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Wealth Management Defined

Updated: Sep 4, 2022

There has been a noticeable increase in the number of firms and advisors in the financial services industry adopting the Wealth Management moniker. Clearly, there must be business opportunities behind the adoption, and very likely an identifiable need among financial clients is causing the shift to wealth management. The fallout from the financial crisis is a contributing factor, or a shift in demographics may well be behind it. Since the use of the term is becoming widespread, it is important that clients understand what wealth management entails and the types of advisors in the marketplace that are actually able to deliver the service.

First off, it’s necessary to determine who the wealthy are. CapGemini, a global consulting firm, identifies a population of approximately 12 million High Net worth Individuals (HNWI) in their annual World Wealth Report. Of those 12 million HNWIs, 90% are the “millionaire next door” with investment assets of $1-5 million USD. Next at 9% are the “Mid-Tier millionaires” with assets of $5-30 million USD, while the Ultra HNWI group over $30 million USD in assets represents just 1% of the total. Even though the public may marvel at the vast resources of a Bill Gates or Warren Buffet, the reality is that many successful business and professional people fall within this definition. Yet, most clients, including self-effacing Canadians, are uncomfortable describing themselves as wealthy. So perhaps the types of services required by HNWIs are useful in defining the concept of wealth management.

While investment management tends to form the core service, HNWIs seek trusted advisors giving priority to valued advice and transparent processes over investment returns alone. Perhaps because of the financial crisis, these same individuals have less trust in financial markets and regulatory bodies, looking to their advisor to vet investment opportunities and guide them through the policy changes affecting financial markets.

Especially in North America, HNWIs have a distinct bias to safety and wealth preservation, usually carrying cash balances well beyond their normal requirements. This bias is understandable given the relatively high level of risk and effort an individual will have undertaken in building their own business. Given the bias to safety, HNWIs are receptive to adding alternative investments including real estate, infrastructure and private equity to alter the risk reward balance in their portfolios and to match their holdings with their long term objectives. Those objectives tend to be “mission” driven, investing for passion and purpose in a financially sustainable way. Accordingly, the HNWI favours absolute measures of performance such as retiring comfortably, sending children to university, or buying a vacation property, when assessing the performance of their holdings.

To meet their objectives, HNWIs prefer to utilize a single firm with a sole point of contact in their advisor who is able to bring to bear the required resources and specialists. Surprisingly, the majority of HNWIs view their needs as relatively straightforward revolving around investments, cash and credit. However, wealth management as a discipline incorporates financial and estate planning, legal resources, tax professionals and investment management as well as related financial services such as credit, foreign exchange and offshore banking.

Going forward, the challenge for wealth management professionals will be to shift the focus of these services to deal with the transfer of the family’s wealth for the benefit of future generations.


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