Private Wealth Management: Everything You Need to Know

A lot of people think that private wealth management is the same as investment management.  What they do not realize is that investment management is particularly concerned with choosing the best exchange-traded funds, bonds, mutual funds, hedge funds, stocks and bonds for clients to invest in.

Private wealth management, however, does not stop there.  In fact, wealth managers do a lot more than just stock picking.

What is private wealth management?

For you to appreciate and understand the difference between private wealth management and mere investment management, let us to start with a rough definition.  A private wealth manager not only advises clients on investments, but also incorporates other financial services, such as estate planning, tax, investment portfolio management and financial planning.  The service could also involve advice on business succession and hedging derivatives.

Private wealth managers coordinate with a variety of seasoned professionals – from retail bankers, lawyers, tax professionals, estate planners, and investment managers – to do their work.  They are concerned with making you money, growing your money and making sure that you do not have to pay too much tax on your money.

One thing to remember, however, is that you need to have acquired a certain amount of money first before you could get the services of a private wealth manager.  The entry bar is quite high, with some companies asking for a minimum investment of US$1 million.

Customized and personalized

Private wealth managers need to create investment opportunities that are customized to a particular client.  A private wealth manager would need to consider the client’s source of income, current expenditures and needs in order to come up with the best results.  As such, private wealth managers might need to update investment profiles as the client goes through his or her life.

For example, for someone nearing retirement age, a private wealth manager might recommend moving his or her investments to somewhat more stable stocks, bonds and funds.

Moreover, investment advice from wealth managers would differ depending on a client’s circumstances.  A teacher would not need to have liability insurance as much as lawyers and doctors do.  So instead, more money is allocated on pension funds and other investments.

Coordination with other professionals

Private wealth managers do not stop at just spewing out investment advice; they also need to work with other professionals such as lawyers and accountants.  They are also very much involved in the client’s trust and estate planning, insurance issues and managing risks.

For example, if the client is a doctor, the wealth manager would need to help him or her get liability insurance on top of managing his or her investments.

More activities for private wealth managers

So we have established that all wealth managers are also investment managers, but not all investment managers can call themselves private wealth managers.

In short, a private wealth manager has these four goals:

  • Accumulate wealth by growing your assets.
  • Protect your wealth by managing risks.
  • Make your money earn.
  • Transfer your wealth, such as when you die or retire from business, to another person or group.

As you can see, private wealth managers touch a wider part of their client’s life.

Some of the things that a private wealth management firm can help you with include:

  • Preparing for a major purchase
  • Planning for your retirement
  • Knowing your net worth
  • Allocating your assets
  • Funding your kids’ education
  • Protecting your income and family
  • Planning for your estate

So not only is private wealth management a lot more customized and personal, but it also changes as you go through life and as your goals change.

The results say it all.

So just how effective is private wealth management?  According to the World Wealth Report, which was released in June 2013, private wealth managers helped their clients increase investable wealth by 10% in 2012, which represents a total of $46.2 trillion for roughly 12 million clients globally.

The survey also found that 61% of the clients have said that they trust their wealth managers and firms, with around three out of four people saying that these professionals and firms would be able to create more wealth for them at least through the next year.  Around 53% commended their advisors and firms for their service.

The good news

In this time and age, more and more people are handling their own investments.  But the big question is whether they know what they are doing.

Working with private wealth management professionals, on the other hand, ensures that you know everything you need to know about a particular investment.  What’s more, you can get introduced to investment vehicles that you might not be familiar with.  So you essentially get a team of investment experts at your disposal who will be on hand to tell you where to best invest your money, how to protect your assets, how to have enough when you retire, and how you could avoid high taxes.

You really do not have to do it all yourself.

What’s more, working with professional private wealth managers does not only allow you to benefit from their knowledge and expertise, you also gain from their networks.  They will have a trusted network of professionals that they have worked with in the past or even currently.  This means that they are in a better position to help you find expert professionals when you need them.

Look for a smaller firm with the right financial and investment experts  on their team.  You will be glad that you did because, quite frankly, it is much easier to deal with smaller firms than big banks.  You could get lost in the sea of customers that big banks have.

Working with a big bank might defeat the purpose of having an investment vehicle that is tailored for you.  For one, it is less likely that there would be an individual who is solely focused on you.  And then there have been reports of private wealth management clients getting pretty much similar advice and investments as the other guy.

