Private Wealth
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Private Wealth
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As overall wealth has grown in the U.S. and people become more proactive in making financial decisions, the field of private wealth management has grown, too.
Similar to traditional wealth managers, these advisors provide investment advice and help manage the financial affairs of their clients, who tend to be high-net-worth individuals ( HNWI ) or accredited investors with assets in the millions.
Although the term can be used to describe portfolio managers and independent advisors who manage HNWIs, private wealth management is also sometimes a subdivision within banks or other financial institutions that provide similar financial services.
A private wealth manager may have experience in areas like investment banking, financial planning and accounting, and they use those tools to help clients manage their money to reach their financial goals and protect their wealth. They provide objective advice and guidance and offer personalized financial plans that take into account their clients’ unique circumstances.
They may also provide services like cash management, estate planning and tax advice. Some even help arrange loans and other financial services.
Private wealth managers can be employed by large financial institutions to assist key clients, or they may work independently as a boutique firm. Either way, they usually provide ongoing support and advice as their clients’ needs change over time.
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Some benefits of working with a private wealth manager include:
Private wealth management may be a good fit if you:
There can be a lot of benefits to working with a private wealth manager, but it’s not for everyone.
Private wealth managers typically require clients to be HNWIs, and using one requires sharing a lot of financial information that some people prefer to keep private. In these cases, it may be better to find a local financial advisor who can be consulted on an hourly basis to answer specific questions and provide insights when needed.
The amount of money needed to work with a private wealth manager varies by firm and manager. It’s typical, however, for firms to require a minimum of $2 to $5 million in investable assets.
In some cases, private wealth managers may instead require a minimum annual fee in order to use their services. This fee is usually a percentage of the assets under management (AUM) but can also be hourly or project-based.
Private wealth managers may have different licensing and certifications —like being a Certified Private Wealth Advisor or a Certified Private Wealth Analyst.
They also typically fall into one of two groups: those that are independent and those that are employed by a bank or other financial institution. Independent wealth managers are not affiliated with any specific banks or financial institutions but instead are often employed by small or midsize securities firms.
Professionals who work in wealth management may also have specialties that include accounting, banking, financial analysis, alternative investments, securities and other niches.
The two main types of private wealth managers include:
Independent private wealth managers are individuals employed with firms not affiliated with any banks or financial institutions. The main draw to this type of private wealth manager is that they are typically small, boutique firms that can offer a more personalized service.
Because of this, these managers generally are free to choose from a wide range of investment products and strategies for their clients, but they may lack access to quick lending and other services available through banks.
Bank-affiliated private wealth managers are professionals associated with or employed directly by large banks or other financial institutions. These tend to be large firms with a global reach, with private wealth management acting as a single department within the bank. However, as part of a bank-affiliated service, these managers tend to only provide products and services that are available through the bank.
Most private wealth management firms charge a percentage of the assets they manage for a client. These fees usually range from 1% to 3% and may be tiered based on account size. Some firms also charge annual fees or may charge hourly or other fees for specific services they provide.
While private wealth management fees can be high, for HNW individuals, these services can provide a more personalized and tailored approach to investing than what is available from traditional investment vehicles.
A private wealth manager is a professional who helps HNW clients manage their money and grow and protect their wealth over time. They also usually provide additional services like tax and accounting services, and estate and legal planning.
Financial planners are another type of financial professional who has experience in investment, retirement and tax planning. These professionals usually work with a wide array of clients to create comprehensive financial plans that take into account their clients’ unique circumstances and goals.
Financial planners don’t have to be bank-affiliated, although you may also find certified financial planners ( CFPs ) who are employed at banks, and they often have significantly lower minimums for getting started.
On the other hand, CFPs may not offer the full array of services traditionally offered by private wealth managers. Still, for people not in the HNWI category, a financial planner can certainly help manage and grow their money.
If you’re trying to decide on a private wealth manager to work with, consider the following:
Besides these considerations, make sure you feel comfortable with the firm and the advisor you’ll be working with. This person is going to have access to your personal information, and following their advice may have significant long-term impacts on your finances. As such, it’s essential to find someone you trust.
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Dock David Treece is a former licensed investment advisor and member of the FINRA Small Firm Advisory Board. His focus is on breaking down complex financial topics so readers can make informed decisions. He has been featured by CNBC, Fox Business, Bloomberg, and MarketWatch.
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Managing the assets of high net worth individuals or accredited investors
Private Wealth Management (PWM) involves the management of assets of high-net-worth individuals (HNWI) or accredited investors. Private wealth managers create a close working relationship with wealthy clients to understand their financial needs and to help build a portfolio that achieves the client’s financial goals. They provide a range of services, including portfolio management , estate planning, mortgage planning, asset protection, tax management, and other financial services. Private wealth management services are provided by large corporate entities, independent financial advisors, and portfolio managers who specialize in working with wealthy private clients.
