Private Wealth Management and the Holistic Approach

Since the Great Financial Crisis of 2007-8, the financial services sector has experienced a major transformation. It has moved towards a more holistic and personal approach that has redefined the market environment given new regulations, technology, financial digitalisation and diversification of clients’ needs. Private wealth management and sustainable investing have grown strong as a response to the new market opening doors to profitable opportunities. Private consultancy companies will have a major role in building the new financial landscape in Europe.

In the past few years, much has been said about private wealth management, from its meaning and its financial and legal extent to its importance for high net worth individuals (HNWIs). Private banking and investment management had fallen short in addressing the need for financial planning and wealth administration for the future. As a consequence, wider and broader options started being offered to high profile individuals, including pensions and retirement, inheritance, tax and legal planning, converting private banks and traditional investment management into private wealth management institutions.

For many, this step forward meant the financialization of matters that were, until then, considered off limits, as it involved not just the administration of money and traditional means of investing it but the management of private lives and the future of individuals and families. And as such, this required establishing closer relationships between private wealth managers and clients, the assessment of risk aversion, products to attract clients, and the construction of a symbiotic consultative business model.

It is the consultative aspect that is the prime distinction versus financial planning, as the later offers a range of products and strategies that do not necessarily aim to enhance or solve future financial and legal needs but rather immediate investment needs. More than just allocating resources and assets into such products as bonds, stock-exchange-traded funds, and mutual funds, private wealth managers understand their clients well enough to identify their priorities, concerns and expectations and then provide a customised set of financial and even legal solutions and experts in various matters, from accountants and lawyers to real estate agents and even art dealers and valuators.

“THE INCREASING DEMAND FOR THESE SERVICES IS MAKING WEALTH MANAGEMENT A GROWING INDUSTRY WITH AN IMMENSE POTENTIAL.”

The increasing demand for these services is making wealth management a growing industry with an immense potential. According to the British Bankers’ Association (BBA) and Wealth Management Association (WMA), in the UK alone, private banking and wealth management institutions administrate assets worth £825 billion, equal to 40% of GDP, serve over 2.2. million people and have boosted economic growth, with an aggregate turnover of £6 billion and more than 27,000 employees. The potential is clear and the market is generating new opportunities to keep growing and evolving.

But what about Brexit? Uncertainty has given place to speculation about London remaining Europe’s financial capital and the potential for the UK to keep its HNWI clients. On the one hand, wealth managers in the UK could face regulatory obstacles to serving clients in the EU, and on the other hand, clients based in the UK might be at risk of not receiving the same products as before. As reported by industry figures, the sector could lose 25% of its business following Brexit and firms might be forced to abandon their European clients. For the deputy chief executive of the WMA, John Barras, the industry will pay a high price for Brexit as the UK loses passporting rights, which refers to the right to buy and sell products and services across the single market.

However, London’s leadership won’t be compromised that easily. Its financial infrastructure, which will continue attracting business into the UK and Europe, won’t disappear overnight. According to the Ernst and Young Wealth Management Outlook 2017, with a 25% expected global increase in HNWI’s net investable assets (NIA) of to $70.000 billion USD by 2021, Europe is expected to contribute 20% to global NIA growth, with the UK and Germany the two main engines of growth. Furthermore, private banks are growing strong across the region, creating a whole new nest in Europe for investors around the world.

As stated in the abovementioned report, 4.5% annual growth is expected in the wealth management industry in Western Europe between 2016 and 2021, with a global growth rate of 4.7%. The report says: “in view of regulatory standardisation and interesting onshore markets like the United Kingdom, Germany, France, Italy and the Netherlands as well as Sweden and Norway, Europe retains its status as a highly attractive wealth management market”.

Opportunities are set to come as NIA globally increases and as companies adapt and evolve to a more holistic approach to wealth management in order to satisfy the needs of HNWIs around the world. The race to manage private wealth is just starting, with traditional players such as UBS, Wells Fargo, Merrill Lynch and JP Morgan facing rising competition from the likes of Raymond James Financial, Fidelity and Kaiser Partner.