The Development of Wealth Management Industry - Article Example

Introduction Regardless of the current economic situation, the amount of HNWI proceeds to increase globally in the emerging and mature markets. To adhere to the growing requirements of these various growth populations, leading wealth management firms are evaluating their powers and altering vital delivery models to guarantee that labor is affiliated with the distinct requirements of the clients in each market. Methods have been set down that, when followed, can guarantee success for the wealth management firm. With these methods set, and wealth management firms eager to assist, clients will be able to strive throughout the recession. The wealth management industry There is no standard definition for wealth management that will be generally accepted, though according to Maude “a basic definition for wealth management would be financial services provided to wealthy clients, mainly individuals and their families” (Maude, 2006). “a type of financial service that combines personal investments, tax planning strategies, estate planning and legal counsel. It is designed to provide a broad array of services within the confines of one office” Detailing the key elements that differentiate their services from other forms of retail financial institutions, wealth managers draw attention to the exclusiveness of their client relationships, which are extensive in that they cover all aspects of a client’s financial life, and with great respect to the adviser’s devoted knowledge of a client’s priorities and values. Likewise, this breadth and depth of the manager-client relationship allows the wealth manager to form and apply specially designed solutions that meet all key elements of a client’s financial welfare. The following three criteria distinguish a firm as a wealth manager: - The relationship between wealth managers and their clients, in regard to both terms of breadth (such as “holistic”, “comprehensive”, and “all-inclusive”) and depth (“intimate” and “individualised”). - The products and services that are offered, with a specific significance on estate planning and multigenerational planning services, along with tax advisory expertise and alternative investments. - The distinct intentions of wealthy clients, such as investment performance, wealth transfer, or wealth preservation. Growth of the industry (Stock market) Since wealth management has scored the fastest growing in late 1990, all of the financial services industry sector and even through the recession after that wealth management still attracts investors. In term of the population growth the number of millionaires till 2006 the number increased which is more than 7% a year referring to the devolved in the economy in Europe and North America. “Given that financial markets and economic growth in 2008 has been far worse so far than 2007, I expect flat growth or a contraction in the millionaire population in 2008. Just how bad a contraction depends largely on financial markets, since they’re such a strong determinant of wealth creation these days.” The increase of new millionaires during 2007 had steadied noticeably from 8.1% during 2006. In accordance to the Merrill Lynch forecasts, by the end of the following year China will have more millionaires in their midst than Britain. Ireland had been one of the few countries during the previous year in which the number of millionaires decreased, roughly 4% to 20,000. This reveals a decline in the Dublin stock market, inflationary troubles, and a decline in the property market. The year of 2008 closed after a series of sharp economic fluctuations, a substantial decline in the number and wealth of the rich who are at least the value of net assets of one million U.S. dollars and top the worlds rich who are at least the value of net assets for 30 million U.S. dollars. Reduce the number of HNWIs in the world by 14.9 per cent compared with 2007, while the number of Ultra-HNWIs increased by 24.6 per cent. In contrast reduced the wealth of the rich world by 19.5 per cent to 32.8 trillion U.S. dollars. They also lost more than ever which they gains made by the wealth of the rich over the years 2006 and 2007, and returned to the levels lower than it was in 2005. In the Middle East, had fallen wealth of the rich by 16.2 per cent to 1.4 trillion U.S. dollars, and the number of HNWIs increased by 5.9 per cent to 373.600. This is the second slowest reduction to Latin America increased by 6 per cent compared with the previous year. Credit crunch In general, credit crunch means a time span throughout which funds and loans that have can be borrowed prove to be almost impossible to acquire; even if the unlikely event that money can be found, the interest rates will be extremely high. Credit crunches were rather harsh before the 1980s, during which interest rates that financial institutions were able to pay resulted in a massive lack of deposits. “Bernanke and Lown (1991) define a credit crunch as a decline in the supply of credit that is abnormally large for a given stage of the business cycle. Credit normally contracts during a recession, but an unusually large contraction could be seen as a credit crunch” Credit crunches often take place during recessions, making it next to impossible for companies to borrow money, due to lenders being wary of potential bankruptcies or defaults. Therefore, the end up charging much larger interest rates because of their fear of bankruptcies or defaults. The outcome is a noticeable decrease in growth, which can possibly result in a length recession, or perhaps a slower recovery. This is a distinct possibility as banks hang on to the banking reserves. A decrease in the provision of credit that takes place when lenders are edgy about lending funds and restricting their borrowing prerequisites. A credit crunch normally involves the increasing of interest rates and is usually connected with a constricting monetary policy. Credit crunch and its affect on the industry Even the millionaires around the world not immune from the effects of credit crunch or resistant it and private banks which run their investments will suffer at the following stage of the big impact, millionaires benign more heedful and the limited the authorities that wealth managers used to have to manage their portfolios which take away a profitable income same as the financial markets. The crisis impact on wealth management business, “which manages an established $37.2 trillion in assets worldwide”, clients who borrowed money worth a portion of their portfolio normally put it in hedge funds but during this credit crunch clients unwilling to do that regarding to the risk in the financial markets. Mangers of wealth management industry loss of revenue from loans happen when the stock markets instable which affect their profits which mainly depends on asset prices. Private Banks takes double income first the margin charge and pay off the fees while Clients reinvest this money in the bank. “At Alphaone, based in London, previously borrowed money worth about 25 percent of their portfolio, typically putting the money into assets like hedge funds. But that number has gone down to zero” Challenges and New plans in the industry of wealth management: