Aafm iifm

Prof. William H. Byrnes, IV Page 1 of 10
Walter H. & Dorothy B. Diamond International Tax & Financial Services Program
2121 San Diego Ave. San Diego, California 92110
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E wbyrnes@tjsl.edu I www.tjsl.edu
American Academy of Financial Management
&
Indian Institute of Financial Management
Wealth Management Trend 2010-2014
Positioning For the Next Wave?
Prof. William H. Byrnes, IV
Associate Dean, Graduate Programs
Thomas Jefferson School of Law
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Email wbyrnes@tjsl.edu

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American Bar Association accredited institution
member of the American Association of Law Schools
contemporary and collaborative learning models
meeting today’s employment requirements
residential and/or online

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1. Conditioning Factors
In my 900-page economic report on the international financial services industry, I examined and
calculated the economic size and impact of the sector on local jurisdictions, and in doing so
reviewed the global industry as a whole.1
But for the periods of global financial crisis, the sector
had experienced double-digit annual global growth from the eighties and contributed robustly to
the local economies and society. Since 1998, the international financial services sector client
base has expanded nearly 10% on average. Even with the dampening of current global crisis,
this industry is projected to grow in the high single digits over the next five years.
During this decade period until 2008, the international pool of high-net-worth individuals (HNWIs)
potentially served by AAFM®
Chartered Wealth Managers® had more than doubled, to just over
10 million, as have their assets, from $17.4 trillion to between $40 and $50 trillion.2
By 2007, the
average HNWI, excluding primary residences and collectibles, achieved an average of $4 million
of worth!
The financial recession of 2008 through the first half of 2009 and the corresponding collapse of
U.S. investment banking system temporarily decimated the available high net wealth pool,
reducing it to just under nine million holding $33 trillion in assets. Because of their substantial
exposure to the U.S. economy and financial markets, the U.S. suffered the greatest impact, a loss
of 18.5%, to its pool of high net wealth individuals and their overall wealth.3
Yet the end of 2009
has already seen a rebound for the high net wealth pool as markets have regained back nearly
three-quarters of the lost ground of 2008 through March 2009.
However over the next five years, for the assets of high net wealth individuals, financial
forecasters expect positive growth exceeding 8% annualized. By 2013, the pool of HNWI clients’
assets will grow another 50% and at least exceed $50 trillion.4
70% of this new wealth is self-
generated, either through entrepreneurship or via executive level employment, representing a
“new” breed of HNWI versus the inherited wealth clients of the past.5
(Though the global re-calibrating of asset values may impact the nominal wealth value for HNWIs
in the short term, historically, based upon both the recessions coined after the Asian Financial
1
Report on the Economic, Socio-Economic, and Regulatory Impact of the Tax Savings Directive
and EU Code of Conduct for Business Taxation upon Selected Offshore Financial Centers as well
as a Competitiveness Report for Selected Offshore Financial Centers (Foreign Commonwealth
Office 2004).
2
Cap Gemini Merrill Lynch World Wealth Report 2008 calculates $40.7 trillion. However, see
Oliver Wyman’s The Future of Private Banking: A Wealth of Opportunity? (2008) at 9 wherein
using its own wealth model and reliance upon data from the OECD, IMF, WFE, UNECE, national
banks and stock exchanges calculates $50 trillion.
3
Cap Gemini Merrill Lynch World Wealth Report 2009, p.2. Note the U.S. is still responsible for
nearly 29% of global HNWIs at $2.5 million.
4
Though the global re-calibrating of asset values may impact the nominal wealth value for
HNWIs in the short term, historically, based upon both the recessions coined after the Asian
Financial Crisis and the Tech-Bust, the wealth value will likely return to projected levels with a
two-year lag. While equity and real estate markets may have declined by January 2009 by as
much as 50% of their highest value in OECD countries, HNWI portfolios are spread among other
investments without such a sharp plunge. A reliable decline in value estimate for HNW is 25%
based upon the decline experienced in Switzerland, which accounts for 28% of the global asset
management market. See the report Wealth Management in Switzerland, Swiss Bankers
Association (2009) at 8.
5
The Future of Private Banking: A Wealth of Opportunity?, Oliver Wyman (2008) at 21

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Crisis and the Tech-Bust, the wealth value will likely return to projected levels with a two-year
lag.)
Since 1998, while the OECD continues to steadily generate HNWIs and their wealth, the
substantial jumps in wealth generated and new HNWIs is and will continue to occur in Asia
(China and India) and to a lesser extent in Latin America (Brazil) and the Middle East (GCC).
Based on the shifting geo-wealth creation pool, our new breed HNWI is more likely to be of Asian,
Middle Eastern, and Latin American nationality, with a very different frame and perspectives from
our OECD HNWI.
HNWI’s continue to leverage offshore skill sets, growing their assets from $5.8 trillion from 1998
to an estimated $8 to $11 trillion today.6
That $11 trillion under management represents, at
combined fees for all wealth management services of just 1%, approximately $100 billion accrual
to wealth management firms and their providers, such as asset management and investment
banking business units.7
The wealth management industry remains very fragmented, with likely even greater
fragmentation on the horizon. The global top ten wealth management firms manage less than
20% of high net wealth assets.8
50% of HNWIs do not use wealth managers.9
6
Tax Haven Abuses: The Enablers, The Tools and Secrecy” (Sen. Rep., Perm. Sub-Comm. On
Investigations, August 1, 2006) and World Wealth Report 2008 estimate $11 trillion. However,
the Oliver Wyman Report which surveyed 25 top firms provides a lower estimate of only $8
Trillion offshore at 16% of HNW assets (see page 3) and the Swiss Bankers Association Wealth
Management in Switzerland 2009 report (see page 4) supports this lower estimation. A general
survey of literature, by example IMF and World Bank reports, contrasted with data available from
the Bank of International Settlements, has been inconclusive.
7
Note that the $100 billion estimate based upon the $11 trillion base may be an exaggeration of
fees earned from offshore HNWI, the application of the 1% fee base is supported by the Senate
Report 2008 at page 86, wherein it states that UBS earned $200 million on its $20 billion under
management from its 19,000 non-compliant clients (i.e. 1%).
8
The Wealth Management Report 2009 Meeting the Expectation of UK High Net Worth Clients
JP Morgan at 11.
9
The Future of Private Banking: A Wealth of Opportunity?, Oliver Wyman (2008) at 4.

