Wealth management is the one of the oldest and most important parts of the financial industry globally. Wealth includes the management of assets for capital protection and appreciation, and is a hugely well-developed market with global implications. The Netherlands and Western Europe is one of the most thoroughly developed and ‘well-banked’ wealth markets globally, with a plethora of large and small firms competing to provide excellent service and value to their clients. Knowing who to choose requires an understanding of the overall market, and the different client segments that you can fall under.
An overview of the market
The main investment houses and private banks categorise the wealth market into several layers. At the top are the private banking clients, UHNWI and HNWI with vast portfolios. These individuals are often based in multiple countries, though in some areas they tend to be more nationally focused. These are the most valuable wealth management clients, and their account sizes can be upwards of $30 million, usually receiving personalised, immediate advice from a trusted advisor. Geographically, they are concentrated in Europe and America, though they also exist in Russia, China, the Middle East and increasingly are based worldwide.
Next are the affluent, people with perhaps up to 5 or 10 million at their disposal. These are more evenly distributed worldwide, though they are more common in more developed markets, and tend to be less international in their focus. They are sometimes serviced by private banks or by stock brokers, and like the UHNWI are interested in capital protection and accumulation. They will often also have personal advisors, though their advisors will have more clients and structures like family offices are rare.
Next comes the fastest growing segment, the emerging affluent. These have fewer assets, perhaps half a million or even less, and normally do not have a dedicated banker or broker. Because this group are likely to join the ranks of the other two in future years, and because they are relatively untapped by wealth managers, it is here that competition and innovation are fiercest. Automated strategies such as Wealthcare from Saxo Bank NL are commonly used here, as the lower cost involves allows them to benefit from wealth management services without paying the high fees associated with a dedicated advisor or banker.
Finally, we have retail clients. These clients are the most numerous, and normally use collective investment vehicles like mutual funds or ETFs to access the markets. These funds are popular with all types of client, but for retail clients they are really the bread and butter for their overall investment strategy. Retail clients will typically have the least customisable level of service, perhaps using an online platform or speaking to a switchboard when they have questions.
What sort of things are included?
Wealth management can include almost any activity, but the main ones are below:
Investment: Managing a portfolio for capital accumulation or to earn income. Strategies can range from the algorithmic through to the manual, and will vary based on the needs of the investor. This is the most important thing for the average wealth management client.
Estate planning: Wealthy families often struggle with managing the succession and questions around inheritance. Wealth managers are skilled at dealing with the legal, financial and social sides of these questions.
Tax planning: In most countries, income taxes for the wealth represent a large chunk of their overall income. Operating within the law, but with an aim to minimise tax commitments, tax planning is an effective but controversial way of building and protecting wealth over generations.
Market trading: In addition to long term investment portfolios, many wealth management firms will come up with short-term trading ideas. Some private banks will give direct access to trading desks who can execute trades immediately, and some will provide trade recommendations on a regular basis. Be sure you know what you’re getting into here, as there is a strong potential for both gains and losses.
Investors need to know about the wealth management market before they jump in. Your choice of bank or broker shouldn’t be random, and it is important to understand what segment you fall into. The Netherlands has a well-developed wealth management marketplace, but the overall landscape can be confusing for beginners. Take your time to understand the different types of account on offer, and if you have any questions, speak to a trusted financial advisor.