In my other article, it was mentioned that there is a promising business opportunity in the field of wealth management. The fact that most large banks hold this type of service is just too obvious to miss. But how exactly do we conduct business in wealth management? What are the fees for the service? What are the revenue drivers? Well, the list can go on, but let's take a tour on how wealth management business can form itself.
Market Segmentation
Being different than regular financial planning service, wealth management is exclusive. It is designed to meet the demand for private banking, where on this segment the package offered is very limited in a sense of promotion to potential consumers and highly comprehensive. Why so serious? Well since we are dealing with the riches, the high net worth people, we also require all the resources needed to deliver the highest quality of service, not to mention the complexities of wealth management nature, which deals up to wealth transition through generations. Now this puts so much resources that wealth management business practitioners need to comply. And that means high price to pay.
Business Model
Wealth management service sells financial planning and personal + private banking services. Those are the core activities. If one wants to add one more relevant aspect, that can be wealth transition, which deals a lot with managing inheritance. But the main items in conducting wealth management, as mentioned in my wealth management article, are wealth accumulation and protection. But how do we put that in concrete operation?
Well, we first focus on wealth accumulation. We conduct the following phases: develop client's investment objectives (this may include the whole wealth plan up to retirement and children education and succession), set strategies (this includes allocating assets), submit investment proposal to the client, and making a continuous review for every investment progress up to the end of contract. Oh, yes. It's a contract-based service.
If we want to summarize the assessment process of a specific client, we can follow these list:
1. how we can maintain client's income and liquidity,
2. how we can manage tax well and protect client's wealth,
3. how we can manage to maintain client's lifestyle quality, and
4. how we should manage client's legacy.
After meeting each of the points above, we are ready to put the answers into strategy development. But after all those efforts, how do we get revenue?
Wealth Management Service Revenue
Of course from fees for the services we perform as a wealth manager. To be specific, we can at least receive a certain percentage for our wealth managing service. And since the service lasts for quite a long time, both the wealth manager and client can come to an agreement on fee payment, will it be annually paid, or per semester doesn't matter. The most important thing is the agreement. Stick to that.
The revenue model above is fair enough. But we can add an additional revenue besides this core service fee, especially if we an independent wealth management practitioner. Channeling fees! Of course as an independent wealth management practitioners we can choose whatever or whichever financial vehicles that matches our strategy formula, unlike banks which always have the propensity to promote its own financial products.
For instance, if we want to have a specific type of insurance with competitive premium, we can simply access the insurance market where we can find plenty of alternatives to choose from, be it general insurance, health care plans, or life insurance. Or if we need money market products, we have the liberty to make a beauty contest to choose which banks provide the most interesting and competitive offer. This scheme can also be applied for various alternative investments, like property, jewelry, or paintings. The good thing about this whole independent thing is that we can provide buyers for banks, insurance agencies, property agencies, artists and so on. And as a common practice in channel marketing, we are eligible to receive a certain fee that is subject to agreement made with the sellers. Another revenue comes, and this type of revenue can be recurring items if in conducting wealth managing we implement some short term strategies where we can regularly find new vehicles to allocate and reallocate some part of the portfolio fund. Brilliant isn't it?
Well, this is supposedly how wealth management business model goes. Of course variations are very much possible, so long as they are in line with decent strategy and ethics. Later on, I'll try to post some other aspects in finance and investments. They are simply interesting :).
(Images sources: mirageglobal.files.wordpress.com and www.wnrs.com).
Market Segmentation
Being different than regular financial planning service, wealth management is exclusive. It is designed to meet the demand for private banking, where on this segment the package offered is very limited in a sense of promotion to potential consumers and highly comprehensive. Why so serious? Well since we are dealing with the riches, the high net worth people, we also require all the resources needed to deliver the highest quality of service, not to mention the complexities of wealth management nature, which deals up to wealth transition through generations. Now this puts so much resources that wealth management business practitioners need to comply. And that means high price to pay.
Business Model
Wealth management service sells financial planning and personal + private banking services. Those are the core activities. If one wants to add one more relevant aspect, that can be wealth transition, which deals a lot with managing inheritance. But the main items in conducting wealth management, as mentioned in my wealth management article, are wealth accumulation and protection. But how do we put that in concrete operation?
Well, we first focus on wealth accumulation. We conduct the following phases: develop client's investment objectives (this may include the whole wealth plan up to retirement and children education and succession), set strategies (this includes allocating assets), submit investment proposal to the client, and making a continuous review for every investment progress up to the end of contract. Oh, yes. It's a contract-based service.
If we want to summarize the assessment process of a specific client, we can follow these list:
1. how we can maintain client's income and liquidity,
2. how we can manage tax well and protect client's wealth,
3. how we can manage to maintain client's lifestyle quality, and
4. how we should manage client's legacy.
After meeting each of the points above, we are ready to put the answers into strategy development. But after all those efforts, how do we get revenue?
Wealth Management Service Revenue
Of course from fees for the services we perform as a wealth manager. To be specific, we can at least receive a certain percentage for our wealth managing service. And since the service lasts for quite a long time, both the wealth manager and client can come to an agreement on fee payment, will it be annually paid, or per semester doesn't matter. The most important thing is the agreement. Stick to that.
The revenue model above is fair enough. But we can add an additional revenue besides this core service fee, especially if we an independent wealth management practitioner. Channeling fees! Of course as an independent wealth management practitioners we can choose whatever or whichever financial vehicles that matches our strategy formula, unlike banks which always have the propensity to promote its own financial products.
For instance, if we want to have a specific type of insurance with competitive premium, we can simply access the insurance market where we can find plenty of alternatives to choose from, be it general insurance, health care plans, or life insurance. Or if we need money market products, we have the liberty to make a beauty contest to choose which banks provide the most interesting and competitive offer. This scheme can also be applied for various alternative investments, like property, jewelry, or paintings. The good thing about this whole independent thing is that we can provide buyers for banks, insurance agencies, property agencies, artists and so on. And as a common practice in channel marketing, we are eligible to receive a certain fee that is subject to agreement made with the sellers. Another revenue comes, and this type of revenue can be recurring items if in conducting wealth managing we implement some short term strategies where we can regularly find new vehicles to allocate and reallocate some part of the portfolio fund. Brilliant isn't it?
Well, this is supposedly how wealth management business model goes. Of course variations are very much possible, so long as they are in line with decent strategy and ethics. Later on, I'll try to post some other aspects in finance and investments. They are simply interesting :).
(Images sources: mirageglobal.files.wordpress.com and www.wnrs.com).
