Private Client Level of Service and Range of Solutions

Mass Affluent Segment

The Mass Affluent segment is the largest among the three segments defined here. Clients in this segment have smaller portfolios comparatively, and are typically more focused on financial planning. This could include budgeting, tax preparation, retirement planning, etc.

Since the wealth is relatively smaller, managers in this segment will often take on more clients per employee at the firm. In addition, more technology is often used to gather and analyze client data. Portfolios tend to be less customized as the manager will spend less time on them this way, thus freeing up time for financial planning activities.

High-Net Worth Segment

Clients in this segment often enjoy a lower client to manage a ratio. Managers in this segment tend to focus on customized investment management tax planning and wealth transfer issues. Due to the higher levels of total wealth and the multi-generational [longer] time horizon, investors in this segment will begin to get exposure to alternative investments, and non-traditional assets.

Very-High Net Worth Segment

Wealth managers catering to the very-high-net-worth segment, typically individuals with investable assets between $5 million and $50 million, share many similarities with those serving the high-net-worth category. One key distinction is that they offer access to alternative asset classes like private equity, venture capital, and hedge funds, which often have high minimum buy-ins, mandatory capital contributions, longer investment horizons, limited liquidity, and the potential for higher risk-adjusted returns. Accounts in this segment are frequently managed on a fully discretionary basis. In some cases, at the upper end of this segment, investors may have the option of a “family office,”

Ultra-High Net Worth Segment

This segment tends to have the lowest client to manager ratio. Areas of importance to ultra-high net worth investors are complicated tax and estate plans and a wider range of service needs. Additional services such as bill payment services, concierge services, travel planning, and advice on acquiring assets such as artwork and aircraft are also typically common. It is common to see investment management teams in this segment made up of specialists from a variety of fields this could include specialized tax advisors, legal advisors, investment specialists, and a relationship manager.

Additionally, this segment typically offers education to younger generations in preparation for upcoming inheritances. It is also typical to see advice centered on family governance issues.

Robo-Advisors

Robo-advisors refers to a primarily digital interface, in which computer algorithms gather and analyze client data, and then recommend an asset allocation. This is often followed by a disciplined rebalancing and portfolio process. Some robo-advisors even offer behavioral-based services such as discouraging excess spending or reactionary behavior to market volatility. This advice can often be supplemented with access to a human manager as needed. The main draw of robo-advising is the cost savings to the mangers, which are then ideally passed on to the client.

Question

Shantrez LeCrew is an actuarial associate with a large insurance agent in the Netherlands. Her salary is 150,000 Euros annually, and she has a 401k, a home in Rotterdam, and a vacation home in the Canary Islands. Her retirement portfolio is around 10-11x her annual salary, in addition to a substantial cash holding of about 2-3x her annual salary. Ms. LeCrew currently uses an investing app called “WealthPal” that built her portfolio initially and reallocates automatically within a tight tolerance band whenever her asset allocation shifts. The app sends her reminders that her cash holdings could be earning a higher rate of return, but she typically ignores the reminders as she does not expect good performance from the financial markets going forward. She also has hopes of passing on her wealth to her two children when she passes away.

Ms. LeCrew is likely using which type of wealth management service, and could likely benefit from a shift to:

1. Mass Affluent; Ultra High-Net Worth.
2. High Net Worth; Ultra-High Net Worth.
3. Robo-Advising; Mass Affluent.

Solution

The correct answer is A.

Ms. LeCrew's financial situation, as described, falls into the “Mass Affluent” category. She is using a robo-advising app (“WealthPal”), which is common for individuals in this category. However, she could likely benefit from shifting to an “Ultra High-Net Worth” wealth management service given her substantial retirement portfolio, substantial cash holding, and her desire to pass on wealth to her children. This transition would provide more tailored, personalized advice and services.

B is incorrect. “High Net Worth” typically refers to individuals with significant wealth, which is not reflective of Ms. LeCrew's described financial situation. “Ultra-High Net Worth” would be a more appropriate category for her.

C is incorrect. While Ms. LeCrew is using a robo-advising service (which is a feature of “Robo-Advising”), her financial situation aligns more with “Mass Affluent” due to her income and wealth levels. The suggested shift to “Robo-Advising” is not necessary, as she is already using such a service.

Portfolio Construction: Learning Module 4: Overview of Private Wealth Management; Los 4(p) Discuss how levels of service and range of solutions are related to different private clients