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Posts Tagged ‘wealth management financial planning’

New Report Shows Room for Growth for Wealth Managers

Posted by William Byrnes on December 2, 2010

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According to a recent report by Javelin Strategy and Research (California); “[a]lthough the recent ‘Great Recession’ has caused millions of Americans to tighten their belts financially, nearly one out of five consumers are financial sleepwalkers”—those who do not manage their personal finances. [1] That’s right; at least 20% of Americans are not currently using wealth managers to manage their personal finances. The report states that the rate is more than double that of 2009. [2] This presents a vast opportunity for wealth managers to expand their market share.

The United States Department of Labor project that personal financial advisors are estimated to grow by 30 percent over the 2008–18 period.  “Growing numbers of advisors will be needed to assist the millions of workers expected to retire in the next 10 years.” [3] Further, “[a]s more members of the large baby boom generation reach their peak years of retirement savings, personal investments are expected to increase and more people will seek the help of experts.” [4]

Moreover, there is a trend in corporate America to replace “traditional pension plans with retirement savings programs, so more individuals are managing their own retirements than in the past,” creating additional opportunity for wealth managers. [5] In addition, as medical technology continues to advance and people on average, live longer, the need for additional financial planning arises.

The average compensation for wealth managers is around $89,920 to $110,130 for those marketing insurance products and services as well as other financial investments. [6] New York has the most wealth managers in terms of total numbers. [7] In addition, New York wealth managers made on average $146,460, the most from any state. [8] Read the entire article at AdvisorFYI.

For previous blogticles covering the wealth management industry, see the series beginning The Future of Wealth Management

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Wealth Management & Financial Planning

Posted by William Byrnes on April 22, 2010

In my 900-page economic report on the international financial services industry, I examined and calculated the economic size and impact of the sector on local jurisdictions, and in doing so reviewed the global industry as a whole.[1]  But for the periods of global financial crisis, the sector had experienced double-digit annual global growth from the eighties and contributed robustly to local economies and society.  Since 1998, the international financial services sector client base has expanded nearly 10% on average during growth years.  Even with the dampening caused by the current global crisis, this industry is still projected for healthy growth in the high single digits over the next five years.

During the decade period until 2008, the international pool of high-net-worth individuals (HNWIs) potentially served by AAFM® Chartered Wealth Managers® had more than doubled, to just over 10 million, as had their assets, from $17.4 trillion to between $40 and $50 trillion.[2]  By 2007, the average HNWI, excluding primary residences and collectibles, achieved an average of $4 million of worth![3]  

The financial recession of 2008 through the first half of 2009 and the corresponding collapse of USA investment banking system temporarily decimated the available high net wealth pool, reducing it to just under nine million holding $33 trillion in assets.  Because of their substantial exposure to the USA economy and financial markets, the USA suffered the greatest impact, a loss of 18.5% of its HNWI pool and its overall investable wealth.[4] 

Yet by the first quarter 2010 the high net wealth pool has rebounded to near 2007 levels as markets have regained nearly 85% of the lost ground of the past 24 months.  In 2009 some residential property markets experienced substantial price rebounds and increases, such as in China, India and Brazil with the top three in China.[5]

Over the next five years financial forecasters expect positive growth exceeding 8% annualized for the assets of high net wealth individuals.  In just three years, by 2013, the pool of HNWI clients’ assets will expand by 50% and exceed $50 trillion – accomplishing a decade’s record in one-third the time.[6] 

70% of this new wealth is self-generated, either through entrepreneurship or via executive compensation, representing a “new” breed of HNWI versus the inherited wealth clients of the past.[7]  These self-generated HNWIs bring new attitudes and requirements to their wealth managers.

This is the first of several update blogticles for the career services course of the International Tax & Financial Services Graduate Program.   Prof. William Byrnes

[1] Report on the Economic, Socio-Economic, and Regulatory Impact of the Tax Savings Directive and EU Code of Conduct for Business Taxation upon Selected Offshore Financial Centers as well as a Competitiveness Report for Selected Offshore Financial Centers (Foreign Commonwealth Office 2004).

[2] Cap Gemini Merrill Lynch World Wealth Report 2008 calculates $40.7 trillion.  However, see Oliver Wyman’s The Future of Private Banking: A Wealth of Opportunity? (2008) at 9 wherein using its own wealth model and reliance upon data from the OECD, IMF, WFE, UNECE, national banks and stock exchanges calculates $50 trillion.

[3] A High Net Wealth Individual has at least one million dollars investable assets, excluding the primary residence and collectables.

[4] Cap Gemini Merrill Lynch World Wealth Report 2009, p.2.  Note the U.S. is still responsible for nearly 29% of global HNWIs at $2.5 million.

[5] The KnightFrank (Citi Private Bank) Wealth Report 2010 at 7.

