1 Module 1 | Introduction to Wealth Management

2 Module 1 | Introduction to Wealth Management

I. PROGRAM OUTCOMES:
By the time of graduation, the students of the program shall be able to:

1. Articulate and discuss the latest developments in the specific field of practice.
2. Effectively communicate orally and in writing using both English and Filipino
3. Work effectively and independently in multi-disciplinary and multi-cultural teams.
4. Act in recognition of professional, social, and ethical responsibility.
5. Preserve and promote "Filipino historical and cultural heritage".
6. Perform the basic functions of management such as planning, organizing, staffing, directing and
controlling.
7. Apply the basic concepts that underlie each of the functional areas of business (marketing, finance,
human resource management, production and operations management, information technology, and
strategic management) and employ these concepts in various business situations.
8. Select the proper decision making tools to critically, analytically and creatively solve problems and
drive results.
9. Express oneself clearly and communicate effectively with stakeholders both in oral and written forms.
10. Apply information and communication technology (ICT) skills as required by the business
environment.
11. Work effectively with other stakeholders and manage conflict in the workplace.
12. Plan and implement business related activities.
13. Demonstrate corporate citizenship and social responsibility.
14. Exercise high personal moral and ethical standards.
15. Analyse the business environment for strategic direction.
16. Prepare operational plans.
17. Innovate business ideas based on emerging industry.
18. Manage a strategic business unit for economic sustainability.
19. Conduct business research.
20. To participate in various types of employment, development activities, and public discourse particularly
in response to the needs of the communities one serves.

II. COURSE TITLE

SPECIAL TOPIC IN FINANCIAL MANAGEMENT: WEALTH MANAGEMENT (FINMA 7)

III. COURSE DESCRIPTION

Wealth Management introduces the financial advisory concepts, principles, and processes utilized by
Relationship Managers (RMs) in today’s large Private Banking institutions. Emphasis is placed upon the
basic relationship management skills as well as the fundamental skills needed in financial advisory such as
investment math, basic economics, risk management and basic financial statement construction (e.g.,
balance sheet, income statement and cash flow statement construction and analysis). The ultimate goal is to
allow students to effectively give financial advice with the end goal of increasing the wealth within pre-
determined risk parameters.
3 Module 1 | Introduction to Wealth Management

IV. COURSE LEARNING OUTCOMES

At the end of the course, the students must be able to:
1. discuss the different theories associated with wealth management;
2. analyze the concepts to be applied the field of wealth management; and
3. apply the concepts of financial advisory.

INTRODUCTION

This module was designed and written to acquaint you with financial advisory concepts, principles,
and processes utilized by Relationship Managers (RMs) in today’s large Private Banking institutions.

This module is composed on one lesson that introduces you what is wealth management and how
relevant it is in today’s business environment.

MODULE LEARNING OUTCOME

In this module, you should be able to:

1. understand what is wealth management concept;
2. differentiate wealth management and asset management; and
3. explain the various ways in finding a wealth manager.

Lesson 1: Wealth Management

SPECIFIC LEARNING OUTCOMES

In this lesson, you are expected to:
1. define wealth management;
2. discuss the qualifications of a wealth manager; and
3. explain the current trends in wealth management.

PRE-ASSESSMENT
Instruction: Read each question carefully then determine whether the statement is TRUE or
FALSE.
_______1. Asset Managers may be able to leverage a wide range of financial products and services
to address a specific set of requirements. FALSE

_______2. If you don’t have a high net worth, you likely don’t need a wealth manager. TRUE

_______3. Financial advisor can help you manage your money once you’ve already achieved a high
net worth. FALSE

_______4. Many wealth managers can provide services in any aspect of the financial field, but some
choose to specialize in particular areas. TRUE

_______5. For financial advisors, breaking into wealth management is a lucrative career move. TRUE
4 Module 1 | Introduction to Wealth Management

_______6. The more clients a wealth advisor has, the lesser the commissions he get. FALSE

_______7. Wealth managers are often expected to execute the buying and selling of stocks, bonds,
and other investments. TRUE

_______8. Many people choose to work with a private wealth manager who can offer highly
personalized services. TRUE

_______9. Big data can help financial advisors achieve deep insight into the products and services
they offer. FALSE

_______10. Advisors need to leverage technological approaches to develop offerings that meet
changing customer demands by maximizing the value of customer data. TRUE

LESSON MAP

Wealth
Management

Understanding Wealth Trends in

Wealth Manager Wealth
Management Qualifications Management

The map above shows the major topics to be discussed in this module.

