Over the years, wealth management has become a specific and specialised service within financial advice, mainly due to its evolution, both in terms of the variety of services offered and the specialisation of the players involved (banks, asset management companies, family offices, etc.). Let us therefore take a closer look at wealth management, what it is and what its main characteristics are.
Wealth Management refers to a professional financial advisory service for the management of assets exclusively for clients with a certain level of financial assets, the High Net Worth Individuals (HNWI).
Wealth management encompasses various wealth management activities:
This type of bespoke service combines financial advice with investment, accounting, legal, tax, estate and retirement planning, as well as detailed attention to the client's risk management.
While the initial focus was on investments, in recent years wealth management has come to mean wealth management in a broader sense, with a number of ancillary activities in addition to those listed above, such as succession planning and art.
But who exactly are HNWIs, the clients of a wealth manager?
We have seen that the services offered by a wealth manager are only aimed at a certain wealth bracket. High Net Worth Individuals (HNWIs) are wealthy individuals with assets of USD 1 million or more, excluding their primary residence, collectibles, consumer goods and durable goods.
Corresponding to this brief description is the figure of the entrepreneur, who represents a large proportion of the wealth manager's clients. In fact, entrepreneurs often have a complex composition of assets, based on personal and business needs and consisting mainly of real estate investments and partly of financial assets.
In times of major crisis, the priority for wealth management clients is to protect their capital against inflation. Another key element is access to their bank's services through technology, which must be user-friendly and offer as many services as possible to facilitate (not replace) interaction with their financial advisor.
In this case, the wealth manager not only provides financial advice on investments and markets, but is also able to intervene in all aspects of the daily financial management of his wealthy clients.
Wealth management aims to build a solid relationship of trust between HNWI clients and the bank by managing the investor's financial, business and family assets through tax, gifts, transfers and, of course, investments. There is no shortage of advice on private education, travel and luxury goods.
The wealth manager then organises a plan to preserve and grow wealth according to the client's initial financial situation, goals and risk appetite. Regular personal advice is a key element of wealth management: with changes and integration of objectives, portfolio reviews and other services, the wealth manager can remain at the client's side throughout his or her lifetime.
Financial instruments for management and planning are also different in wealth management:
Wealth management and asset management are two terms that may seem interchangeable as they have the same purpose: to grow and preserve wealth.
There is no universal definition for either, but there are some differences that help to distinguish these two approaches to wealth management.
Asset management focuses on the growth and preservation of financial assets and investments on behalf of clients. These may be traditional investments such as stocks, bonds and mutual funds, or alternative investments such as private equity, real estate, commodities and crypto financial instruments. Asset management is therefore concerned with implementing an investment strategy using various financial instruments in order to grow financial assets while preserving them by diversifying investments.
Wealth management, on the other hand, takes a broader approach, which may include asset management, and results in a plan for the client's overall wealth that includes growth, preservation, protection and transfer of private wealth.
Let us summarise the key differences between asset management and wealth management.
Asset management includes:
Wealth management includes
Based on the characteristics of the two services, investors can decide whether asset management or wealth management, or both, are more appropriate. In fact, one does not exclude the other, they can coexist and work perfectly together to create a plan tailored to each client's needs. On the other hand, from a tax point of view, the investor will be taxed on the management of the assets, delegating the tax compliance directly to the withholding agent.
See also:
What taxes are charged on investments?
What is financial advice and what does a financial advisor do?
