Private wealth management (PWM) involves the management of the assets of high net worth individuals (HNWI) or accredited investors. Private wealth management firms have established close working relationships with high net worth clients to understand their financial needs and help them build investment portfolios that can meet their clients' financial goals. They offer a range of services, including portfolio management, real estate planning, mortgage planning, asset protection, tax management, and other financial services. Private wealth management services are provided by large corporations, independent financial advisers and portfolio managers who specialize in working with high net worth private clients.
Major US financial institutions such as JP Morgan and Goldman Sachs have dedicated private wealth management business departments, with investment experts and client advisors to meet the needs of high net worth individuals. Since the rich lack the time and knowledge to effectively manage their wealth, they will negotiate with private wealth managers who have extensive experience in managing private finances. The manager designs investment strategies and offers investment products consistent with the client's financial objectives and risk tolerance. Most clients work with a wealth management agency that obtains the advice of the client's lawyers, accountants and insurance agents. Functions of private asset management
Private wealth management companies will use their expertise in various fields to help the wealthy manage their wealth effectively. Here are some of the services provided by private wealth management:
# 1 Generate income
The first task of a private wealth management company is to create new income and increase the current wealth of its clients. With inflation and the growing number of high net worth individuals, the goal of clients is to stay ahead and increase their purchasing power. With rich investment experience, wealth managers must use a variety of investment techniques which can generate additional income each year. They can help their clients invest in hedge funds and private equity funds, which may not be available to less well-off people. Sometimes they will absorb the opinions of other investment experts, such as client lawyers and other consultants, to help them make informed decisions.
# 2 Asset protection and capital preservation
Private wealth management includes protecting clients' assets against litigation, government authorities or other threats. High net worth clients are sometimes sued for a variety of reasons, including inheritance, marital issues, and property disputes. If they lose, they may be forced to compensate the other party. Wealth management institutions need to be ahead of their competitors and find a way to resolve disputes by preventing litigation from arising or through a favorable out-of-court settlement. They can also transfer part of their clients' wealth to offshore banks to avoid taxes. Managers can advise clients on how to set up trusts and foundations and how to manage donations.
# 3 Tax management
Wealthy people will work hard to pay the taxes necessary to maintain the good relationship with Uncle Sam. As there are often multiple sources of taxable income, clients want to choose the most efficient tax plan to save money while at the same time complying with the regulations of the competent authorities. Small differences in taxation can lead to huge differences in after-tax income, and private wealth management institutions that understand tax regulations can help clients choose the most favorable tax mix. If the client owns inherited property or has transferred part of their property to other family members, the private wealth management agency can also provide advice on inheritance rights.
How private wealth management companies work？
Most private wealth management groups represent only a small portion of large financial institutions, aiming to provide individuals with specialized wealth management. They sell proprietary and non-proprietary investment products and services to high net worth individuals to help them develop assets and provide services to future generations. The private wealth management section usually consists of various experts who can advise you on different types of investments (such as hedge funds, money markets, private equity and other types of investments). Independent wealth management agencies use their expertise in risk management, taxation and real estate planning to manage the wealth of their wealthy individuals.
A large percentage of private wealth management companies charge clients a certain percentage of assets under management. Unlike commission-based payment methods, paid payment methods can reduce conflicts of interest and have better performance potential. Payments based on commissions can lead private managers to recommend investment products and services that will earn them high commissions, but have little potential to increase client wealth. However, fee-based payments allow wealth management institutions to choose investment portfolios with high profitability, thereby increasing the wealth of their clients.
High net worth individuals may also consider opening a family office to provide more personalized investment methods. The family office can be a single-family office or a multi-family office. A single-family office provides support to a wealthy family, while a multi-family office can provide services to several wealthy individuals and families. Multi-family offices are more common than single family offices because they allow the sharing of investment and advisory costs.