CORE CONTENTS

ENGAGE: PICTURE ANALYSIS

Activity 1:
INSTRUCTIONS: Observe the photos below.
5 Module 1 | Introduction to Wealth Management

1. What is being implied in the picture?

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EXPLORE: READING CONCEPTS

Activity 2
INSTRUCTIONS: Read each concept closely. Spaces are provided for note-taking and reflection.

WHAT IS WEALTH MANAGEMENT?

• It is a special kind of financial advisory service for accredited investors and other people with high net
worth. Wealth managers provide advice about investing, estate planning, taxes, and anything else
that could help grow a client's wealth.
• Provides solutions to a wide array of clients ranging from affluent to high-net-worth (HNW) and ultra-
high-net-worth (UHNW) individuals and families.
• It is a discipline which incorporates structuring and planning wealth to assist in growing, preserving
and protecting wealth, whilst passing it onto the family in a tax-efficient manner and in accordance
with their wishes.
• Brings together tax planning, wealth protection, estate planning, succession planning and family
governance.
• Wealth managers may be able to leverage a wide range of financial products and services to
address a specific set of requirements. Though clients pay a special wealth management fee, they
receive customized strategies designed specifically with their finances in mind.
• Services offered by wealth managers may include, but are not limited to:
o Investment management and advice, including retirement planning
o Legal and estate planning
o Accounting and tax services
o Examination of health care and social security benefits
o Charitable giving plans
o Help with starting or selling a business

• If you don’t have a high net worth, you likely don’t need a wealth manager. You may instead prefer to
pay for a financial or investment advisor who can help you create a strategy to accumulate money
over time.
• A financial advisor may be able to help you grow your wealth, while a wealth manager can help you
manage your money once you’ve already achieved a high net worth.
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UNDERSTANDING WEALTH MANAGEMENT

Wealth management is more than just investment advice: It can encompass all parts of a person's
financial life. Instead of attempting to integrate pieces of advice and various products from multiple
professionals, high net worth individuals are more likely to benefit from a holistic approach.

• A single manager coordinates all services needed to manage their money and plan for their own or
their family's current and future needs.
• Many wealth managers can provide services in any aspect of the financial field, but some choose to
specialize in particular areas. This may be based on the expertise of a specific wealth manager, or
the primary focus of the business within which the wealth manager operates.
• In certain instances, a wealth management advisor may have to coordinate input from outside
financial experts as well as the client's own service professionals (for example, an attorney or
accountant) to craft the optimal strategy to benefit the client.
• Some wealth managers also provide banking services or advice on philanthropic activities.
• A wealth management advisor needs affluent individuals, but not all affluent individuals need a
wealth management advisor. This service is usually appropriate for wealthy individuals with a broad
array of diverse needs.
• Like most financial advisors, wealth managers earn their income by taking a percentage of the
assets they manage. These fees can vary between firms—and even across different types of
accounts within the same firm. In general, you could expect to see fees start around 1% of assets
under management.
• Wealth managers will often compete for “big fish” clients with the highest net worth.
• As a result, they may charge a lower percentage fee if you have a higher net worth.
• The more assets under management, the more fees they pull in—even if they're charging a lower fee
in terms of percentage.
• For financial advisors, breaking into wealth management is a lucrative career move. Consider that if a
wealth manager were to charge a fee of just 0.50% to a client with 1 billion in their portfolio, they
would earn 500,000 in commissions that year from that one client.
• The more clients a wealth advisor has, the more those commissions add up.

WEALTH MANAGER QUALIFICATIONS

There is no official standard of qualifications to become a wealth manager. However, there are
educational and career backgrounds that you're likely to find among wealth managers.
Though not necessarily a requirement, most wealth managers are likely to have a college degree, often in a
field such as finance, accounting, mathematics, or economics.

