Wealth Management Overview

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The wealth management industry is growing exponentially. The McKinsey Global Wealth Management Survey 2014 had some interesting statistics which help to put the industry in perspective.

The Facts

The high net worth wealth worldwide was estimated at US$ 50 trillion as at December 2013 having grown by an average of 8.7% annually in the previous five years. The projections show that this would reach US$76 trillion by 2018. A significant contribution would come from Asia with China, India and Saudi Arabia rising up the charts. Also by 2018 it is expected that emerging markets will represent roughly 42% of global millionaire wealth. Also by 2018 the total global number of millionaires is estimated to reach 18 million.

The report also provides statistics of the top 20 High Net Worth pools by country listing statistics for 2008, 2013 and estimated for 2018. The US leads the table throughout. China rises through the chart to second place in 2018. India was not on the charts in 2008 but moves from fourteenth place in 2013 to eight place in 2018.

The ratio of the source of wealth present in offshore financial centres has shifted away from European and American HNWIs. Wealth managers are moving away from offshore financial centre because of tax evasion and compliance concerns.

Characteristics of Wealth Management

Wealth management is the process of understanding and providing solutions for the particular needs of affluent clients and requires expertise in a number of disciplines. Most wealth managers specialize in specific services and products. As High Net Worth Individuals seek to protect and enhance their overall financial situation the services required may go well beyond the in-house competences of the single financial advisor.

The key to consulting on wealth management is not to approach clients with a preconceived idea of what the solution may be as one size does not fit all. The actual (and perceived) needs of the high net worth individual or family need to be systematically discussed and addressed. Reaching consensus with the clients on the objectives that they expect to achieve in the short, medium and long term is paramount.

As some solutions may fall outside the competence of the particular advisor he or she should have the ability to source the appropriate expertise from his or her network of contacts. Part of the role of the advisor on wealth management is therefore to coordinate the work done by a team of advisors and ensuring that the client’s objectives are achieved.

Family Offices

The very wealthy are turning to family offices to address many of their financial and life issues. In order to meet this demand traditional providers such as private banks and brokerage firms are establishing their own family office practices for their wealthiest clients.

There are two types of family offices. There is the single-family office and the multi-family office. The latter has emerged from the former and this development was driven by the need to spread overhead costs and the cost of dedicated expertise. Multi-family offices are not only more economically viable for the financial advisors. They are also better priced for wealthy families as costs are spread over a number of clients.

Family offices may provide two main categories of services. There are the services that relate to managing wealth and those that relate to family support. Under the heading of wealth management we find investment management, advanced planning and private investment banking. On the other hand, under support services we may find administrative and lifestyle services.

Conclusion

The prospects for wealth management have improved significantly in recent years and continue to do so. There are however new and pressing challenges to be met. Increased global regulations, changing client behaviour, the rapid advance in the mobility of communication and a highly competitive landscape have permanently altered the wealth management landscape. Private wealth managers and family offices must quickly adapt to this new situation by focussing on adding value and reaching their clients via enhanced digital communications platforms.