Wealth management services
The Swiss Bankers Association in its Banking Barometer 2020 refers to wealth management as holistic asset planning that includes among other things
• Investment strategy / asset allocation
• Access to financial markets / products / exclusive investment (e.g., IPOs, hedge funds, etc.)
• Financing (Lombard loans, aircraft/ yacht finance, etc.)
• Suitability and appropriateness testing for investment products
• Pension planning, tax and inheritance consulting
• Succession solutions
• Custody solutions
• Philanthropy services
The relationship with your wealth manager
Usually, you don't need to develop a deeper relationship with your asset manager since expectations and services should be clear right from the outset.
You'll review periodic reports, and if performance is satisfactory, there is not much to discuss.
This doesn't mean that your asset manager will not act in your best interest and assist you with issues outside of its service range.
As we will outline below, asset managers may be less exposed to conflicts of interest and have less incentive for cross-selling than wealth managers.
With your wealth manager, the situation is different since you will share much more than your financial situation, such as your story, values, the purpose of wealth, and the vision of your legacy.
It's in the best interest of both parties to develop a deep relationship to prepare for all kinds of life events.
Additional wealth management services
Let's explore some of private wealth management's additional services to illustrate why you sometimes discuss the most intimate topics with your wealth manager.
Wealth planning is the sum of arrangements to grow, preserve, protect, and transfer wealth. It comes with legal, financial, and tax planning.
It's the baseline for implementing asset and wealth management in a broader context.
You may think that the tools for wealth planning are the most critical part, but it's much more than that.
The human element, needs, objectives, and correlated risks are equally essential in an ongoing wealth planning process that adapts to changes in your and your family's life.
Wealth managers often have in-house wealth planners to assess your situation and assist in wealth planning, but in most cases, they don't provide tax and legal advice and will refer you to an external lawyer for that.
Estate planning is all-around one scenario that will become a reality for everyone: the death of a wealth owner.
While not the most appealing topic, wealth managers assist in fostering the discussion, which is already a great starting point, and developing estate planning strategies including inheritance tax planning.
Again, they usually don't provide legal and tax advice and will refer you to an external lawyer.
Wealth managers further assist in holding assets with trusts, foundations, companies, partnerships, and life insurance policies.
Wealth structuring is the combination of those tools to enable you to protect and control your wealth's destiny.
Sometimes, wealth managers have in-house trust and life insurance companies catering only to their clients.
Wealth structuring aims to achieve diversification, tax efficiency, wealth protection and preservation, and consolidation of activities.
Rather than just focusing on financial instruments, this includes non-bankable assets such as real estate, private equity, art, other collectibles, and digital assets in an international legal and tax environment.
With all the above in place, you'll need to ensure tax compliance and adherence to reporting obligations.
You'll also want to know what your tax exposure will be.
Wealth management services will assist you in getting the whole picture of your tax situation and develop a tax planning strategy.
Again, you will not receive tax and legal advice but an understanding of which tax elements to consider.
Since your wealth manager already knows that much about you, they can also advise on your plans for a hopefully long retirement.
You may further find club deals, multi family office and relocation services, art advisory and custody, educational services, and more on their offering shelf.
Do you have to pay for all these services?
In one way or the other, yes. Often additional consulting and advisory services are offered to wealth management customers for free.
But there is a cost. Ask for the internal remuneration of such services to find out the hidden price or cross-selling incentive.
And be careful if you are directed to third parties for specific services. Also, here you want to know if there is any remuneration or incentive within the network.
Preferred provider lists often work on a quid pro quo basis, and external providers may thus not provide the advertised independent advice.
Ask if there are introducer agreements in place and how the remuneration within the network works.
What are the downsides of fully integrated wealth management services?
We see the following issues in one-stop-shop wealth management: lack of diversification, conflicts of interest, and product and service quality.
Lack of diversification
With all wealth management services offered by one provider, you quickly become dependent.
Just imagine the scenario where your assets are held under a trust administered by the wealth manager, and you're not happy with the asset management service.
If you want to change asset management and custody, the wealth manager will no longer want to be your trustee since the main incentive to manage your assets is gone.
If you're going to leave altogether, you'll also have to change the trustee, something that is even more cumbersome.
Next to this, you'll run a concentration risk.
Critical events such as data leaks, reputational incidents, or regulatory issues will affect your trustee, asset manager, and custodian since they are all part of the same wealth management group.
Conflict of interest
Let's stick to the example to illustrate a typical conflict of interest.
A trustee usually has to supervise the asset manager of the trust fund. That should be no problem as long as the trustee and asset manager are not affiliated.
If the trustee is not happy with the asset manager's performance, it can simply change it. We doubt this ever happens if both belong to the same wealth management service provider.
Product and service quality
Finally, let's look at product and service quality.
Wealth managers are experts in their overall business but not always entirely specialized in everything they offer.
The above services require boutique specialization to achieve the best results for your wealth.
To a certain extent, the industrial and necessarily standardized wealth management approach may not be tailored to your needs but rather tailor them to the offered services.
This means that you will inevitably have to compromise on the ideal outcome for individual wealth management requirements, not to mention that you don't get tax and legal advice.
Therefore, it's essential to remain critical of quality, conflict of interests, and dependencies.
How is the wealth management industry developing?
The above services have been available for decades without too much transformation.
Wealth owners' expectations
Meanwhile, wealth owners appreciate the importance of human-centricity, shared values, the meaning, and purpose of wealth, impact on the community, financial wellbeing, and peace of mind.
Younger generations expect an outstanding digital experience, clarity on costs, services, product quality, and ecosystems that cater to their individual needs.
The current state of the wealth management industry
However, the wealth management industry is somewhat behind the curve but catching up.
It will need to transform to deliver the expected transparency, value creation, personalization, and effectiveness in a digital setting.
It will also need to open to external services and solutions in a collaborative environment for a holistic wealth management approach.
Conclusion on asset management vs. wealth management
The lines between asset management and wealth management are blurred and may include investment advice rather than managing assets on your behalf.
Which service is ideal for you? This requires a thorough assessment of all circumstances and needs.
Difference between wealth and asset management
While asset management focuses on growing and preserving financial assets and investments on your behalf, wealth management takes a holistic view of your entire wealth.
It considers life events and scenarios potentially impacting it.
You don't need to choose between the two necessarily but can create your ecosystem of services.
Technology enables oversight and consolidation of services and data and can bring the best of specialized wealth and asset management providers together in a collaborative setting for individualized results.
The importance of a wealth planning strategy
In our view, a wealth planning strategy that considers your and your family's objectives, needs, the purpose of wealth, and shared values is the baseline for the implementation of asset management and wealth management services.
It would help if you developed such a strategy prior to the selection process.
You'll have your holistic view and obtain clarity on which services you need to achieve your objectives, and implementation will follow accordingly.
We don't recommend compromising on product and service quality and potential conflicts of interest for the convenience of one asset management and wealth management service provider.
A comprehensive ecosystem
When it comes to wealth management vs. asset management, each service component should be best in class, cost-efficient, avoid conflicts of interest, address your individual needs in a personalized setting and coherently fit into your strategy and services ecosystem.
Finally, it would be best if you avoided dependencies and concentration risks.
With that, you'll make the most out of asset and wealth management to grow, preserve, protect, and transfer wealth.
Contact us to schedule a free consultation to learn more about individualized wealth management and planning strategies for growing, preserving, and protecting your wealth.