What is private wealth management?

Private wealth management is an investment advisory practice that incorporates financial planning, portfolio management and other aggregated financial services for individuals, as opposed to corporations, trusts, funds or other institutional investors. From the client's perspective, private wealth management is the practice of solving or enhancing his or her financial situation and achieving short-, medium- and long-term financial goals with the help of a financial adviser. From the financial adviser's perspective, private wealth management is the practice of delivering a full range of financial products and services to an affluent clientele, so that the clientele can achieve specific financial goals.

Many private individuals of means lack the time, effort or knowledge to manage their finances successfully. To make up for what may be lacking, they seek the consultation of wealth managers who specialize in managing the finances of private, often high-net-worth individuals (HNWI). HNWIs have unique financial situations that require greater diligence and a higher degree of active management. Further, HNWIs require a more holistic approach to investment management than many financial advisers are capable of providing. HNWIs can have issues with income taxes, estate planning, investment management and other legal issues that need more attention and specific expertise than traditional investment advisers are qualified to give.

Private wealth management services can be provided by banks and large brokerage houses, independent financial advisers or multi-licensed portfolio managers who focus on high-net-worth individuals, and family offices. (See "Top 3 Trends Affecting Private Wealth Management.")

Many private wealth management firms are smaller groups within larger financial institutions that are focused on providing personalized service to their clients. Their main objective is to manage and grow the assets of their clients to provide for future generations. These groups often have a variety of advisers and expertise that provide guidance across a wide spectrum of investments including cash, fixed-income, equities and alternative investments. They can create a portfolio of assets that meets the investor's risk tolerance while also offering the opportunity for growth.

Most private wealth management firms are fee-based. They charge their clients a percentage of the assets under management. HNWIs may believe that fee-based financial advisers have less conflicts of interest as opposed to traditional commission-based advisers. Commissioned advisers can push investors towards front-end and back-end load mutual funds that charge significant commissions (without offering any better performance than no-load funds in many cases).  

Some HNWIs may want to consider opening a family office. A family office provides a wider range of services tailored to meet the needs of HNWIs. From investment management to charitable giving advice, family offices offer a total financial solution to high net worth individuals. There are two types of family offices: A single-family office supports one affluent individual or family, while the more common multifamily office supports multiple families and individuals. Multifamily offices are more prevalent due to economies of scale that allow for cost sharing among the clientele.

Technological advances have allowed many larger financial adviser companies to provide services online at reduced costs. Despite the gravitation of many investors to these types of services, however, many HNWIs want a more personalized approach to their finances, even with the additional cost.