[6] Though the global re-calibrating of asset values may impact the nominal wealth value for HNWIs in the short term, historically, based upon both the recessions coined after the Asian Financial Crisis and the Tech-Bust, the wealth value will likely return to projected levels with a two-year lag.  While equity and real estate markets may have declined by January 2009 by as much as 50% of their highest value in OECD countries, HNWI portfolios are spread among other investments without such a sharp plunge.  A reliable decline in value estimate for HNW is 25% based upon the decline experienced in Switzerland, which accounts for 28% of the global asset management market.  See the report Wealth Management in Switzerland, Swiss Bankers Association (2009) at 8.

[7] The Future of Private Banking: A Wealth of Opportunity?, Oliver Wyman (2008) at 21

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Winning Strategies of the Holistic Wealth Management Service Model

Posted by William Byrnes on July 28, 2009

In my blogticle of July 19th I addressed Wealth Manager Skills Sets Required To Service New-Breed HNWIs.  Hereunder I turn to the successful strategies employed by wealth management firms to acquire and retain HNWIs and families.

My forecast for an expanding and robust sector the past years has not been drawn from the conclusion of “what doesn’t kill you makes you stronger”, though I often lecture that “the survivors shall inherit the spoils”.  Rather, I have examined the upward trend in expenditures by firms, and the sector as a whole, that allows them to the flexibility to adapt to changing climates and to evolve distinguishing services, such as the “well rounded, trusted advisors” trend required by new-breed HNWIs.

By example, for ten years I have measured that growing firms increase investment in education and information, and an increase in these two areas support that firm’s growth.  On the other hand, firms’ declining revenues, by example through loss of clients and key staff, correlate to a reduction in education and information spending.  In the 2008 poll by Robert Half’s Accountemps of 1,000 top companies, 94% offered tuition benefits to their key employees.  Naturally, this correlation begs the causation question of whether the decline in spending caused decline of revenues, the other way around, or some other factor caused both.

In support of the winners investing in education that supports a holistic service model approach, this past year Cap Gemeni reported that “While most HNWIs and UHNWIs have relationships with multiple wealth management firms, many clients seek long-term “trusted advisors” who can help them navigate complex topics and strategies.”  The trusted advisor must understand the HNWI “in the context of a larger relationship that encompasses personal and family finances as well as business partnerships or estate planning.” 

Most importantly for the employing firms of wealth managers, the Oliver Wyman study reinforced what is already generally known in the wealth management / private banking industry: the lifetime contribution value of an average private client under the European onshore model (the Advisory model) is three to four times than that earned from the US Broker/ Dealer model, while the European offshore client model – five times![1] 

The new breed HNWI will pay an asset under management (AUM) based fee for the trusted advisors holistic service, but prefers that the wealth manager employ this model dually with performance based fees – lowering the AUM fee but allowing a high blue sky for meeting and exceeding performance objectives.

Winner Wealth Managers

My wealth manager blog audience will not find the “trusted advisor” concept unique, and neither the family office that has gained so much attention amongst training companies the last seven years, as the “new” path forward.  This is the way that the most successful wealth managers members’ firms have always provided service to their clients.  Competency to offer these services has been assessed via the Walter H. & Dorothy B. Diamond Masters and Doctoral programs, or other professional association examination, such as that of the Chartered Wealth Manager of the American Academy of Financial Management (www.aafm.us).

Also, and more dear to many of my students, Cap Gemeni reported in 2008 that employing qualified talent will sharply increase because of the retirement of the baby boomer wealth manager generation.  “Bidding wars among firms for top advisors are not uncommon” and that packages will include “bonuses equaling two or three times the payouts from just a few years ago.”  As noted earlier in my blogticles, the industry career newsletter, Jobs in the Money, reports that credentialed professionals with certifications earn over 30% more than their colleagues.  Also referring to recent reports from recruiters, financial planner salaries are holding a steady range of $150,000 – $400,000.[2]  Based on my survey of recruiters and reports up to July 15, 2009, and our own alumni in the marketplace, this trend has held stable.

I look forward to addressing any comments hereunder.  Prof. William Byrnes, Walter H. & Dorothy B. Diamond International Tax & Financial Services Programs (www.llmprogram.org)

[1] The Future of Private Banking: A Wealth of Opportunity?, Oliver Wyman (2008) at 18.

[2] Headhunter Boils Business Down to Wealth Management San Diego Business Journal March, 23, 2009 at 17.

Acknowledgment of Resources

Though not attached via a citation to a specific fact or thought, the below resources nonetheless were studied in connection with the preparation of this presentation today, and may provide valuable reference for blog readers wanting more information.

 IBIS World Industry Report on Central Banking in the US, January 27 2009.

 IBIS World Industry Report on Investment Banking & Securities Dealing in the US, December 8, 2008 including recession update of January 5, 2009.

 IBIS World Industry Report Commercial Banking in the US, December 4, 2008 including recession update of Jan 9, 2009.

 IBIS World Recession Briefing: Economic Crisis: When will it End?, Dr. Richard J. Buczynski and Michael Bright, March 12, 2009.

 S&P Industry Survey: Banking, Erik Oja, Dec 11, 2008.

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