Wealth management is the area of asset management devoted to customers that can devote high amounts to their choices of investments. Usually, many definitions are used to individuate the segment, like HNWI (high net worth investors), UHNWI (ultra-high net worth investors) and – more generally – Private Banking. One of the main reason for this interest, by the intermediaries’ point of view, is given by the fact that asset management does not request absorption of capital in a period in which banks are highly constrained in the field of loans risk coverage.

By the way, each competitor defines its perimeter in a different way, creating confusion with different amounts accepted and several compositions of asset under management (AUM). Asset planning is a multidisciplinary system of services aimed at the protection of wealth and transfer of assets. Services are adapted to the changing needs expressed by households, due to the different phases of the scenario and the succession of generations. The cyclicality of economic conditions – now those resulting from the Covid-19 pandemic effects – combined with the instability of geopolitical and legislative structures, has led to increasing attention to these issues.

For these reasons, large assets seek solutions capable of protecting and transferring the different forms of wealth safeguarding its consistency and profitability. The aim is to protect the wealth, not to create it. Edmond de Rothschild said once that his job was to help rich people to remain rich, not to create new ones! This second job is strictly linked to hazard, speculation and lotteries. On the contrary, the ability to embrace heritage in its entirety has characterized the core business of Family Offices (FO) and, by time, is also distinguishing the new Private Banking (PB) supply.

Both, drawing from the same customer base, have objectives that cannot be fully overlapped. FO is aimed at to larger and more heterogeneous assets than those intercepted by the PB. This because the first aggregates the financial assets held at the different depositors of customers and have the skill to coordinate together assets of different classes (insurance, real estate, precious goods, participation and others). In addition, they are not aimed at maximizing structures but to consolidate the entire heritage by monitoring, appreciating and coordinating instruments counterparties (banking and non-bank).

In order to justify the development of asset engineering services in the PB, it is necessary to observe the evolution of demands expressed by top customers served by it. According to “The XII Observatory on private customers in Italy in 2018″ a long-running trend”, the financial component of the portfolio would absorb less than half (47%) of wealth. Then, it follows the real estate component with 36%, while the remaining 17% is allocated in art, jewels and luxury goods. These numbers explain, at least in part, the reasons for the evolution that has affected the first model of PB, born focused exclusively on the financial component. The consolidation of this trend has imposed a sharp change to the PB industry. There was a need to expand the supply of and to put the emphasis on non-financial activities, embracing obviously within the limits of reserved activities (i.e. those activities that subordinate their exercise to the possession of particular ethical and technical-professional requirements and certification in registers), legal, tax, successor advice even that related to art and philanthropy.

The further motivation behind the development of non-financial value proposition is the gradual erosion of the margins of financial asset management. In fact, there has been an extension of the perimeter of the services that includes an increasingly financially advanced range of products, able to embrace even the non-financial component of family assets.

This transition – which someone identifies as the transition from the PB model to wealth management, has put at the centre the relational dynamics between banker and client and the ability to offer transversal skills that include non-financial asset classes. In this wake, some leading operators in the wealth management sector have created special divisions exclusively dedicated to asset engineering.

It should be emphasized that the need to achieve and maintain an income statement of these divisions has often led to the pursuit of a benefit of the divisions themselves, more than to the exclusive interest of the customer. In this context, FO is a right counterweight, able to protect the exclusive interest of families, avoiding the proliferation of solutions characterized by conflicts of interest and high levels of standardization, where product logic prevails over the service one.

A completely antithetical discourse must be made for the philosophy that governs wealth planning services (and not products) and FO facilities, whether they are single or multi-FO and wealth management have different multi-objectives.

The former is not concerned with financial intermediation, but with advice towards high added value on the entire heritage. All issues are embraced in this case, ensuring a unified vision characterized by discretion, competence and absence of conflict of interest. That is why, in the context of FO, is more correct to talk about tailor-made services, rather than products. There is no room for standardization or pre-packaged solutions and or, however, a commercial logic, but a more correct alignment between the interests of FO and those of the family under advisory.

The alignment of interests is evident in the different revenue formation logic that characterizes the two Models. PB revenues are generated by two elements: the money managed and the products sold (linked to the non-financial component of the assets). The revenues of a FO follow a different logic, which is extrinsic in the application of a percentage of consolidated assets. Safeguarding and increasing assets, thus become common interest, shared with the family. The more the wealth grows, the richer are the families and, at the same time, the more FO increases its revenues.

Abusing the meaning of the word, wealth planning activities are driven by a “holistic” vision of all disposable assets.

As a conclusion, for further attention, we can suggest a shortlist of business areas that can be involved in this field:

  1. Asset engineering
  2. Transfer of wealth
  3. Inter-vivos transmission
  4. Transmission mortis causa
  5. Tax aspects and comparison of different tax national regimes
  6. Cross-border successions
  7. Property regimes of national and international couples
  8. HNWI relocation processes
  9. Protection and transfer of companies
  10. Artistic heritages and Family Art Charts
  11. Philanthropy and charity and related legal instruments to implement initiatives.
  12. “After Us” treatment
  13. Family Pacts
  14. Holding companies and statutory clauses
  15. Simple partnership companies
  16. Trusts
  17. Fiduciary mandates
  18. Private insurances

Alternatives are really several and fair advice actually is needed!

by Giuseppe G. Santorsola
Full Professor of Asset Management
Corporate Finance and Corporate & Investment Banking
Parthenope University of Naples

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