Many wealth managers may even have master’s degrees, law degrees, or other related certifications.
It may also be wise for them to be a Securities and Exchange Commission Certified and a Registered
Financial Planner (CFA).
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Wealth managers are often expected to execute the buying and selling of stocks, bonds, and other
investments. Because of this, they are usually required to pass the a series of examination that may be
required by the client.

HOW TO FIND WEALTH MANAGERS

If you need a wealth manager, there are many options, so shop around and find one that best suits
your needs and preferences. Many people choose to work with a private wealth manager who can offer
highly personalized services.

Others may choose to work with the wealth management divisions of large financial institutions.
These services are less personalized, but they can leverage greater amounts of capital by pooling the
resources of many wealthy individuals.

Most big banks have wealth management divisions.

WEALTH MANAGEMENT VS. ASSET MANAGEMENT

Wealth Management Asset Management

• More broadly focused than asset • More narrowly focused than wealth management
management • Concerns assets like stocks, bonds, real estate,
• Concerns assets, taxes, trusts, and more and cash
• For individuals or families • Can apply to individuals, businesses, or any other
• Reserved exclusively for those with high net entity
worth • Is available in some form for everyone

Wealth management is similar to asset management, but wealth management is generally a much
broader practice. The difference is clear when you think about the two terms.

• "Asset management" concerns assets, including cash, stocks, bonds, and real estate.
• "Wealth management" concerns all aspects of wealth—including tax issues, business ownership, and
legacy issues that will affect your family for generations.
• Asset management is also more widely available.
• Wealth management is reserved for those with high net worth.
• Asset management, on the other hand, can be used by anyone. Even businesses can make use of
asset management—ensuring that company assets are being used in the most efficient way possible.
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TOP 10 TRENDS IN WEALTH MANAGEMENT

Wealth management firms must remain on top of current trends if they are to capitalize on market
opportunities. The change in investor demographics is one of the most significant changes in this market in
recent years.

For example, current investors are aging and being replaced by Millennial, who often have very
different ideas about what to do with their money. Furthermore, women are increasingly likely to make a
family’s financial decisions based on new investment models.

Technology is another area where wealth managers need to remain competitive. Big data can help
them achieve deep insight into the products and services they should offer, providing greater value for their
clients.
Artificial intelligence (AI) can also drive the development of new applications that can dramatically
improve operational efficiency for both the front and back office. The following ten trends describe some of
the most significant changes occurring in wealth management during 2019.

1. Debiasing Techniques

The profits of wealth management funds are slipping, making it challenging to retain clients who are
switching to passive index funds. Fund managers are responding by using machine learning to identify
cognitive biases and suggest corrective measures.

These techniques can analyze a broad range of data to show where emotions drive investment
decisions, triggering alerts to the manager. Debiasing techniques will help fund managers develop long-term
winning strategies based on reason rather than one-time wins resulting from their intuition.

This strategic shift will increase profits and improve the value of actively managed funds for investors.

2. Digital Channels

“The latest generation of high-net-worth (HNW) clients is increasingly likely to consider digital
channels for managing their wealth.” says Brett Henderson of Henderson Wealth Management in El
Segundo, CA. “Wealth management firms already have access to customer data, but they often lack the
tools needed to obtain insights from this data. This will be critical moving forward.”

Advisors need to leverage technological approaches to develop offerings that meet changing
customer demands by maximizing the value of customer data. Many firms are starting to use predictive
analytics to develop value propositions targeted at each customer.
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This strategy should include the study of unstructured data, such as investor preferences, lifetime
values, and investment history to predict future client behaviour. These forecasts can facilitate the process of
up-selling and cross-selling new products to investors.
The use of digital channels for wealth management will increase customer loyalty as data analytics
increase returns on investment (ROI) for investors. Wealth managers will also be able to deliver the
personalized offerings that today’s investors expect by obtaining a complete view of the customer.

3. Agile Distribution Models

The adoption of agile distribution models is making offerings from wealth management firms more
responsive to customer needs. These firms are currently shifting their focus from products to customer
service during a period of increasingly strict regulatory environments.

These changes will require an investment in agile technology to achieve a rapid response to market
changes that clients currently expect. This technology will also aid firms in providing personalized services for
their clients.

