Wealth management involves managing the financial assets of high net worth individuals and families through careful counseling, guidance, and planning. The various aspects of tax planning, strategic investing, insurance planning, retirement and estate planning could be all consuming for wealthy individuals, and would require the expertise of many different professionals experienced in different areas of personal finance. Rather than taking on this daunting task alone, wealthy individuals and families more often turn the responsibility of managing their financial assets over to trusted wealth managers.
Wealth management is a combination of financial planning and private investment portfolio management. While the financial planning aspect focuses on developing a plan for achieving financial goals, portfolio management involves a professional manager taking responsibility for monitoring an investor’s portfolio, and often being given discretionary authority over the purchase and sale of securities and other investment products.
Wealth managers take a comprehensive approach that combines all the issues that affect a client’s current financial position and future goals, including:
- Banking services (including cash management and loans)
- Business planning
- Charitable giving planning
- Estate planning
- Investment advice
- Legal advice
- Portfolio management
- Retirement planning
- Risk management and asset protection (including insurance requirements and shielding wealth from liabilities)
- Tax advice
Although wealth managers may have their own area of expertise, they also coordinate services, bringing in the necessary experts, such as lawyers, accountants, bankers, and investment advisers who lend their skills to coming up with highly targeted solutions. One of the fundamental components of effective wealth management is building relationships, both with clients and with other advisors and financial experts who participate in carrying out a client’s overall wealth management plan.
About Wealth Management Firms
The range of companies that offer wealth management services include:
- Brokerage firms
- Insurance companies
- Investment consultants
- Large banks
- Money management firms
- Trust companies
- Multi-family offices
Generally, wealth management firms work only with high net-worth individuals and families. The 15th Annual World Wealth Report released in June 2011 by Merrill Lynch Global Wealth Management and consultation firm, Capgemini, defines high net-worth individuals and families as those with more than $1 million in investable assets. This would not including a primary home, collectibles, consumable items, and consumer durables (items such as cars, home appliances, electronics, furniture, sports equipment, and toys). Ultra-high net-worth individuals and families are defined as those that have more than $30 million. The report noted that the U.S. currently has 3.1 million high net-worth individuals.
Some firms distinguish between “private wealth management” for the wealthiest clients and “wealth management” for less wealthy clients. For example, Morgan Stanley Private Wealth Management and Bel Air Investment Advisors work only with individuals, families, and foundations that have $20 million or more in assets to invest.
Some wealth managers work with moderately affluent people, as they work to build their wealth. For example, TIAA-CREF Wealth Management works with clients who have as little as $500,000 in investable assets.
Wealth management firms work under several models: Some firms are fee-only and don’t sell products, while other firms earn commissions on products sold. A combination of fee and commissions is common. Some firms charge a fee based on services, while others charge based on the amount of assets under management.
The largest fee-only wealth management company in the U.S., as of December 2010, was Oxford Financial Group, Ltd., a trust company, based in the Midwest, with more than $15 billion dollars in assets under management. The second largest was Convergent Wealth Advisors, an independently operated affiliate of City National Bank.
Among brokerage firms offering wealth management services, Morgan Stanly Smith Barney is the largest, although they do not release information on their total client assets under management, followed by Merrill Lynch, with about $2.2 trillion in client assets, according to the company’s website and.
The Wealth Management Industry
Wealth management is an important component of the financial services industry. According to a February 2006 survey by Prince and Associates, a market research firm specializing in global private wealth, the average production of wealth managers is double that of product specialists and investment generalists, as shown in the following table.
The Prince and Associates Survey also showed that, among brokerages that identified themselves as wealth managers, national firms controlled more money than regional or independent firms although they had virtually the same number of clients:
Wealth management is an industry in motion. The PricewaterhouseCoopers 2011 Global Private Banking and Wealth Management survey found that:
- Clients now are more cautious, smarter, and less loyal than in the past. They expect excellent service and clear value.
- Changing regulation increases the operating costs for wealth management firms.
- Firms that want to compete and survive must operate efficiently and effectively, quickly adapting to changes.
Plus, in June 2011, Merrill Lynch Global Wealth Management and an international consulting firm, Capgemini, released the annual World Wealth Report, which showed changing demographics among high net-worth clients: More are young, under age 45, and more are women than ever before in the past.
Private banking is a major component of the wealth management industry. A private bank is a bank, or division of a bank, set up to work with high net-worth individuals specifically. Many of the large banks have a private banking division, including Wells Fargo, JP Morgan Chase, HSBC, and Citigroup.
