view and administer their clients’ financial assets and wider financial planning requirements. Platforms enable advisers to take a good and overall view of the various financial instruments that a client has in a variety of accounts. Advisers also benefit from using these accounts to simplify and bring some level of straight through processing or automation to their back office using internet technology. They also offer a range of tools which allow advisors to see and analyse a client’s overall portfolio and to choose products for them including discretionary managed portfolios for clients with sufficient assets. As well as providing services for investments to be bought and sold, platforms generally arrange safekeeping for clients’ assets.

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