There is no generally accepted standard definition of wealth management – both in terms of the products and services provided and the constitution of the client base served – but a basic definition would be financial services provided to wealthy clients, mainly individuals and their families.
Private banking forms an important, more exclusive, subset of wealth management. At least until recently, it largely consisted of banking services (deposit taking and payments), discretionary asset management, brokerage, limited tax advisory services and some basic concierge-type services, offered by a single designated relationship manager. On the whole, many clients trusted their private banking relationship manager to ‘get on with it’, and took a largely passive approach to financial decision making.
Private banking has a very long pedigree, stretching back at least as far as the seventeenth century in the case of some British private banks. It is, however, only really over the last 15 years or so that the term ‘wealth management’ has found its way into common industry Parlance. More sophisticated client needs throughout the wealth spectrum; a desire among some clients to be more actively involved in the management of their money; a willingness on the part of some types of financial services players, such as retail banks and brokerages, to extend their offerings to meet the new demand; and, more generally, a recognition among providers that, for many clients, conventional mass-market retail financial services are inadequate.
Wealth management is therefore a broader area of financial services than private banking in two main ways:
Product Range: As in private banking, asset management services are at the heart of the wealth management industry. But wealth management is more than asset management. It focuses on both sides of the client’s balance sheet. Wealth management has a greater emphasis on financial advice and is concerned with gathering, maintaining, preserving, enhancing and transferring wealth. It includes the following types of products and services:
(b) Core banking-type products, such as current accounts, time deposits and liquidity management.
(c) Lending products, such as margin lending, credit cards, mortgages and private jet finance.
(d) Insurance and protection products, such as property and health insurance, life assurance and pensions.
(e) Asset management in its broadest sense: discretionary and advisory, financial and nonfinancial assets (such as real estate, commodities, wine and art), conventional, structured and alternative investments.
(f) Advice in all shapes and forms: asset allocation, wealth structuring, tax and trusts, various types of planning (financial, inheritance, pensions, philanthropic), family-dispute arbitration – even psychotherapy to children suffering from ‘affluenza’.
(g) A wide range of concierge-type services, including yacht broking, art storage, real estate location, and hotel, restaurant and theatre booking.
Client Segments: Private banking targets only the very wealthiest clients or high net worth individuals (HNWIs): broadly speaking, those with more than around $1 million in investable assets. Wealth management, by contrast, targets clients with assets as low as $100 000, i.e. affluent as well as high net worth (HNW) clients.
Robert J. McCann, President of the Private Client Group at Merrill Lynch, provided a succinct definition of wealth management at a recent industry conference:
“Wealth management addresses every aspect of a client’s financial life in a consultative and a highly individualised way. It uses a complete range of products, services and strategies. A wealth manager has to gather information both financial and personal to create an individualised series of recommendations, and be able to make those recommendations completely tailored to each client. Off the shelf – it won’t do. What [wealth management] requires is connecting with clients on a personal level that is way beyond the [retail financial services] industry norm”.