Module 3: Asset Management Flashcards
Private Banking
Personalized financial and banking services that are traditionally offered to a bank’s rich, high net worth individuals (HNWIs). For wealth management purposes, HNWIs have accrued far more wealth than the average person, and therefore have the means to access a larger variety of conventional and alternative investments. Private banks aim to match such individuals with the most appropriate options.
In addition to providing exclusive investment-related advice, private banking goes beyond managing investments to address a client’s entire financial situation. Services include: protecting and growing assets in the present, providing specialized financing solutions, planning retirement and passing wealth on to future generations.
While an individual may be able to conduct some private banking with $50,000 or less in investable assets, some exclusive private banks only accept clients with at least $500,000 worth of investable assets. The rationale is that such high levels of wealth allow these individuals to participate in alternative investments such as hedge funds and real estate. Furthermore, this level of wealth often prevents liquidity problems.
Pension Fund
A fund established by an employer to facilitate and organize the investment of employees’ retirement funds contributed by the employer and employees. The pension fund is a common asset pool meant to generate stable growth over the long term, and provide pensions for employees when they reach the end of their working years and commence retirement.
Pension funds are commonly run by some sort of financial intermediary for the company and its employees, although some larger corporations operate their pension funds in-house. Pension funds control relatively large amounts of capital and represent the largest institutional investors in many nations.
Defined Benefit Plan
An employer-sponsored retirement plan where employee benefits are sorted out based on a formula using factors such as salary history and duration of employment. Investment risk and portfolio management are entirely under the control of the company. There are also restrictions on when and how you can withdraw these funds without penalties.
Also known as “qualified benefit plan” or “non-qualified benefit plan.”
This fund is different from many pension funds where payouts are somewhat dependent on the return of the invested funds. Therefore, employers will need to dip into the companies earnings in the event that the returns from the investments devoted to funding the employee’s retirement result in a funding shortfall. The payouts made to retiring employees participating in defined-benefit plans are determined by more personalized factors, like length of employment.
A tax-qualified benefit plan, shares the same characteristics of a defined-benefit plan, but also provides the beneficiary of the plan with added tax incentives. These tax incentives are not realized under non-qualified plans.
Chinese Wall
The ethical barrier between different divisions of a financial (or other) institution to avoid conflict of interest. A Chinese Wall is said to exist, for example, between the corporate-advisory area and the brokering department of a financial services firm to separate those giving corporate advice on takeovers from those advising clients about buying shares. The “wall” is thrown up to prevent leaks of corporate inside information, which could influence the advice given to clients making investments, and allow staff to take advantage of facts that are not yet known to the general public.
Maintaining client confidentiality is crucial to any firm, but particularly large multiservice businesses. Where firms are providing a wide range of services, clients must be able to trust that information about themselves will not be exploited for the benefit of other clients with different interests. And that means clients must be able to trust in Chinese Walls. Some Wall Street scandals in recent years, however, have made some people doubt the effectiveness of Chinese Walls, as well placed executives of respectable firms have traded illegally on inside information for their own benefit.
