Confusion that pays

30 Oct. 2017
Author
Roberto Plaja

Is there a difference between “wealth” and “investment” management? Yes, but it’s not what you think

Is there a difference between “wealth” and “investment” management? Yes, but it’s not what you think

Is there a difference between “wealth” and “investment” management? Yes, but it’s not what you think

Nothing worse than having spare time on your hands on a Sunday afternoon, perusing newspapers and magazines full of creative advertising campaigns aimed at affluent readers.
Some examples:

“A lot of people understand money. How many people understand families?” (Pictet; followed by the above picture.)

“The values of a family should not be tested by wealth.” (Pictet; followed by a picture with formal dining table and chairs in the middle of a well-manicured lawn.)(1)

“In a changing world, business and family take the same direction.” (BNP Paribas; maybe it sounds better in French; followed by a picture of a cardboard replica of a Bentley or Rolls radiator with a mini wooden rocking horse in place of the car’s emblem, because they won’t spend the money to rent a real one.)

“We don’t speculate on the future. We build it.” (Edmond de Rothschild; no picture, to emphasize the fact that the rest of us morons are still running around cluelessly in search of our pants, let alone building anything.)

Do you really want your banker to watch you jumping off a tilting seaplane? Or to understand the intimacies of your family relationships? What direction exactly would “business and family” take in a static world? And, lastly, should we all get into the construction business?

All of this is about money, of course. Not yours but the bankers’. Otherwise you might occasionally read a message like “Are you paying too much for your investment services?” Connecting the ads and the feeling you get from looking at them, other questions pop to mind: Do certain portfolios need “wealth” management while others need “investment” management? Is that akin to a different kind of massage for a different type of ache? Are investment houses another form of massage parlors?

I’m not sure I would push it that far, even considering only legitimate physiotherapeutic operations. The common understanding of the “wealth” versus “investment” difference is essentially market segmentation, but in truth, a portfolio is a portfolio, and – barring tax, structural and liability pattern considerations – portfolios should all be managed the same way for any given level of risk. Customized or bespoke, another favorite concept of your friendly sky-diving banker, are most over-used terms: with a good investment process behind it, your portfolio is in good hands whether implemented by a cookie-cutter depersonalized (cheap) computer or painstakingly constructed by hand on graph paper by an (expensive) professional. Investing, for wealth or investments, is not Broadway; or, to be thematic for once, robots are truly everywhere.

The wealth/investment management dichotomy exists because it relates to a common business model. A model that considers private banking not an investment-driven enterprise but a distribution outlet for institutional investment management activities. This fact, while perhaps somewhat reformed over the years by increased financial education and strong competition from family offices, survives despite the truly staggering size of some individual relationships.

Once you understand this, the style of the advertisements makes sense.

-Notes-
(1) I’m not picking on Pictet; they are just too good at this.
Nothing worse than having spare time on your hands on a Sunday afternoon, perusing newspapers and magazines full of creative advertising campaigns aimed at affluent readers.
Some examples:

“A lot of people understand money. How many people understand families?” (Pictet; followed by the above picture.)

“The values of a family should not be tested by wealth.” (Pictet; followed by a picture with formal dining table and chairs in the middle of a well-manicured lawn.)(1)

“In a changing world, business and family take the same direction.” (BNP Paribas; maybe it sounds better in French; followed by a picture of a cardboard replica of a Bentley or Rolls radiator with a mini wooden rocking horse in place of the car’s emblem, because they won’t spend the money to rent a real one.)

“We don’t speculate on the future. We build it.” (Edmond de Rothschild; no picture, to emphasize the fact that the rest of us morons are still running around cluelessly in search of our pants, let alone building anything.)

Do you really want your banker to watch you jumping off a tilting seaplane? Or to understand the intimacies of your family relationships? What direction exactly would “business and family” take in a static world? And, lastly, should we all get into the construction business?

All of this is about money, of course. Not yours but the bankers’. Otherwise you might occasionally read a message like “Are you paying too much for your investment services?” Connecting the ads and the feeling you get from looking at them, other questions pop to mind: Do certain portfolios need “wealth” management while others need “investment” management? Is that akin to a different kind of massage for a different type of ache? Are investment houses another form of massage parlors?

I’m not sure I would push it that far, even considering only legitimate physiotherapeutic operations. The common understanding of the “wealth” versus “investment” difference is essentially market segmentation, but in truth, a portfolio is a portfolio, and – barring tax, structural and liability pattern considerations – portfolios should all be managed the same way for any given level of risk. Customized or bespoke, another favorite concept of your friendly sky-diving banker, are most over-used terms: with a good investment process behind it, your portfolio is in good hands whether implemented by a cookie-cutter depersonalized (cheap) computer or painstakingly constructed by hand on graph paper by an (expensive) professional. Investing, for wealth or investments, is not Broadway; or, to be thematic for once, robots are truly everywhere.

The wealth/investment management dichotomy exists because it relates to a common business model. A model that considers private banking not an investment-driven enterprise but a distribution outlet for institutional investment management activities. This fact, while perhaps somewhat reformed over the years by increased financial education and strong competition from family offices, survives despite the truly staggering size of some individual relationships.

Once you understand this, the style of the advertisements makes sense.

-Notes-

(1) I’m not picking on Pictet; they are just too good at this.

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