Article published on the Chamber of Commerce ‘s newsletter ( Câmara de Comércio Luso-Belga-Luxemburguesa )
Written by Mrs Yvonne Bernardino ( Head of the Portuguese Desk – Senior Wealth Manager )
It is common to confuse Wealth Management with Private Banking. After the crisis of 2008, there was in fact an juxtaposition between these two activities, and that has even increased recently with the activities of the Family Offices.
However, there are still many differences that tend to increase, due to various reasons. First, major changes in the financial sector regulation, that are being implemented, and will continue in the next few years. Also, the automation of processes and decisions is changing the customer relationship as we know it.
I will synthesize and enumerate the six main differences:
1 – Range of services
Although both have core-business asset management, Private Banking offers banking services, asset management, brokerage and presents some simple tax consulting services. The Wealth Manager provides consulting services in areas such as asset allocation, asset structuring, tax planning, estate planning, pensions, philanthropy, family arbitrage, art, real estate, and the relocation of families and their companies.
2 – Approach: Package vs Taylor Made
Private Banking proposes a one-to-one model, existing bank packages for high-net-worth-individuals (HNWIs) or ultra-net-worth-individuals (UNHWIs). The Wealth Manager gives greater emphasis to financial advice and concern in the collection, maintenance, conservation, reinforcement and transfer of wealth. He begins by drawing up with the client a financial plan that meets the needs of his family and implements the plan with specialists from all areas involved. Over the years, he is monitoring with the client the evolution of the same and the goals of the family to make the necessary adjustments.
3 – Independence: One Option vs. Multiple Choices
Private Banking presents its clients with only the products offered by the bank for which they work. While the Wealth Manager, being an independent company, can implement a tailored service and present the products of several institutions, allowing the client to choose the ones that best suit their situation. It is often the case that a Client of a Wealth Manager uses multiple institutions for security reasons.
4 – Investment Strategy: Loyalty, Flexibility and Reactivity
The Wealth Management benefits from all the flexibility and reactivity to act only in the best interest of the client, since he’s also independent in the choices of the underlying assets that constitute the clients portfolio. On the other side , Private Banking has slower and heavier processes, less independence and transparency, i.e. underlying assets chosen for the portfolios, generating sometimes conflicts of interest.
5 – Contacts: Exclusive Focus on Relationships
In Wealth Management, everything begins by realizing the reality and concerns of the client, and then designing and implementing a plan to achieve the client’s goals – always focused on guaranteeing a safe and peaceful life for him and his family. During the process, the client is questioned and reflects on sensitive issues that often go unnoticed. In this way a trusting relationship is created for long years of collaboration between the Wealth Manager, the client and his family. In Private Banking, the services proposed require less time, less involvement and knowledge of the client, since their services are “packages” that are then only adapted to the greater or lesser risk appetite and to the volume of the client’s assets.
6 – Costs: Cost optimization
In Wealth Management the client can optimize the costs because he has a wide range of services and providers (banks, insurance companies, …) without having to meet with several entities. It also benefits from the negotiating power of the asset manager together, which as an individual client does not have.
Although there is a common starting point – asset management between both activities, the point that distinguishes the most and which is transversal to the six points mentioned is undoubtedly the independence in the services provided by the Wealth Manager. Let’s wait to see how both activities will position themselves in regards to the biggest challenge facing the financial sector and will face in the coming years and that is creating value and client relationship.