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Private Wealth Management vs Wealth Management | Key Differences Explained

 

 

In this guide we’re going to look at the different ways of investing and managing large sums of wealth.  We’ll look at asset management vs wealth management as well as private banking vs investment banking to try and determine is private banking worth it?

 

Private Wealth Management

Private Wealth Management (PWM) involves the management of assets of high net worth individuals (HNWI) or accredited investors.

This can involve a wide range of services, including portfolio management, estate planning, mortgage planning, asset protection, tax management, and other financial services. Private wealth management services are provided by large corporate entities, independent financial advisors, and portfolio managers who specialise in working with wealthy private clients.

Companies that specialise in these practices are the primary sources for clients looking to invest in a variety of funds and stocks. Wealth management advisors also help with financial planning, manage client portfolios and perform a variety of other financial services in relation to a client’s private financing choices.

Large financial institutions such as JP Morgan and Goldman Sachs run a specific private wealth management business unit, with investment specialists and client advisors to cater to HNWI. Since wealthy individuals lack the time and sometimes the knowledge to manage their wealth efficiently, they consult with private wealth managers with significant experience in managing finances for private individuals. 

The wealth manager designs an investment strategy and proposes wealth investment products that are in line with the client’s financial goals and risk tolerance. Most clients work with a single wealth manager, who takes inputs from the client’s attorney, accountants, and insurance agents.

 

What a Wealth Management Advisor Can and Cannot Do

A wealth management advisor sits down one-on-one with each client and discusses goals, comfort levels with risk and any other stipulations or restrictions the client may have in regard to the investment of his assets. The wealth management advisor then composes an investment strategy that incorporates all information gained from the client to help the client achieve his goals. The advisor continues to manage the client’s money and utilises investment products that coincide with the client’s stipulations.

Asset Management

Asset management is the process of developing, operating, maintaining, and selling assets in a cost-effective manner. Most commonly used in finance, the term is used in reference to individuals or firms that manage assets on behalf of individuals or other entities.

Asset management is the direction of all or part of a client’s portfolio by a financial services institution, usually an investment bank, or an individual. Institutions offer investment services along with a wide range of traditional and alternative product offerings that might not be available to the average investor.

  • Asset management refers to the management of investments on behalf of others.
  • The goal is to grow a client’s portfolio over time while mitigating risk.
  • Asset management is a service offered by financial institutions catering to high net-worth individuals, government entities, corporations and financial intermediaries.

Private Banking

Generally speaking, private banking is centred around financial institutions that provide management services to high-net-worth individuals (HNWIs). Some prospective clients will be able to access this form of service with assets that amount to less than £100,000, but, in the main, the private banking minimum requirements are around six-figures. Essentially, private banking is generally exclusive and is more the domain of clients with high volumes of assets ready to be invested. 

Private banking provides investment-related advice and aims to address the entire financial circumstances of each client. Private banking services typically aid clients in protecting and maintaining their assets. Employees designated to aid each client work to provide individualized financing solutions. These employees also help clients plan and save for their retirement and structure plans for passing accumulated wealth on to family members or other indicated beneficiaries.

There are consumer banks of every size with private banking divisions. These divisions offer considerable perks to HNWIs to obtain them as clients.

Private banking offers investment-based advice for clients and looks at catering to the individual needs of each investor. This approach tends to aid clients in maintaining their assets within a secure place. Each firm will allocate employees who will be dedicated to supporting its clients in providing bespoke financial solutions – whether they refer to retirement planning, saving for the passing of wealth on to family, or for a one-off purchase.

Most household names in banking have dedicated areas that offer private banking, with a series of individual perks for new clients. While the range of products and services offered by private banks don’t generally differ too far from that of a retail bank in terms of current accounts, credit cards, loans and mortgages, a considerably more personalised level of service is typically provided. 

 

Perks of Private Banking

  • Private banking clients with large accounts generally receive enviable rates and concierge-like service, guaranteeing them instant access to the employees working with their accounts.
  • Private banking clients never have to wait in line or use a teller for services.
  • A private banking client can contact the lead advisor working with his account and complete just about any transaction, from cashing a check to moving large sums of money from one account to another.

These perks are all part of the banking institution’s plan to benefit financially. Banks pursue wealthy clients because their business generates significant sums of money in profit for the bank, guarantees repeat business and brings in new business.

 

Services on offer

Though both private banking and asset management share some core services, it’s private banking that offers functions like banking services, asset management, brokerage and tax consultation. Wealth management, on the other hand, typically involves consulting services in concentrations like asset allocation and structuring, tax planning, estate planning, pensions, philanthropy, family arbitrage, art, real estate and the relocation of families and their associated businesses. 

Although many services provided by both private banking and wealth management firms have some similarities, a key difference between the two entities can be found in how private banking doesn’t always cover the topic of investing. Private banks staff can offer clients a degree of guidance towards investment options, but many banks will keep away from the actual process of investing assets on behalf of customers. 

 

Strategies For Your Investments

Wealth management conveys a generous level of flexibility and reactivity when it comes to acting in the interest of a firm’s clients. This is because advisors can take up a fully independent view of the underlying assets that form their client’s portfolio in its entirety.

On the whole, private banking forms a considerably slower and heavier process that offers less independence – and some may argue less transparency within the financial mediation of some institutions. Private banking services can become unnaturally influenced by the underlying assets that are encased within a chosen portfolio, with conflicts of interest arising as a result. 

 

Salaries

People working in the private finance arena can earn pretty high salaries, with some earning commission too:

  • Private Wealth Management Salary – Between £63,000 & £72,000 per annum
  • Private Banking Salary – Starting at £35,000

 

Private Banking vs. Wealth Management: An Overview

Private banking and wealth management are terms that overlap. However, the financial services offered through private banking and through wealth management differ slightly.

Wealth management is a broader category that involves dealing with the optimization of a client’s portfolio, taking into account his or her aversion to, or comfort with, risk, and investing financial assets according to his or her plans and goals. Wealth management can be practiced on a portfolio of any size, though, as the name implies, it is geared toward the well-off.

Private banking, by comparison, typically refers to an envelope solution for high-net-worth individuals (HNWIs) wherein a public or private financial institution employs staff members to offer high-net-worth clients personalized care and management of 

 

Assets Under Management and HNWIs

The real money maker for these banks, though, is the percentage earned on assets under management (AUM), which is generally quite large with HNWIs. Charging even a very small percentage fee for services that involve huge sums of money generates substantial income for the bank. 

In general, private banking can extend to encompass wealth management, but wealth management firms cannot provide clients with private banking facility services.

These divisions may offer many services, but they may not be a master of all of them. Banks are not experts at everything, so the level of expertise the client receives is likely to be lower than if he had used a specialist in a particular area. Finally, private bankers are paid by the bank, so their primary loyalty is to their employer and not to their clients.

As with all out blogs and guides, please feel free to leave a comment below.

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