Today many wealth management organisations suffer from new serious hardships and after many years of constant growth, compelled by growing stock markets, the wealth management industry is coming from the current downfall. However, it still must deal with structural challenges, external environment, competitors, pricing and channels. Clients Key characteristics: Since 1960s clients in wealth management gradually adapted which a sophisticated approach driven by financial news and many available analysis and information, and provided investment products, private equity and hedge funds. According to Capgemini Merrill lynch clients in wealth management in 1960s was risk averse and focuses on wealth preservation following personalised advice. The style of the wealth management discretionary asset management and manage in confidential way. More new wealth after 1990 and clients being less risk averse and more educated which makes them focuses on wealth creation and followed different styles such as more active and access to more information however in 1999 clients of the wealth management self directed also, the style was high active with overnight wealth and the risk taking increased with focusing on aggressive wealth creation and the performance of the investment. In 2002 there was less new wealth goes to the markets with involved sophisticated clients style not trusting self directed investing and the risk averse was high focusing on both diversification and comprehensive personal advice. More new wealth came in 2005 clients were ask only for high quality recommendations and considering the performance oriented. Clients recently gives less time while their demands refers to the sophistication increase and the product and sieves are provided they become complicated and more diverse associated with the need of seeking advice while the private banking trying hard to develop the sieves too meet the clients demand especially in alternative investments and wealth transfer. Quality of the service for the clients is the most important reason to choose wealth managers according to IBM consulting services indeed quality of investment advices, confidentiality and security, the image and reputation will affect on the decisions of choosing the wealth manger and associated to client behaviour. The response of UHNW clients in terms of the complexity increase of investments from either independent adviser or their private bank explain the change through financial crisis of the buying behaviour such as hedge funds mangers and strategic asset allocation planning. More than half of the clients in wealth and privet banking sector have more than a provider referring to the aim to have greater ideas and proactively even they may switch providers when it comes to feel any mistakes. In the current state of the wealth investment areas, clients are different from each other regarding to their regions: Clients from United States and Canada strongly prefer the alternative investments and they have many wealth manager relationships and their wealth business does not affect their personality. Clients from Europe focuses on investment products related to tax-efficient, real estate and structures. Clients from Latin American looking for who provides privacy and confidentiality, and fixed income investments clients from Middle East and Arabs countries have less interest of funds such as hedge funds and they focuses on capital protected and real estate and they usually have their tactics, switch on a regular basis among many assets. Clients from Asia hold bigger amount of the wealth in cash and also they focus on real estate. Moreover they are aiming to invest in their countries such as China and Japan. Clients segmentation: As an important requirement the wealth management organizations and private banking need to focus on the relevant value of provide their services for the clients they are targeting and to know which groups of clients they can meet their expectations to work with, many provided services and different products make the choice of the clients segmentation easy regarding to the fact of there are a few instantiations can cover and serve all segments in same quality. The wealth pyramid which is the traditional high level of segmentation when the clients pay more after feeling that provided products and services meet their needs, nationality of the clients will not make big different in privates banks or even the risk performances the things matter is demographic and income factors, wealth, assets class and geography those factors private banks use them to collect and identifies the similarities to creates subgroups ignore the individuals needs which is one big issue. Moreover, other institutions use age, sex, family back ground, experiences factors to segment their clients Client value management: Wealth management organizations need to use which customer relationship management CRM and client value management CVM, through wealth manager’s organization can find their attractive groups of the target clines and lead to choose the approach they should take and “there is one problem with this approach is that it is static: it makes no allowance for expected future profitability. Clients with limited assets today may represent little current value. But clearly, if they are expected to accumulate assets rapidly, they are more valuable to the wealth manager” Circumstances in which to mount up revenue are in short supply in the current economic situation, which forces numerous financial institutions to think up assaults into wealth management as a method of forming top-line growth. Many firms have already obtained a wealthy customer base that they believe can be quickly and effortlessly transformed to a wealth management offering, though others realise that they, too, will have to bring about new customers to their own institutions. Regardless of whether or not firms decide to appeal to traditional or modern customer segments, forming a vigorous wealth management offering is not going to be an easy task. Prosperous films will cautiously scrutinize their ideal customer segments, sensibly evaluate their own strengths and weaknesses, and study and respond to the exploits of their competitors. Wealth management institutions need to adopt tools in term they aim to meet challenges: - analyzing the data on the performance of products, advisors and services. - collecting information on clients preferences, needs and activates. Conclusion Even though the current economic status is not a good one, HNWI continues to flourish, forcing wealth management firms to reconsider their positions and remodelling themselves to adhere to the distinct requests of their clients in each market. Through breadth and depth, and by obliging by the three criteria that have been set down, wealth management firms can prove to be successful in their business ventures. Even though the recession is scaring people away, whether they are people that can lend money, or those that wish to borrow, wealth management firms aid in keeping up with the demand of those that still require the help of a financial institution. By meeting the demands of individual clients, that can be guaranteed a successful ride through the recession. References Read More