Topic 1: PWM Industry Today Flashcards
Why is PWM a separate field of study
–Tax
–Super
–All asset classes
–Insurance
–Estate planning
–Long investment horizon & longevity
–Emotional issues
–If get it wrong - stakes are high. Could be financially devastating
- complexity from wide number of areas on which to advise
- pay is fairly good, once established, could be job for life
- investors are becoming more sophisticated - need sophisticated advice
Why do firms want to be in the PWM industry
•Profits from advisers vs. from products sell
–IPOs and secondaries (ie supports banking side of business)
–Funds and platforms (ie sales force)
–Derivatives based products
•Floating a private business
–good for everyone
* stable stream of profits once established; lowers balance sheet risk
* poor returns on capital invested after deducting pmts to advisers
* cross sell (eg asset management products etc)
Players in PWM
- Brokers andInvestment Banks (full service - offers research)
- Discount brokers
- Financial planners (bank or not) (produce a financial plan)
- Wealth advisors (offers advice on investments, but often avoids other areas of financial planning)
- Private Bankers (secrecy, large fees)
- Family Offices (generally HNW, often started by servicing one family, then branched out)
- Product and service providers to all of the above
What makes a good PWM adviser
•Personable •Money focussed •Good at sales, good on phone •An interest in markets •Pride in appearance •Persistent yet impatient Generally not team players
Is PWm just for the wealthy
- Yes - people must have wealth to manage; and only these people have the revenue to attract PWM firms
- However - almost all individuals in society require advice (provide for retirement, budgeting, basic financial literacy etc). Role falls to individual more so than state, (pensions?)
Financial planners include a financial plan, comprising: (6)
- Cash flow planning
- Tax & retirement account advice (eg super)
- Asset allocation & investments
- Social security advice
- Insurance
- Estate planning
PWM strategies to avoid advisers leaving
- General mgmt. techniques to allow advisers to be heard (egos, bonuses, titles etc)
- marketing directly to clients - build brand loyalty
- Get advisers to work in teams (better level of service; better business model for advisers (eg lifestyle balance), spread costs across a number of advisers
Adviser ownership of clients
- hard to manage for firm, could lose entire team
- for adviser consider: loss of clients moving to a new firm; costs of running office; ensure adequate capital to run the firm; think like an entrepreneur
GFC implications
- people still want to protect and grow wealth
- clients are now more cynical about what is on offer
- difficult for clients to know whether wealth adviser is offering value
- structured products not necessarily in clients best interests
- inertia
- PWM businesses attached to banks have incentives to sell in house product - leads to distrust, though some services come only via the banks (IPOs etc)
- can take years to win ultra net worth business
Regulatory issues
Public Policy issue
- remuneration (brokerage, commissions, fee for service, flat fees)
- Public policy: retirement, living longer, lower birth rates
- unprecedented wealth cration due to free markets & democracy
- relative political stability (collapse Soviet union, opening of China / Vietnam)
- Technological innovation aware (telecoms, computers etc)
- Technological innovation unaware(medical advances, public health, food production)
Singapore CPF Scheme
Australian compulsory super
Singapore CPF:
- provide min level of retirement support
Australia
- compulsory super. Currently 9.5%
government policy to aid retirement (ie reduce burden on govt)
- greater investor protections - eg ban certain products for private investors
- pressure on fees (as these erode returns. Commissions banned from 1/7/13; though grandfathering exists, commissions on life insurance remain
- Index funds vs active mgmt. (after fees)
- Longevity risk. Pension, annuities, reverse mortgages
