Posted by admin on June 3, 2005
What does it really mean? What does it involve? Are there specialized firms for this? Can I get these services from my accountant, banker, insurance agent or investment broker? The safest quick answer may be: It depends!
While looking for material on this topic, my searches kept returning web sites for a wide range of financial service firms. Many had used definitions that best suited their services. Are financial services firm trying to redefine themselves?
After some looking, I found a study performed by IBM United Kingdom Ltd. discussing the market. Of course, IBM is looking to sell software solutions. Yet, what I found seemed fairly objective.
To gain a better understanding of the concept wealth management or wealth manager, it may be more helpful to look at these words in reverse order management of wealth or manager of wealth. Doesn't it sound like were talking about something much more than taxes, banking, insurance or stocks and bonds?
At our firm, we work with a lot of business owners. These individuals face a unique host of challenges along with wealth preservation issues. Many of them tend to plow their hearts, souls and everything they own into their main asset their business. When the business is established and profitable, it often makes sense to have a diversified retirement plan in place. Yet, for many, having a good exit or succession plan can play a larger role in protecting wealth. But, thats just one scenario!
As mentioned in our prior newsletters, we strive to provide articles on various aspects of wealth management to assist your understanding of why planning for the present and for your future has importance. Yes, we also promote our services; yet, you will find that we always seek to present thought provoking topics that are relevant to our wide audience.
According to IBM UK Ltd., there seems to a big disconnect with what clients are looking for versus how financial firms are offering products and services. In this months letter, we will review this so called wealth management gap, attempt to describe how considerably diverse the range of client service needs seems to be, and provide a recommendation on how one might assess who to work with. Lastly, we will finish with a review of the investing climate for the month past, the current market outlook and our investment performance.
The Wealth Management Gap
The Certified Financial Planner Board of Standards defines financial planning as: the process of meeting your life goals through the proper management of your finances. If wealth management is the managing of wealth, then might it be logical to say that that wealth management is financial planning for the wealthy?
I found it interesting that the IBM people portray wealth management as meeting a clients emotional and lifestyle needs and goals. Most customers have a personal mission statement (although many have not identified or defined it), which reflects emotional needs, such as: I want to retire at ____ and live my life to the fullest.
Different people may have different priorities, but basically all human beings have the same emotional needs around which key life events and goals can be grouped. Unfortunately, the IBM report remarks that the large financial services firms have responded to this by throwing more products at the wealthier customer, seeing the opportunity for cross selling. They also suggest that, there are two very different definitions of wealth management now in existence:
The IBM study goes on to say, most large financial services organizations have defined wealth management as offering a very wide range of products, providing broad advice and relationship management. Although, they suggest, most seem to fall short on the ability to provide good all around advice and endeavoring to build trusted relationships.
To me, this comes as no surprise. Most large financial services firms are either product manufacturers or financial product super-markets or a combination of both. Each offering something different or acting as an expert in fulfilling a specific need in order to distinguish their product from the competitor(s). And, traditionally, the industry has best rewarded those professionals who specialize in selling a certain segment of some narrow area of finance.
Wealth management doesn't seem to be about buying financial products. Rather, it seems clear that customers are more interested in making good decisions about their finances.
The Greater the Clients Assets, The Greater the Needs
In Trusts & Estates magazine, an article by Sara Hamilton, founder and CEO of Family Office Exchange LLC, outlines eight general services most demanded by wealthy to ultra-wealthy families:
While I find the above list to appear rather thorough, Id like to add one other need category that seems to be missing:
As you can see, wealth management can be something significantly more than taxes, banking, insurance or stocks and bonds. And you may be asking yourself: how do I know who I should be working with.
Selecting a Wealth Manager to Work With
If you look back to the previous section, it referenced that the greater ones assets, the greater ones needs. Achieving personal wealth doesn't simplify life; more often, it creates greater complexity centered about preserving wealth. While some of the needs and demands discussed above might exceed your own, you should look for strengths and capabilities that will best serve your greater needs.
Looking back to the Trusts & Estates article referenced above, they suggest that the most successful wealth management firms feature the following:
By the way, ELF Capital Management, LLC, together with its affiliate and strategic partners is well positioned to objectively and creatively meet the needs of wealthy to ultra-wealthy families.
ELF Capital Management Investment Performance Update
There seems to be early evidence that higher interest rates are producing a gradual slowdown in US consumer spending. Also, much slower growth in real disposable income appears to be contributing to this downtrend. While most economists had predicted this for the second half of this year, it seems to be occurring now. One can only look to sustained high oil prices as the major cause of this softening in the economy. Having been around for the oil embargo of the 1970s, its familiar that as oil prices stay elevated, were certain to see a bigger the squeeze on consumer budgets as the impact reaches well beyond our experiences at the gas pumps.
If evidence of weaker growth continues to accumulate in the next few months, the Fed may pause on its measured pace of raising interest rates. However, it seems fairly certain that well see rates at 3.50% before anything like that happens. However, if core inflation rises above the psychological threshold of 2.5% over the next few months, the tightening phase will likely continue longer.
Despite slowing growth and an abundance of risks, it is important not to get too carried away with the doom and gloom. For now, many of the fundamentals of the US economy still appear quite strong. Corporate finances remain the most robust in decades and growth in profitability is expected to be in the double digits again this year. Yet, with stock valuations above their historical norms, it is also not a time to let your speculative juices get the best of you. Risk is high and investment opportunities need to be well thought out for the present.
For the month ended May 31, 2005, our one-month performance is up 0.46%, our three-month return is up 1.12% and our one-year return is up 2.84%.
For disclosure purposes, past performance is not necessarily indicative of future results and ELF Capital Management LLC (ELF), formerly Hoffman White & Kaelber Financial Services LLC, cannot guarantee the success of its services. There is a chance that investments managed by ELF may lose a substantial amount of their initial value.
ELF is an independent discretionary investment management firm established in February 2003. ELF manages a strategic allocation of primarily exchange-traded index funds (ETFs), and may invest in other carefully selected securities. ELF may also employ hedging techniques, through the use of short positions and options. ELF manages individual portfolio accounts for both individual and business clients.
The ELF ETF Strategy returns presented herein represents a composite of actual results from all client portfolios managed by ELF. Currently, it is the only composite presented by ELF and separate client account portfolio positions are substantially similar, except as may be modified for retirement plan accounts and accounts with net equity of $60,000 or less. There is no minimum account size for inclusion into ELFs ETF Strategy composite and accounts with net equity of $60,000 or less have a tendency to downwardly skew the combined results.
The performance data presented herein includes the reinvestment of dividends and capital gains; as well, ELFs ETF Strategy composite returns are presented after deducting actual management fees, transaction costs or other expenses, if any. ELF charges an annual investment management fee as follows: 1.25% on the first $250,000; 1.00% on the next $750,000; 0.95% on the next $4,000,000; and, 0.75% thereafter.
Copyright 2005 ELF Capital Management, LLC. All rights reserved.