Private bankers consult with clients about their overall financial needs and provide personal service to help clients grow, manage, and transfer wealth. Private bankers often offer options not available to the general public, such as loans personalized or customized to the needs of the client.
Although private bankers are personal bankers in that they work one-on-one with customers, the term “personal banker” more generally refers to someone who works directly with individual clients, regardless of clients’ net worth. Becoming a private banker typically requires proven experience in banking, while becoming a personal banker can be more of an entry-level position. For example, the minimum requirements for a personal banker at Wells Fargo is one year of experience selling products and services and one year of experience interacting with people or customers.
Another option in wealth management is the family office, which is a private company where staff members manage the financial affairs for one or more members of a family. A single-family office manages the wealth of one family, while a multi-family office manages the wealth of multiple families. Some family offices also offer other services, such as property management, managing household staff, and making travel arrangements.
A traditional single-family office has a team of specialized professionals plus a family-appointed administrator who manages the family’s bookkeeping, accounting, bill payment, and other administrative functions and who communicates frequently with the family. The administrator may be a family member or someone hired from outside the family. Because of the cost of maintaining this type of office, they are typically opened to serve families that have a net worth of $25 million or more. However, there are other family office models, such as the collaborative family office, that can provide benefits for clients with a net worth of less than $25 million.
A multi-family office can be established when a single-family office takes on additional clients or merges with another single-family office, a group of financial advisors come together to open a family office, or a financial institution creates a family office subsidiary or division.
One reason that families choose family offices over other wealth management options is that these offices tend to treat family assets more like a business with a focus on structuring the family assets, making sure the assets are sustainable, and setting up controls and accountability.
Wealth managers typically arrive at their positions through professional backgrounds related to personal finance: Certified Financial Planners, registered representatives, investment advisers, and Certified Public Accountant. As a result, their education reflects the path through which they arrived at the position.
In general, wealth managers will have a bachelor’s degree and often a master’s degree in a business or financial related discipline. Two available master’s degrees directly related to wealth management are a Master of Trust and Wealth Management and a Dual Degree Executive MBA in Asset and Wealth Management.
People who are already financial professionals can take specialized wealth management courses available through business schools, certification bodies, and other educational sources.
Being a wealth manager requires no particular certification, although wealth managers are likely to hold one of the respected designations related to personal finance such as Chartered Financial Analyst (CFA), Certified Financial Planner (CFP), or Chartered Financial Consultant (ChFC).
An international wealth management certification is also available: Chartered Wealth Manager (CWN) from the American Academy of Financial Management (AAFM). Applicants must have at least three years of wealth management experience and meet one of the following requirements:
- Hold an AAFM-approved Masters Degree from an accredited school in accounting, financial services, finance, tax, or law or have an MBA, MS, PhD, JD, or CPA
- Have completed five or more approved and related courses from a business or law school accredited by either the Accreditation Council for Business Schools and Programs (ACBSP), the Association to Advance Collegiate Schools of Business (AACSB), Equis, or the American Bar Association, or from an AAFM-sanctioned program
- Have completed the AAFM Executive Wealth Management Certification Course
Other wealth management certifications include:
- Accredited Wealth Management Advisor (AWMA) from the College for Financial Planning. Getting this designation requires completing the college’s AWMA program, passing the final exam, and agreeing to a code of ethics. Keeping the designation requires 16 hours of continuing education every two years.
- Certified Wealth Consultant from The Heritage Institute. The training for this certification teaches a trademarked wealth management process called The Heritage Process.
- Certified Wealth Preservation Planner (CWPP) from the Wealth Preservation Institute. Getting this designation requires completing 24 hours of course training, either by taking a three-day seminar or through self-study, and passing a certification exam that has 240 multiple-choice questions and three essay questions. The continuing education requirement is 24 hours every two years.
Compensation for wealth managers can take several forms, depending largely on the type of firm: salary, fees and commissions, a percentage of assets under management, or a combination thereof.
The Bureau of Labor Statistics defines private bankers and wealth managers as personal financial advisors who work with wealthy clients, and does not collect salary data specifically for wealth managers. The median salary of all personal financial advisors, as of May 2010, was $64,750, with 50 percent earning between $42,100 and $111,990.
The 2012 Robert Half Salary Guide reports that, for 2011, private bankers earned $46,750 to $69,500 a year, although this figure most likely represent junior level private bankers and doesn’t include commissions of percentage of client assets under management.
Another source of salary information for wealth managers is Registered Rep’s 2009 Wealth Management Compensation Survey. The survey found that wealth managers who are older, loyal to a firm, and credentialed with professional licenses received the highest pay in 2009. The following table shows average pay by age:
The survey also broke down compensation by type of firm: