UNDERSTANDING WEALTH MANAGEMENT

Wealth management incorporates Financial planning, investment portfolio management and other numerous aggregated financial services. Wealth management is a professional service that is all-inclusive of financial/ investment advice, accounting/ tax services, and legal/ estate planning all for one price.

What is private wealth management?

It is wealth management but the services are for individuals as opposed to corporations, funds, trusts, and other institutional investors.

The practice of private wealth management continues to grow and change rapidly. In a deeper understanding of what is private wealth management and its impacts experts say there are a number of key trends that will influence the wealth management spectrum in the next few years. Below are some of the trends.

 The impact of women and millennials.

This discussion is in reference to Stephen Horan managing director of credentialing at CFA Institute. Women are becoming a significant clientele but it’s a notion that goes unnoticed mostly. They control about half of the wealth in the USA and are estimated to stand at two-thirds of the wealth in 2020. Women are inheriting wealth and entering the market at a greater rate. They have greater longevity and hence longer retirement as they hold on to wealth. There is the changing of the investor base in the line of gender, advisers point out it’s different advising women compared to men. It is also different when advising couples. Women also seem to be far superior at saving than men. Millennials are also a growing segment of society and there is an upcoming investor base of millennials that is significant to numbers. Most financial services focus on retirees and retirement needs and don’t notice the blooming millennials base. They are at the core of the robo-investor movement and it’s not about wealth since they still have to acquire and accumulate it. They disintermediate investment planning meaning they interact directly with financial markets. They don’t act as advisers. They are different Investors and are more cautious and risk-averse. They have almost half of their savings in cash compared to older investors.

 Talent shortage.

In reference to Mark Tibergien CEO and managing director at Pershing Advisor Solutions. Financial services have an acute shortage of talent and are facing about 50,000 fewer financial professionals since 2008. Approximately only 10% of the adviser population is under 35, the average age for all advisers is 50. The (CPF) Board claims they have more advisers over the age of 70 than under the age of 30. The advisory business is full of old people and it’s a challenge, they have not done well in making it a compelling industry to work in. A survey of inquiring whether millennials would work in finance turned out bad and showed the finance industry has a lot to work on. The answers cited from the millennials were, it is a corrupt industry, it is not studied in high school and it’s just a sales job.

 Fluctuating prices and margins.

According to Mark Tibergien of Pershing Advisor Solutions, firms are charging basis points on assets and in other cases charging a retainer for other services. It is common to see a 5-10 basis increase in the asset management fee for the high-net-worth space. In a deeper look at the six levers of profitability in a financial management firm, (pricing, productivity, service mix, client mix, cost control, and creeper costs), it is evident that pricing doesn’t just define margins. It all involves managing all the levers to have an optimal balance.

The bottom line is asset and wealth managers will have to increase their use of outsourcing to increase profitability, in order to deal with these trends.