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Wealth Management Advisory

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7 Factors to Consider Before Wealth Management Advisory Becomes Beneficial to Clients

The fee for Wealth Management Advisory services is about 1% – 2% annually.  If the stock market is going through a 3 years decline, losing 30% in the process, is it worthwhile to pay the fees?

If individual tax rate is at 30% and contributions to pension funds or investments could mean an effective reduction to 20%, would the client pay more fees?

What factors should a client consider before Wealth Management Advisory becomes beneficial?

 

No. 1 Tax Rate, Tax Savings and Tax Filing Process

Tax Accountant
Tax Accountant

It may seem wrong to start a Wealth Management plan on taxes. We put the odds in perspective:

Major Money Events Probability
Income Tax Payable Yearly Yes
Falling Sick very year Maybe
Having a critical illness every year Probably not
Guaranteed Economic Growth No
At least 1 Stock Market Surge every 10 Years: Maybe
At least 1 Recession every 10 Years: Maybe
At least 1 Depression every 50 Years: Maybe

 

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The only money event that is certain, and happens frequently enough, is taxation. Taxation is not a positive event, it depletes your clients’ existing cash and assets.  But it is a positive event for Wealth Managers who can advise on tax, as this means recurring annual revenue.

For example, many clients invest in United States stocks but would be subject to withholding taxes on certain types of dividends paid.  The withholding taxes also differ from countries to countries, depending on the agreed tax treaties.

Some tax factors to consider:

  • Is your client in a high or low tax jurisdiction?
  • Is tax policy & filing process complicated?
  • Is there tax incentives / deductions for investments?
  • Is there a major difference in corporate and personal income tax rate?
  • Are there frequent tax-related lawsuits?
  • Is there estate, inheritance or gift tax?
  • What is the maximum tax savings annually, and over time?
  • What is the fees involved?

” IN THIS WORLD NOTHING CAN BE SAID TO BE CERTAIN, EXCEPT DEATH AND TAXES ”

~ BENJAMIN FRANKLIN

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No. 2 Risk-Free Interest Rates, Domestic Interest Rates

Bank of China
Bank of China

Low, moderate or high interest rate environment severely impacts the value of Wealth Management advice.

In an extreme interest rate environment:

Sustained high interest rate environment usually means a less-developed capital market or fast growing economy that requires more capital – though this needs to be measured alongside domestic, regional and global economic factors.  The economic changes could be frequent, rendering the Wealth Management plan less sustainable and beneficial.  Providing basic financial services would be more important in this phase.

Prolonged low interest rate environment could also mean a possible deflation in the economy.  This means asset value may decrease alongside income and jobs opportunities.  In such an environment, low-cost transactions would be important to safeguard client’s money, assets and wealth, rather than premium wealth management advisory services.

Other related factors:

  • Open Economy or Closed Economy
  • Foreign Exchange Policies

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No. 3 Accessibility to Basic Financial Services

Bovespa
Bovespa

Wealth Management Advisory is only possible with access to basic financial services such as banking, insurance, stock brokerages and global financial instruments.

Basic Financial Services:

  • Banking
  • Insurance
  • Stock Brokerages
  • Global Financial Instruments
  • Custodian, Payment and Transfer Services

Without these service providers, it would be difficult to provide sustained wealth management advisory services.

Facts:

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No. 4 Time

Not enough time is often the reason why clients will pay for services.  In a fast-paced society, getting a Wealth Manager to manage their money means they free up time in their life.

If clients have too much time, they may end up influencing the financial decisions, resulting in the wealth advisory process becoming a routine exercise, whereby the end decisions is determined by clients personal preferences or bias.

 

No. 5 Growing Income and Wealth

Financial Crisis in Greece
Financial Crisis in Greece

For Wealth Management advisory to work effectively, there must be mutual benefits between the client, the wealth manager and the financial institution.  The client needs quality advice while the wealth manager and financial institution needs sustained revenue to upkeep the business.

All these can only be possible in a nation with continued growing income and wealth.

 

No. 6 Risks, Disputes & Legal Issues

Clients in Crisis
Clients in Crisis

In an uncertain political environment, having family disputes or possible legal issues, managing wealth and assets becomes all the more important.

Factors to consider:

  • Would the personal assets be frozen anytime?
  • How can the assets be protected?

 

No. 7 International Assets, Business etc.

Private Banking
Private Banking

For clients with International Assets or complex businesses, should a client look for a Wealth Manager, Asset Manager, Lawyer or Tax Advisor?

Having a Wealth Manager who can pool together people and resources to manage their international assets would be very useful.  The cost is undoubtedly expensive.  Does your client have international assets or businesses?

These are 7 factors to consider before Wealth Management Advisory becomes beneficial to clients.

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