What is Wealth Management?
Singapore’s stringent laws, sound financial systems, and politically stable conditions have helped to establish the country as one of the leading Wealth Management centres in the world.
Singapore had an estimated millionaire population of 269,000 which is projected to reach 363,000 by 2024 (Source: Statista).
The following table depicts the current and projected growth of assets for Asia-Pacific (APAC). The figures are in USD trillion.
While the table shows the clear growth in assets across all client types, for the purpose of Wealth Management we will be focusing on the HNWI market. The comparison will be explained in more detail below.
With the growth in wealth, investors have become increasingly comfortable in entrusting their assets to wealth managers and firms.
While Asset Management includes the HNW category as well as FIs, Pension/Endowment/SW Funds, MNCs, SMEs, etc, Wealth Management specifically covers UHNW individuals and the mass affluent. It is a more comprehensive branch covering aspects like estate & tax planning etc
Wealth managers use holistic strategies which incorporate managing all aspects of a client’s financial portfolio. These include plannings on their savings, investments, tax, estate as well as legal aspects..
Needless to mention, the services are best suited for affluent clients or high net worth individuals (HNWIs).
The article aims to give you more clarity on different aspects of Wealth Management and how it differs from other services like Asset Management, Investment Banking, Private Banking, and Portfolio Management.
What is Wealth Management?
Simply put, Wealth Management is an investment advisory service with the goal of growing and protecting a client’s wealth (in the Singaporean context – accredited investors).
HNWIs typically have complex investment portfolios, complicated tax situations, a number of businesses, ownership interests, and other needs.
Such requirements demand dedicated wealth management support, which is the highest level of financial planning service. As mentioned earlier, it includes services like tax guidance, estate planning, legacy planning, comprehensive investment management, retail banking, and legal assistance.
What is considered high net worth?
The minimum asset required for one to hold the status of high net worth varies from one country to another, and even from one corporation to another.
For example, in Malaysia, the benchmark for an HNWI is only RM3million (USD736,000) or an annual income of RM300,000 (USD73,600).
In Singapore, an investor would need at least S$1million in net financial assets or S$300,000 in annual income to be classified within the HNWI category as an Accredited Investor by most financial organisations.
How does Wealth Management work?
The task of managing wealth is often handled by wealth managers who are employed at a Wealth Management firm. A wealth manager is assigned to every client.
Their work starts with studying the client’s needs, goals, and asset portfolio.
The wealth manager then gives bespoke advice and recommendations to achieve the client’s goals, taking into account the client’s individualised needs and asset portfolio.
Most firms charge an annual management fee for offering comprehensive wealth management services. The fee is usually a percentage of the assets managed. It can vary between two different firms or even across different types of accounts within the same firm.
What does a Wealth Management firm do?
These firms offer investment management and comprehensive financial advice.
Additionally, some firms may have their own investment products. There are also some firms that can offer brokerage services. Whichever the case, the role of the firm is to select the best wealth managers to serve their clients.
Wealth Management services
The services may include, but are not limited to:
- Legal and estate planning
- Accounting and tax services
- Philanthropic Initiatives
- Trust services
- Family legacy planning
- Help with starting or selling a business
- Examination of healthcare and social security benefits
- Investment management and advice, including retirement planning
Wealth Management products
Products are in the form of investment assets. These include:
- Insurance
- Liquid assets
- Mortgage financing
- Short-term investments
- Long-term investments
These may or may not be directly offered by Wealth Management firms. Some assets may be made available via the asset management branch of the firm while others could be offered by banks and other financial institutions.
What does a Wealth Manager do?
Wealth managers or advisors prepare a tailor-made investment strategy for their clients. More concisely, they are able to do wealth planning, as they are trained to manage complex financial needs for highly affluent individuals.
Wealth managers might coordinate with other experts on their clients’ behalf. For instance, to help clients minimise the cost of the estate tax, they may need to coordinate with lawyers, accountants, and tax professionals.
How do Wealth Managers get paid?
Wealth management firms charge annual management fees based on the percentage of the assets being managed.
Larger firms might pay regular salaries as well as additional bonuses to the wealth managers. Some others may charge based on advisory fees (usually 1%).
What makes a good Wealth Manager?
A wealth manager should be able to craft bespoke solutions and strategies for their clients. They need to leverage a wide range of financial products and services to address a specific set of requirements. They should always put their clients’ interests first.
