Wealth Management Capabilities

Wealth management services appeal to high-net-worth individuals and large investors. A service provider employs professional wealth advisors to tailor financial plans to the needs of customers. Wealth advisors define, track, and adjust as appropriate the portfolios of assets and select suitable financial products for the purpose of inflation-proof wealth protection and creation. Securities firms are not alone in providing wealth management services. They compete against asset management companies and commercial banks, as well as public funds, PE funds, and hedge funds. Asset management works along the following two mainstream business models:

1. Business model A: Internalize asset management activities into a brokerage (e.g., investment advisory, cash management, and collective wealth management services).

2. Business model B: Form a separate legal entity for asset management activities.

Business Model A

Merrill Lynch (BofA Merrill Lynch) is a typical case of business model A. Its global wealth management department is responsible for wealth management services and is further divided into a global private client (GPC) group and a global investment management (GIM) group. The GPC group serves high-net-worth clients, providing them with conventional investment products. The GIM group offers investment opportunities in hedge funds and other alternative investments and has also managed Merrill Lynch's stake in BlackRock since the merger between BlackRock and Merrill Lynch Investment Managers (MLIM) took place.

For Merrill Lynch, separation strategy is the key to success. Based on the conditions of investable assets, Merrill Lynch offers specific target customers with specific target services. It also provides professional back office support to customers at each level. For example, private wealth advisors serve ultra-high-net-worth clients with more than USD 10 million in assets; financial advisors serve high-net-worth clients with assets between USD 100,000 and 10 million; and the financial advisory center offers support to individual investors with less than USD 100,000 in assets.

In addition to professional segmented services, Merrill Lynch also provides clients the option of a variety of its own and third-party services and investment and wealth management products. These optional services include the following:

- Conventional commission-based broker services and online securities brokerage

- Wealth management services

- Investment advisory services (e.g., services offered by Merrill Lynch Consulting, an independent asset management company that manages asset accounts and delivers a range of specialized products)

Mutual funds, closed-end funds, and exchange-traded funds (ETF) that cover multiple industries, regions, and types

- Deposit and cash management products (including Cash Management Accounts, Beyond Banking, and Visa card accounts)

- Retirement plans and pension products, including IRA and 401(k)

- Trust schemes

- Consumer loans, small business loans, mortgage loans, insurance and annuity products, and alternative investment products

- Financial planning (including full-coverage and specific financial products)[1]

Business Model B

Business model B works in a similar way to asset management companies and PE funds. A securities firm may promote and manage a fund directly and may also act as trustee of a fund, helping the client manage the fund and collecting management fees and performance fees. Many investment banks, such as Goldman Sachs, Morgan Stanley, Barclays Capital, and BofA Merrill Lynch, are today widely engaged in asset management. They manage assets that are even higher than some well-established fund management companies such as Fidelity Investments and Vanguard Group.

Chinese securities firms are falling far behind fund and asset management companies in terms of size of assets and the variety of products. The collective asset management plans available at securities firms mainly consist of restrictive and nonrestrictive plans. Restrictive plans are subject to specific provisions regarding investment deals and ratios and invest largely in fixed-income securities other than equity. Nonrestrictive plans are not bound by any provisions on investment preference, but usually set higher thresholds, promise higher returns, and carry higher risks. As of November 2011, nearly 60 securities brokers (about 60 percent of all brokerage houses in China) have offered their own wealth management products, and each has begun to define its own style by specializing in one or a few products.[2]

  • [1] See Merrill Lynch Factbook (2007).
  • [2] See Tang (2011).
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