Large U.S. financial institutions such as JP Morgan and Goldman Sachs run a specific private wealth management business unit with investment specialists and client advisors to cater to HNWI. Since wealthy individuals lack the time and knowledge to manage their wealth efficiently, they consult with private wealth managers with significant experience in managing finances for private individuals. The manager designs an investment strategy and proposes investment products that are in line with the client’s financial goals and risk tolerance . Most clients work with a single wealth manager, who takes inputs from the client’s attorney, accountants, and insurance agents.
A high-net-worth individual is an individual with a minimum of $5 million in liquid financial assets. A person with less than $5 million but more than $1 million is referred to as a super affluent investor. Mass affluent investors are those with investable assets less than $1 million but more than $100,000. Ultra-high-net-worth investors are those with over $25 million in investable assets. According to the United States Securities and Exchange Commission, individuals with liquid assets in excess of $1 million, excluding their primary residence, are referred to as accredited investors.
In 2016, there were approximately 13 million high-net-worth individuals around the world, with the United States leading with 4,400,000 individuals. The other countries with the highest number of HNW individuals include China, Japan, Germany, and the United Kingdom. London had the highest number of HNW individuals at 357, 200 in the cities category, according to the Knight Frank report.
Private wealth managers leverage their expertise in various fields to help wealthy individuals manage their wealth efficiently. Here are some of the services offered by private wealth management:
The first assignment of the private wealth manager is to create new income and grow the client’s current wealth. Due to inflation and the increasing number of high-net-worth individuals, the client’s objective is to stay at the top of the table and increase their purchasing power. With their wealth of experience in investments, the wealth managers must take advantage of various investment techniques that will bring in additional income annually. They can help their clients invest in hedge funds and private equity funds that may not be accessible to less wealthy individuals. Occasionally, they take the input of other investment experts, such as the client’s attorney and other advisors, to help them make well-thought-out decisions.
Private wealth management includes protecting client assets either from lawsuits, government authorities, or other threats. Wealthy clients are sometimes sued for numerous reasons, including succession, marital issues, and property disagreements, and they may be forced to compensate the other parties if they lose the lawsuits. The wealth managers ought to be ahead of the game and find ways to handle the lawsuits, either by stopping them from happening or by making favorable out-of-court settlements. They may also move a portion of the client’s wealth to offshore banks to protect it from being over-taxed. The managers can advise their clients on how to set up trusts and foundations, and how to manage donations.
Wealthy individuals strive to make the necessary tax payments in order to stay on the right path with Uncle Sam. Due to often having multiple streams of taxable income, clients want to choose the most efficient tax plan that will save them money and still comply with the authorities. A small difference in tax can bring huge differences in after-tax earnings, and a private wealth manager who understands tax regulations can help the client choose the most favorable tax combination. The private wealth manager can also advise on inheritance tax, where the client possesses inherited property or has passed some of their estate to other family members.
Most private wealth management groups operate as small segments within large financial institutions and are designed to offer specialized wealth management to individuals. They sell proprietary and non-proprietary investment products and services to high-net-worth individuals to help grow their assets and provide for future generations. The private wealth management segment is usually comprised of a variety of specialists who can offer advice on diverse types of investments such as hedge funds, money markets, private equity, and other types of investments. Independent wealth managers leverage their expertise in risk management, tax, and estate planning to manage the wealth of their HNWI clients.
A high percentage of private wealth managers charge their clients a proportion of the assets under management. A fee-based payment scale, as opposed to a commission-based payment scale, offers less conflict of interest and better performance potential. A commission-based payment may motivate the private managers to recommend investment products and services that will earn them high commissions but that offer less potential to grow the client’s wealth. However, a fee-based payment allows the wealth managers to choose a combination of portfolios with high profitability that will grow the client’s wealth.
High-net-worth individuals may also consider opening a family office to provide a more personalized approach to their investments. Family offices may be either single-family offices or multi-family offices. A single-family office provides support to one wealthy family, while a multi-family office can serve multiple HNW individuals and families. Multi-family offices are more common than a single-family office because it allows for cost-sharing of investments and consulting expenses.
Thank you for reading CFI’s guide to private wealth management. To learn more, see the following resources, and enroll in our free introduction to wealth management course
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With exceptional wealth comes exceptional complexity. Morgan Stanley Private Wealth Management combines the vast resources of a trusted global financial services firm with the individualized services of an investment boutique for a hands-on tailored approach to help families, foundations and individuals manage the multiple facets —and legacy—of their wealth.
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