Wealth management firms have been historically slow to transition from legacy infrastructure to micro
services that would allow them to deploy new capabilities quickly. However, they’re now using agile models
to cross-sell and up-sell additional services to clients.

Agile distribution models will provide firms with greater access to new clients, especially younger
investors who are more eager to adopt digital technology. The use of currently available data will also enable
the development of services that reduce client attrition and improve client engagement.

Additionally, agile distribution will allow wealth management firms to meet new demands from clients
more proactively.

4. Augmented Reality and Virtual Reality

Augmented reality (AR) and virtual reality (VR) help wealth management firms make managed
investments more intuitive for clients, especially Millennial. The adoption rate of these technologies should
increase as advisors become more familiar with their capabilities with respect to financial services.

AR and VR are also useful tools for engaging clients through gamification, which uses elements of
game-playing to influence client behaviour. HNW investors are looking for more innovative ways to interact
with wealth managers as they become more technologically savvy.

Managers can’t afford to lag behind retail bankers in this area because these clients are seeking
digital experiences in all parts of their lives. Attracting and educating Millennial on the benefits of managed
investments is another driving factor for the increased use of AR and VR in wealth management.
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Self-help channels can make extensive use of these technologies, allowing investors to understand
their market better and help them maximize their returns. Virtual trading can also help train advisors on client
interactions, helping them understand their clients’ needs more effectively.

5. Reducing Compliance Costs

Technology is simplifying the reporting process needed for regulatory compliance in wealth
management. Frequent changes across multiple jurisdictions are driving these firms to leverage solutions
that streamline their operations and reduce their costs.

Thus, partnerships with solution providers will become essential for allowing firms to respond quickly
to changes in the regulatory landscape. New regulations on data privacy include the Fiduciary Rule in the
United States and the General Data Protection Regulation (GDPR) in Europe.

These regulations have increased the need for data governance. They are also driving firms to seek
technological solutions to compliance requirements, especially their approach to managing liquidity risk.

Regulatory solutions will reduce the capital investment that wealth management firms need to make
when responding to regulatory changes. They will also automate many reporting tasks that many firms
currently perform manually.

6. IoT

The Internet of Things (IoT) is allowing wealth management firms to find new ways of using client
data. The trend towards automated portfolio management requires IoT to collect the data needed to
customize services and products for each client.

These non-traditional sources of data will help firms assess their clients’ financial needs in a less
intrusive manner. They will also provide clients with greater insight into their lifestyle, allowing them to
understand their potential for future savings more quickly.

IoT devices can capture real-time data, such as saving and spending habits that can be analyzed to
determine a client’s tolerance for risk. This capability will ensure the offers clients receive during on boarding
are more relevant.

It allows firms to provide greater personalization for each client. The proliferation of IoT devices also
helps firms profile clients more effectively using intuitive interfaces.
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7. Technological Investments

Many wealth management firms are reassessing their investments in technology after a period of
minimal returns. The frequency of these evaluations will increase as new technologies become obsolete
more quickly, often within three to five years.

Significant differences in implementation between firms also make standardization difficult in many
cases, further limiting the ROI of many new technologies. Additionally, many wealthy clients prefer a
balanced approach between technology and human advisors.

Remaining competitive in this environment requires wealth management firms to strategically align
the technological investments to business requirements. This will reduce the risks of implementing new
technology.

This trend also means that firms should begin collaborating with providers of financial technology to
address problems resulting from legacy infrastructure. These new tools should help advisors engage clients
more effectively at a lower cost.

8. Virtual Tools

Wealth advisors have traditionally allocated their resources to clients based on the assets of each
client. However, this approach may not be the most efficient when using technologies that reduce the need
for direct interactions with clients.

For example, virtual tools can provide established clients with regular reports on the performance of
their assets, allowing advisors to focus on gaining new clients. Thus, the use of these tools to automate client
interactions helps relieve the current cost pressure for wealth management firms.

Virtual tools can also improve customer relationships by helping firms shift from Customer
Relationship Management (CRM) to Customer Interaction Management (CIM), which focuses on the
interaction between advisor and client. Smart assistants can understand clients’ questions, make detailed
responses, and sell products.

Whispering agents can help advisors by suggesting dialogue to engage the client better. This
capability is especially important in the mass wealth market, where advisors need to scale their operations
quickly while still providing personalized services.

