What is “Wealth Management”?

Wealth management is a type of financial service offered to affluent clients, more commonly known in the industry as high net worth individuals. The service can include investment advisory, investment management, financial, tax and estate planning, retirement planning, or discretionary investment management. Wealth managers provide a tailored approach that considers the individual’s needs, risk appetite, and financial objectives. They have in-depth knowledge of the investment products universe and always keep on top of economic events. Wealth management fees are usually a percentage of the funds under management. Clients with larger accounts typically get charged a lower rate, whereas smaller accounts are charged a relatively higher rate.

Key Learning Points

  • Wealth management is a complex financial service offering that is targeted at high (and ultra-high) net worth individuals
  • Wealth management services can range from investment advice to discretionary portfolio management and tax planning
  • Wealth managers have excellent knowledge of the investment products universe, including mutual funds, hedge funds, and other pooled vehicles, as well as individual equities, bonds, and alternative asset
  • Wealth management service charges are usually a percentage of the client’s assets

The Wealth Management Business

The structure of a wealth management business depends on its scale and target market. Large companies tend to offer the full spectrum of services from advisory and management to tax and estate planning. They typically have a team of portfolio managers and investment analysts who will construct and manage the clients’ assets. Smaller companies may be limited to only offering investment advice to their clients. They would typically select third-party fund managers that match the client’s objectives and propose an investment plan.

Wealth Management Example

Let’s say that a professional football player has 5 million GBP in cash, which he wants to invest. His wealth management adviser will assess his risk profile, investment horizon, objectives, and potential cash needs during their first meeting. The adviser will share this information with the investment team, who will establish the client’s portfolio accordingly. The advisor will periodically check in with his client to ensure his financial requirements align with the investments. The investment team continually monitors the portfolio to ensure it remains in line with the investment mandate. In this case, the client has a very long-term time horizon, does not foresee any cash needs soon, and has a high-risk profile. Therefore, it is expected that a large proportion of his portfolio will be invested in riskier assets such as equities that could potentially deliver higher returns.

For these services (which might also imply non-direct charges such as transaction costs), the company would charge the client a fee – most often taken as a percentage of the assets under management. For example, in this case, the client invested 5 million GBP with the company, and if they charge 1% of the total AUM annually, i.e., 50,000 GBP in fees.

Wealth Management Certifications and Credentials

Wealth management professionals must demonstrate very high standards of knowledge and professionalism, which often requires being approved/certificated by the local financial services regulator. Depending on their area of expertise, wealth managers usually hold professional designations such as the Chartered Wealth Manager, Chartered Financial Analyst, or Certified Financial Planner, along with a bachelor’s and master’s degree in a financial discipline. In addition, presentation and communication skills are essential as wealth managers are often required to explain complex financial matters in simple terms.

Wealth Management