Private wealth management is best defined as an investment advisory approach that combines the realms of financial planning, portfolio management and a variety of other aggregated services pertaining to individual wealth – as opposed to that of corporations, trusts, funds or other institution-based investors.
From the perspective of the client, the approach of private wealth management revolves around the solving or aiding of their financial situation as a means of helping them to achieve short, medium or long term goals in terms of wealth or the accumulation of assets thanks to the help of a financial advisor.
Private wealth management from the advisor’s perspective is centred around the deliverance of a full range of financial services that are designed to aid clients in the chasing and achieving of their respective ambitions and goals.
What is private wealth management?
Thanks to advances in technology, many private wealth management firms have been able to offer their services online at notably reduced costs. This has facilitated a rise in the popularity of private wealth management solutions over the previous decade that’s taken on further prominence as we’ve begun to enter the era of the Great Wealth Transfer.
(Great Wealth Transfer Between 2007 and 2061. Image: WealthManagement)
Private wealth management can be regarded as a necessary solution for individuals who lack the time, knowledge or will to manage their finances on a regular basis. For them, it’s logical to seek the help of wealth managers who specialise in the managing of high-net-worth individuals’ finances. Due to the aspect of individuality, these wealthy clients almost always have their own set of idiosyncratic financial situations that invariably require their share of due diligence and a higher level of active management.
Because individuals are prone to having more complex financial set-ups than the more simple accounts of companies and their assets, private wealth management requires a much more hands-on approach when it comes to the handling of finance. Wealthy private individuals can sometimes have more issues pertaining to their income taxes, estate planning, investment management as well as other legal issues that require considerable attention and industry expertise.
Because of these complexities, it can often mean that private wealth advisors need to be more alert and in possession of more industry experience than that of traditional investment advisors.
Although there are certainly some exceptions out there, for the most part, private wealth management is primarily useful to high-net-worth individuals who are looking to gain a comprehensive overview of their assets and how to invest appropriately within the financial climate.
Despite the complexity of private wealth management, dedicated services are widely available for individuals looking for coverage. Several types of institutions from large banks to small-scale offices are capable of providing some form of private wealth management solutions.
How private wealth management works
Private wealth management firms often operate on a fee-basis and tend to charge their clients a percentage of the assets that fall under their management. Working on a fee basis is seen as relatively more trustworthy in the eyes of high-net-worth-individuals, who might otherwise feel that the more traditional commission-based financial advisors will have potential conflicts of interest within their suggestions.
Essentially, private wealth managers offer a range of financial planning and investment advisory services. This type of service is typically crafted specifically for wealthy investors in order to help them manage their finance and achieve their individual goals.
Often, private wealth managers offer services that cater more to high-wealth individuals and families. These can include advice on the setting up of trusts and foundations, as well as managing their inheritance in order to mitigate the effects of the estate tax burden on their beneficiaries.
When clients call on the service of a private wealth manager, it will often involve some form of coordination with said client’s attorney and personal accountants in order to ensure a wholly aligned and holistic approach to the organisation of their assets. These financial professionals aim to comprehensively manage and care for an individual’s financial situation – and by doing so, they’re capable of offering a variety of personalised services, such as financial planning, investment advice and management, tax services, retirement planning, the organisation of social security benefits and risk management.
Private wealth managers can also adapt to arrange the transfer of wealth into more philanthropic endeavours, with charitable donations also well within their respective repertoires.
Types of private wealth managers
If you’re looking to utilise the help of a private wealth manager, there are no limits on the scale of the companies you can call upon. High-quality services can be provided from banks to large brokerage houses, to independent financial advisors to multi-licenced portfolio managers focussing on high-net-worth-individuals and family offices.
Oftentimes, private wealth management firms consist of smaller groups within large-scale financial institutions that aim to provide bespoke services that are crafted directly with a snapshot of their client in mind. These firms’ main goal is to manage and aid the growth of the assets belonging to their clients as a means of helping them to provide for future generations.
(Distribution of hedge funds assets worldwide in 2018. Image: Statista)
Private wealth management firms tend to have a wide range of advisors and industry experience that means they can provide excellent insight across a varied number of investments. These advisors will be capable of managing cash, fixed-income, equities, and alternative investments and would possess the required knowledge to bring an element of growth to all assets within these respective spectrums.
Some wealthy clients may want to use their assets to open up a family office. By utilising a family office, there can be a wider range of options that cater to the needs of a high-net-worth-individual. From the practice of investment management to philanthropic advice, family offices can open up a higher volume of solutions to suit the desires of the clientele that are best positioned to invest,
Fundamentally, there are two kinds of family offices. Firstly, there’s a single-family office that supports one wealthy individual or family. Secondly, there’s the multifamily office that’s designed to support more than one family or individuals. Multifamily offices are considerably more widespread in the industry today due to economies of scale that enable effective cost-sharing across the clientele.
Private wealth management vs financial planning
There are certainly some aspects of both private wealth management and financial planning that are interchangeable. Both services are primarily focussed on providing analyses for an individual’s current financial situation and offering up advice for the future. Private wealth management, along with financial planning are both capable of covering areas such as planning for retirement, as well as taxation and estate planning.
The similarities do break down fairly quickly, however. Financial planning is intended for all levels of investors, while private wealth management is specifically designed to aid wealthy clients. The need for planning for retirement is universal, and affluent individuals tend to have considerably more complex needs throughout the process of getting their respective estates in order, for instance. This forms a common theme within the lives of high-net-worth clientele in general, and the comprehensive coverage offered by private wealth management plans typically function better than in financial planning.
Another significant difference between the two approaches can be found in the range of investment services that both private wealth management and financial management provide. Financial planners might be inclined to craft an investment plan for clients. While a private wealth manager would take the further step of implementing a drawn up investment plan and provide incremental management for said client’s portfolio. In a nutshell, private wealth managers can provide the services of both a financial planner and an investment advisor all at the same time – delivered specifically to individual clients.