Virtual tools will drive the engagement of clients through Omni channel digital marketing. They will
also reduce operational costs by automating functions, especially those related to regulatory compliance.
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Additional benefits of virtual tools include driving behavioural changes in investors by helping them
make data-driven decisions.

9. Streamlining Client On boarding

Wealth management firms are using technology to streamline client on boarding, which can be
particularly time-consuming in this industry. For example, businesses in the financial services sector must
make numerous Know Your Customer (KYC) checks during on boarding to meet regulatory requirements.

The increasing reliance on managers to grow a firm’s business also increases the time needed to on-
board new customers. Manual on boarding can take months, much of it due to the duplication of effort
between middle and back offices that aren’t well integrated. The attrition rate of managers also contributes to
a lengthy on boarding process.

Financial technology can provide clients with a more seamless on boarding experience, often by
immediately providing them with a smaller version of the firm’s permanent investment platform. This offering
appeals to investors who require few advisory services and simply want to begin using the platform to make
investments. Technology can also automate much of the data entry that consumes a manager’s time during
on boarding.

Streamlined on boarding increases customer satisfaction and allows managers to be more

transparent with their processes, which reinforces investor trust. It also improves advisor retention by
reducing their learning curve for on boarding new clients.

10. Adoption of Open APIs

The trend toward open banking during the current period of low interest rates is squeezing profit
margins, driving wealth management firms to seek additional revenue streams. Many of these firms are
exploring partnerships with third parties that can develop and deploy application programming interfaces
(APIs) more quickly than in-house efforts.

Innovation in this area has been historically slow, despite the desire for more digital experiences from
the latest generation of investors. Newcomers to the financial services sector are responding to this need
with investment products for mass-affluent clients at low rates, making it essential for established wealth
management firms to follow suit.

This growing competition is resulting in client attrition, making traditional business models
unsustainable in the long term. Banking-as-a-Platform is a solution to this problem, which provides benefits
for both wealth management firms and API developers.
13 Module 1 | Introduction to Wealth Management

For example, wealth managers gain access to the new API, which offers faster deployment and more
considerable data expertise. APIs also provide the developer a customer base, domain knowledge, and
regulatory knowledge.

The lower cost of innovative APIs will aid firms in retaining their existing clients and attracting new
prospects. The improved service deployment that APIs provide will also enable an Omni channel experience
for clients and create new revenue streams.

Additionally, partnerships with financial technology providers will help wealth management firms adopt
an automatic-processing culture.

EXPLAIN: GOING DEEPER WITH WEALTH MANAGEMENT

Activity 3
INSTRUCTIONS: Answer the following questions below.

1. Define wealth management.

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2. Differentiate wealth manager vs. financial advisor.

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3. Identify five means/ways where a businessman or a company can find a wealth manager
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TOPIC SUMMARY

In this lesson, you have learned that …

• Wealth management is an investment advisory service that combines other financial services to
address the needs of affluent clients.
14 Module 1 | Introduction to Wealth Management

• A wealth management advisor is a high-level professional who manages an affluent client's wealth
holistically for one set fee.
• This service is usually appropriate for wealthy individuals with a broad array of diverse needs.
• Wealth managers will often compete for “big fish” clients with the highest net worth.
• Most big banks have wealth management divisions.
• Wealth management is a special kind of financial advisory service that's only offered to individuals
with high net worth.
• Millionaires and billionaires are the most likely to need the services of a wealth manager.
• Wealth management can help individuals make decisions related to investing, retirement and estate
planning, taxes, accounting, and much more.
• Wealth managers usually earn money by charging a commission based on a percentage of the
assets they manage.

REFERENCES

• Wikipedia. Retrieved from https://en.wikipedia.org/wiki/Wealth_management. Retrieved on March

4, 2021
• Author: Tim Lemke. Updated September 17, 2020. Retrieved from
https://www.thebalance.com/wealth-management-4772460. Retrieved on March 4, 2021.
• Author: Jeremiah Desmarais. Retrieved from https://www.nasdaq.com/articles/top-10-trends-in-
wealth-management-2020-01-31. Retrieved on March 6, 2021.