Meanwhile, at smaller firms, you would get better treatment, mainly because the relationship between the wealth manager and the client is more personal.  You can be sure that your private wealth manager is really customizing your account according to your needs.  And the barrier for entry might also be more lax.  You can get all of these benefits without compromising your investments.

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Investment Banking

The Five Things that You Should Do When Looking for an Investment Bank

Choosing an investment bank is serious business and you really do not want to just go on Google and find the first lender you see, expecting it to fund your project at a moment’s notice.

If you are looking to raise capital for your business or to help jump-start your ideas, what do you need to do?

1. Learn more about investment banking.

The sad truth about investment banking is that very few people know what it is and what they should expect from it.  It is imperative that you know how investment banking works and what it could deliver.  This way, you would make very informed decisions, especially those pertaining to which investment banker you would go to.

Ask the banker about their contacts at the venture funds that they plan to approach for your business or project.  Ask them how they plan to pitch your business to these funds and get regular status updates from them.

2. Be sure that your investment bank is well-versed in your business and can adequately pitch your ideas, discuss your proposals and basically speak in your behalf.

Remember that your investment banker will be the one who will represent you and sell your ideas to investors.  So they should be knowledgeable about your industry and your business in order to be able to convincingly and intelligently talk about it.

3. Make sure they are well-connected.

One of the benefits of talking with investment bankers or investment firms that have years of experience in your field, industry or business is their networks.

If they had been dealing for other companies in your industry, they will know the people who would be willing to invest in yours, as well as the other players in your industry.

Ask the hard questions such as:

  • How will you communicate with prospective investors or buyers?  Will you be approaching financial buyers?  Our competitors?
  • What types of transaction structures should you expect and would there be any foreseeable problems to these transactions?
  • Do you have any comparable transactions in the past that we can use to gauge our situation?
  • Was there an instance where you failed and why were you not successful in selling?

4. Choose an investment banker or firm whose aim aligns with yours.

You would need to know what you want from the deal.  For example, if you are looking for buyers or investors who are easy to deal with, then the investment banker should be able to scout your project to a lot of people.  If you want the highest price to sell your projects, then the investment banker should be very aggressive in pricing them up.

5. Be sure that you do not think of the firm as just an investment bank but as a partner as well.

It does not matter what you think of your project or idea; it is a business.  And for that, you should think about not just getting an investment banker or someone who provide investment banking services, but also someone whom you can trust as you would trust your business partner.

Narrowing Down the List

On top of these five things that you need to do in order to come up with a list of potential investment firms or investment banks, you should also do the following to make sure that you make the right decision in choosing:

Be objective.  Draw up a list of criteria that you are looking for in an investment bank or investment banker, and you should be objective in evaluating potential investment bankers against this list.

What are some of the criteria that you should be looking for in an investment bank?  Let’s take a look at the results of a 2012 Thomson Reuters survey wherein both large enterprises and small businesses were asked about the things that they consider important to them when choosing an investment bank.

The survey finds that in-depth knowledge of the industry was the top criteria for most people.  Close to 7 out of 10 respondents indicated that they wanted their investment bank to be at the forefront of the investment banking industry.

Money matters, as well, with 45% of respondents saying that the company’s fee structure is very important.

What else?  Around 43% said that it was important for their investment bank to have a good relationship with a bank.  Other important criteria are their ability to finance the deal and how they handle the deal and execution.

Of course, when it comes to your personal investment banker, you will want to have your own set of criteria.  You may want to work with somebody who is good at communicating or who could make you feel at ease.  You might want someone who would be able to digest the different options for you and present you with the best ones, or you might prefer somebody who gives you all the options available and let you decide which one you want to pursue.   Or you might want somebody who you could talk to about anything, even those outside investments.  It never hurts to deal with a professional who aligns with your own personal biases and philosophies.

Do not rush.  Hasty business decisions are not going to be a good idea if you are looking for someone who is going to be the equivalent a business partner.  Make sure that you know your investment bank through and through before you make a decision.  Remember that it is better to delay things a little while you find the funds for it rather than be stuck with a shady investment bank even for just a short time.

Look into your potential investment firm’s business ethics.  You are going to deal with somebody who is going to handle the financial side of your business.  Ethics should be at the top of the list of things you should be looking into.  Be sure that the investment bank and the person you are working with both like to keep things aboveboard.

So these are the things you need to know if you plan to or if you are in the process of looking for an investment bank.