Finally, it is important that the strategies employed by wealth managers are in accordance with the client’s financial objectives, risk tolerance, and investment time horizon.
What is the difference between a wealth manager and a financial advisor?
There may be instances of confusion where wealth managers and financial advisors are deemed to hold identical roles.
A financial advisor’s role is restricted to advisory topics on financial matters whereas a wealth manager’s role is broader. The latter also handles estate planning, trust services, family legacy planning, charitable giving planning, and legal planning.
A wealth manager falls under financial advisory/planning but caters to the HNW individuals that come along with capital gains planning, estate planning, risk management, etc.
Financial Advisors/Planners are more focused on day-to-day finances (budget planning, cash flow analysis, planning for education or retirement. in essence, it focuses on lifestyle) while wealth manager specializes in wealth preservation and generation.
Additionally, some wealth managers may also incorporate concierge health care into their services, and more.
Another key difference between the two terms is the investment amount. A wealth manager generally holds investment portfolios of higher value than a financial advisor.
Exacerbating this confusion is the perceived prestige that comes with the term “Wealth Manager” as well as the lack of a clear industry standard when it comes to the requirements of holding these roles.
Wealth Management vs. Portfolio Management
Portfolio management refers to a service that is provided whereby a person creates an investing strategy on behalf of a client. It involves choosing investments for the client which minimise risks and maximise the returns.
In contrast, Wealth Management encompasses more complete financial planning than just portfolio management. It consists of comprehensive guidance on a client’s financial situation, including investment management, estate, and tax planning, accounting, retirement planning, and even legal guidance.
Asset Management vs Wealth Management
Asset Management focuses on investments whereas wealth management encompasses a much broader scope. This comparison extends to the range of assets as well.
The former deals with assets like stocks, bonds, real estate, and cash. The latter concerns all forms of assets, taxes, trusts, and more.
Asset management is a service with a broader market while wealth management is reserved for only high net worth individuals or accredited investors.
Check out our article “Asset Management vs Wealth Management” to read more.
Private Banking vs Wealth Management
Private banking is a service offered only by banks. Wealth Management, on the other hand, is a service that is provided by wealth management firms as well as banks and financial institutions.
Private Banking can offer financial perks which wealth management firms cannot provide. These include premier accounting services, banking instruments, private placement plans, and other products that only banks are licensed to handle.
Wealth managers can only assist clients in choosing the right kind of accounts to open or the best products for their clients. They also work with Private Banks to provide full value-add to clients in terms of advisory and investment management.
Check out our article on “Private Banking vs Wealth Management” for further reading.
Investment Banking vs Wealth Management
Also a service sector offered by banks, Investment Banking is limited to financial services and advice for corporate entities only, not for individuals. On the contrary, Wealth Management is more of a personalised service for individuals.
Investment Banking handles matters such as share buybacks, initial public offerings as well as mergers and acquisitions. These are areas that are not offered by a wealth management only firm.
Given that senior executives and entrepreneurs of large firms tend to require both Investment Banking services for their companies, as well as Wealth Management to manage the wealth that is generated, some financial institutions offer both services as a strategic synergistic offering.
For more in-depth reading on this topic, check out our article on “Investment Banking vs Wealth Management”.
Conclusion
Wealth Management has the broadest view of financial advisory service compared to Asset Management and portfolio management. However, it has limitations in offering certain financial services which only Investment Banking and Private Banking can carry.
Other related articles:
- 10 Game-Changing Wealth Management Trends in 2020
- Wealth Management – Why Singapore?
- 5 Reasons Wealth Management is Important in Today’s World
Co-Founder, Chief Executive Officer
Haruhito was the Executive Director of Marcuard Heritage Singapore Pte Ltd, a Swiss multi family office. He was instrumental in building up their European and Asian clientele base which comprised of a global network of asset managers, distribution partners, and legal & tax specialists. Prior to that, he held various positions for 10 years in Deutsche Bank where he gained extensive experience in various Asian markets.
Haruhito has been accredited as a Trust and Estate Practitioner (TEP) by STEP, and as a Financial Industry Certified Professional (FICP) by Singapore’s Institute of Banking and Finance. His vision for Salzworth is to steer it to establish multi-asset class portfolios and funds that seek to achieve steady returns for investors.
