Private Wealth Management: The Basics, Trends and Challenges  

private-wealth-management firmThe adage that the “poor gets poorer and the rich get richer” is as true today as it ever was. In the same manner, the adage that it takes “money to make money”, has been proven time and time again. However, for those who have accumulated wealth, keeping that wealth growing does take a lot of effort, knowledge, skills and resources. There are several trends affecting economies and personal wealth:

  • In the United States, the financial upper class is expected to grow their wealth faster than the rest of the economy.
  • In addition, there are economies, which are going to grow larger and faster leading to international disparity. For instance, it is also expected that China’s upper class population will become larger than the United States’ middle class.
  • Cross-border access to investment instruments will continue to grow.

These forecasts are based on existing data and are expected to come true if the conditions do not change. What might change would be the economies surrounding the wealth, like a slow down in growth in fossil fuels, or a disruptive change in technology. In addition, laws on taxation, government rules and regulations are also not included in the above projections. If the United States were to change their tax table to a single-rate system, this would change the economic growth rate substantially.

In these instances, the use of private wealth management facilities has proven to be effective to ride through these changes, as they happen. Banks and other financial institutions have catered to the upper class, and the financially affluent to make sure that the wealth in the hands of these investors keep growing, and are not taken away by the tax collectors.

Traditionally, this service is offered only for a high minimum investment of several million dollars, most investment houses have lowered this to as low as $200,000. This change was effected in order to cater to new niche investors. In addition, trends that have become the focus of new offerings include single-family office, and multifamily offices.

In terms of tier offerings, family offices are more complicated, and have a much wealthier investment portfolio to be handled as a whole. The investment services would include everything from research into new investments, as well as bookkeeping and accounting, as well as tax filings.

According to ETF Capital Management the challenges in private wealth management are large and complex, including:

  • Keeping private wealth growing. There is no sense enrolling in a service if the net worth being managed is going to shrink. The return on investment should be higher than the rest of the economy, and the management service should pay for itself from the earnings.
  • Keeping on top of changes in government regulations. New investment and tax laws not only locally but also in other countries can affect investment opportunities.
  • Initial wealth may come from a single enterprise, but keeping the wealth growing requires diversification. A diversified portfolio requires a lot of thought and expertise. The required expertise also grows when the investment opportunities are in other countries. Choosing the right portfolio management team is crucial.

Wealth management has become more dynamic and requires a larger knowledge base. In order to better serve private wealth and investments, managers have to be more dynamic and more creative than ever. Choosing an investment house has become more crucial as well.