The Private Wealth Management Industry: formula sheet

Key formulas

Tier ladder

Mass affluent < HNW < UHNW (by investable wealth)

Order is fixed, but the cut-off values vary by firm and region. Use the figures given in the question.

Needs rise with wealth

Higher tier → more complexity → more customisation → more specialists

A general pattern, not a strict rule. Some clients have complex needs at modest wealth.

Service model fit

Service model = f(client wealth, complexity, firm's cost to serve)

Use this to justify why a firm offers standardised, customised or family-office-type service.

AUM-based fee

Annual fee = fee rate × average assets under management

Check whether the fee is charged on starting, ending or average assets, and how often it is billed.

Tiered (breakpoint) fee

Total fee = Σ (rate for each band × assets in that band)

Each rate applies only to the assets inside its band, not to the whole portfolio.

Performance fee with hurdle

Performance fee = fee rate × (return above hurdle × assets), if positive

Read whether there is a high-water mark and whether the fee applies to total gain or only the excess over the hurdle.

Net return after fees

Net return ≈ gross return − fee rate

A simple approximation. Use (1 + gross) × (1 − fee) − 1 only if the question says so.

Fiduciary standard

Client's best interest first = loyalty + prudence + care + managed conflicts

Higher than suitability. Use it when the vignette says the advisor is a fiduciary or the client relies on the advisor's discretion.

Suitability standard

Recommendation must fit client's objectives, constraints and circumstances

Based on the IPS and updated profile. It does not by itself require the lowest-cost or best available option.

Conflict handling sequence

Identify → disclose in plain words → manage or avoid → document

If disclosure cannot remove the harm to the client, avoid the conflict or decline the action.

Key CFA Standards for advisors

III(A) loyalty, prudence, care; III(B) fair dealing; III(C) suitability; III(E) preservation of confidentiality; V(B) communication; VI(A) disclosure of conflicts; VI(B) priority of transactions; VI(C) referral fees

Cite the standard by name and the specific breach, not just the number. III(E) confidentiality can be broken for illegal activity, when required by law, or with client permission. I(A) Knowledge of the Law and I(D) Misconduct also apply.

Quick revision

• Private wealth management serves individuals and families with advice, portfolio management and planning.
• Client segments are grouped by wealth level, and needs grow more complex as wealth rises.
• Higher-wealth clients usually need more tax, estate and bespoke services.
• Know the main firm types and who each best serves.
• Match each firm's revenue model to its incentives and possible conflicts.
• Fiduciary duty means putting the client's interests first.
• Disclose and manage conflicts of interest clearly, and in writing where required.
• Advice must fit the client's objectives and constraints.
• Technology lowers costs and widens access but does not replace judgement on complex needs.
• Fee pressure pushes firms toward transparency and scalable models.
• Rules differ by jurisdiction, so answer from the facts given in the vignette.
• In essays, follow the command word and give only the number of responses asked for.

Common mistakes

• Describing private wealth management as only investment management. Fix: List the wider scope: planning, tax, estate, insurance, risk and family matters, then link investing to them.
• Saying institutions and individuals differ only in size. Fix: Compare goals, governance, taxes, liquidity, horizon and behavior. Size alone is not the key difference.
• Memorising fixed wealth cut-offs for each tier Fix: Treat cut-offs as firm-specific. Use the thresholds in the question and focus on the pattern of needs.
• Classifying by wealth only and ignoring complexity Fix: Check for business ownership, cross-border assets and family issues. These can justify a more specialised service.
• Saying an SFO is always better than an MFO. Fix: Weigh control and privacy against cost and scale. An SFO has high fixed costs and suits very large wealth only.
• Applying a tiered fee rate to the whole portfolio. Fix: Split assets into bands and apply each rate only to its own band, then add the results.
• Treating suitability and fiduciary duty as the same thing. Fix: Remember that suitability asks 'does it fit?' while fiduciary duty asks 'is it in the client's best interest, with conflicts managed?'.
• Assuming disclosure always cures a conflict. Fix: If the conflict would still harm the client or compromise independence, avoid or remove it. Disclosure is the minimum, not always enough. If a conflict was not disclosed when the advice was given, disclose it promptly and review whether the earlier choice served the client.
• Saying robo-advisors will replace all human advisers. Fix: Say robo-advisors suit simple, low-cost needs. Complex clients still need human judgment, and a hybrid model is the usual answer.
• Treating fee compression as only a threat. Fix: Also state the response: scale, automation, fee-based pricing and added services that clients value.

Exam tips

• Link every service you name to a client objective or constraint; unlinked lists earn little.
• Read the bold command word first; describe needs more than identify.
• Give exactly the number of responses asked for, in the order requested.
• Be wary of options using always or never when comparing client types.
• Use the vignette facts in your answer to show you applied, not recalled.
• Use the thresholds in the vignette. Do not bring in outside dollar figures.
• If a question asks 'which service model', link the answer to both wealth and complexity.
• Under constructed response, give the tier, then one reason tied to the client, then stop. Extra text earns nothing.