Overview of Private Wealth Management

Private wealth management combines financial planning and investment management to help individual investors, particularly high-net-worth individuals (HNWIs) and ultra-high-net-worth individuals (UHNWIs), manage their wealth. This service encompasses several interconnected processes including personalized financial planning, specialized investment and financial advice, portfolio management, and advising on wealth management, tax planning, and estate planning matters.

Over the past 40 years global wealth has increased significantly, and private wealth management has become an integral, vital service offered by financial institutions, banks, asset management firms, and specialized advisors. This reading uses terms like “private wealth managers,” “wealth managers,” “managers,” and “advisors” interchangeably and refers to their individual investors as “private clients” or, simply, “clients.”

Private wealth management is a highly tailored service and involves close collaboration between the wealth manager and the client to define, plan for, and achieve financial objectives. Wealth managers work with clients to understand their financial goals, risk tolerance, and investment preferences, typically focusing on one or more of the interconnected processes listed above. They establish a complete picture of the client’s personal and financial circumstances including assets, liabilities, income, and expenses. In developing comprehensive financial plans, wealth managers are supported by tax advisory, estate planning, wealth transfer, and multigenerational planning expertise.

The primary objective of private wealth managers is to maximize after-tax wealth while considering the client’s goals, risk tolerance, and portfolio constraints. Private wealth managers can add value in various ways, such as purchasing undervalued securities, selling overpriced securities, and improving asset allocations. Efficient tax management is essential, as taxes can significantly impact net performance for the taxable investor. Tax rates, especially for HNWIs, can greatly influence returns and typically have a more substantial effect than portfolio management costs. Moreover, private wealth managers can offer retirement strategies, charitable giving and philanthropic advising, and client education on various financial matters when needed. This underscores the comprehensive approach to private wealth management.

This reading presents a framework for private wealth management based on a life-cycle view of human capital. Section 1 introduces the concept of wealth in a global context. Section 2 discusses the life-cycle view of human capital and its influence on investment decision making. Section 3 examines individual investors’ return and risk considerations, including their objectives and constraints. Section 4 addresses the impact of taxation and inflation on investment decision making. Finally, Section 5 concludes the reading by exploring the unique features of individual investors, their investment plans, and investment policy statements.