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| What is Wealth Management? |
Wealth management is a service business with the following eight components:
Not all clients will have access (or need access) to all of the above components. The clients who do have access to all of the above components will have a liquid net worth of at least $10 million USD in liquid assets. Such high net worth individuals and families are called ultra high net worth (UHNW) individuals and families. We will explore each of the eight components separately below. Business and Personal Administration, Budgets and Planning In the areas of business and personal administration, budgets and planning, UHNW clients have access to personalized service. The personal service is analogous to traditional concierge service, but in the business and personal administration, budgets and planning areas of the client's life. Example of concierge services are:
A trust is an arrangement whereby the owner of assets, who in private trusts, such as those we talk about below, is called the settlor, passes complete legal ownership of the assets in question to a trustee. The trustee (which can be a company or an individual) then becomes the legal owner of and administrator for the assets. The trustees must administer, invest, and distribute the assets within the trust according to the terms of a key document known as a trust deed, as well as according to the governing law of the jurisdiction in which the trust is established. The trustee does so on behalf of the beneficiaries of the trust, who can compel the trustee to comply with the terms of the trust and general law. These beneficiaries can include the settlor (although this usually reduces or negates any specific tax benefits of establishing a trust). Risk Management, Insurance Administration Risk management seeks to minimize financial and other potential losses associated with risks to a client's assets, health, or business. Some examples of risk include:
The following types of insurance are used to mitigate risk:
The investment management component of wealth management consists of the following components:
Tax planning and accounting uses the following tactics as part of an overall strategy to more efficiently build wealth.
Family Governance, Financial Counseling, and Education Research shows that the majority of generational wealth transfers fail by the third generation - not due to poor wealth planning or an investment portfolio missing its benchmark, but due to lack of trust, transparency and, on the part of the succeeding generation, lack of preparedness. Effective family governance helps family wealth survive successive generations, by providing a coherent plan for sustaining family unity as well as prosperity. Without such a framework, wealth is likely to dissipate through family disputes or poor investment decisions. Family governance may include wealth management, next-generation involvement and business succession. It provides a way of sharing common values at the heart of the family's success and laying down guidelines for overcoming conflicts of interest. Wealth management firms now offer basic and advanced financial counseling and education to family members, which helps prepare heirs to effectively manage and protect generational wealth transfer. Wealth Transfer Estate Plan A wealth transfer estate plan would be a plan designed to efficiently transfer wealth to surviving heirs. The plan would use tools such as the following:
Many wealth management firms offer the following services for the philanthropic component: Philanthropic strategy - Assistance defining philanthropic goals, articulating your mission, evaluating potential charities and utilizing a variety of trusts, charitable vehicles and wealth management tools. Foundation administration - A broad range of services designed to help nonprofit organizations (ranging from family foundations to some of the nation's largest nonprofits) refine and implement their strategies. Impact investing - Helping clients uncover investment opportunities in companies, organizations and funds focused on the goal of generating social and environmental change alongside a financial return. Trusts and charitable vehicles - Helping clients understand how to use a variety of financial management tools for philanthropic strategy such as charitable remainder trusts, donor advised funds and charitable gift annuities. https://advisor.morganstanley.com/the-conscious-wealth-management-group/philanthropy |
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