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The international-offshore financial service industry’s wealth management level employment has
probably reached and maintaining 100,000.10
CFA®
estimates over one-million employment
globally for its segmentation of financial analysts (based on its global spread of its 100,000
members).11
The current stability with wealth management employment is in contrast to the
instability in investment banking. Investment banking, including securities dealing, employment
has fallen from a high of 156,113 in 2006 to a low of 97,500 in 2008, but will stabilize this year to
100,425.12
Financial planning and investment management services are now delivering a larger
portion of an institution’s income, up to 12% from 5% in the late 1990s, as investment bank
services and trading commissions have correspondingly fallen.13
4. Trends of New-Breed HNWIs
From 2006, Cap Gemini’s polling has identified several long term trends that continue to appear
to drive a general re-allocation and opportunities for wealth managers to acquire clients.14
By
example of asset re-allocation, in 2006 HNWI clients reached 20% alternative investment
diversification for their portfolios, up from just 3% in 2000.15
HNWIs, and in particular the new
breed HNWIs, are increasingly globally informed about investment opportunities and risks. Thus,
HNWIs are undertaking their own research of information and expecting a collaborative process
with their advisors. HNWI’s are demanding firm’s investment teams develop and use global
strategies and products to hedge local risks16
, by example allocating to the continuing emerging
markets of BRIC (though 2009 has seen this become BIC).
As to be expected based upon the short term drivers of the recession, recalibration of asset
values, failure or quick-sale of numerous global financial institutions, and tremendous investment
fraud scandals by prominently respected institutional individuals, 2009 has seen tactical, if not
forced, re-allocation. Ellen Kelleher this month reported in the Financial Times that HNWI are
commonly dissatisfied with private banks pitching structured products “with high charges and
confusing terms”.17
Citi Private Bank’s survey covering its wealth managers for 2,000 HNWI and
UHNWI found that this year almost 90% of their clientele have reduced or substantially reduced
their exposure to equities and nearly all have shied from hedge funds, citing transparency and
stability as the value drivers of their allocation decision.18
The World Economic Forum proposes
that future alternative investment classes offering beta return to HNWI portfolios may include (1)
infrastructure finance, (2) intangible assets (such as intellectual property), (3) research and
10
With regard to the offshore employment estimate, see by example my 2004 Report, and the
2009 Swiss Banking Association report at 10. A survey of reports and articles written up until April
10, 2009 finds that the wealth management industry has NOT suffered the significant job losses
as a whole as the financial services industry has. By example, see Headhunter Boils Business
Down to Wealth Management San Diego Business Journal March, 23, 2009 at 17 wherein a
recruiter states “When times are good, services such as money mangers and financial advisers
tend to get overlooked, but in tough times, customers are more inclined to professional help.”
11
See AAFM®
annual report regarding its estimate.
12
IBISWORLD INDUSTRY REPORT: INVESTMENT BANKING AND SECURITIES DEALING IN THE US (Dec. 8,
2008) at 7. (Updated Jan 5, 2009).
13
IBISWORLD INDUSTRY REPORT: INVESTMENT BANKING AND SECURITIES DEALING IN THE US (Dec. 8,
2008) at 9. (Updated Jan 5, 2009).
14
All the reports cited herein addressing trends amongst HNWIs confirm the original trend
recognition by the 2006 Cap Gemini Report.
15
Cap Gemini World Wealth Report 2006.
16
JP Morgan at 38.
17
The Big Money Prefers Smaller Firms, Ellen Kelleher, Financial Times (April 10, 2009).
18
The KnightFrank (Citi Private Bank) Wealth Report 2009 at 12.

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development exposure, (4) mega-trends, (5) frontier markets, (6) distressed assets, and (7)
insurable risk.19
Since 2006, new breed HNWIs in particular have been trending toward a lack of fidelity to their
institutions and migrating sizable allocations of their portfolios to boutique (investment) firms and
to multi family office operations.20
As of 2008, Cap Gemini noted that HNWIs were migrating
toward a holistic service approach to their advisement. Scorpio Partnership’s Transforming the
Worth of Wealth report found from its surveying that the general feeling amongst financial
advisors is that investors are increasingly looking to transfer to service-based smaller boutiques
as the economy weakens.
Exemplifying the impact of this trend, Scorpio Partnership reported that the 25 brand name firms
surveyed “posted less than 15 per cent growth in clients every three years, on average”. On the
other hand, as of the third quarter of 2008, 83 US based multi family office firms managed $334
billion, which at that time represented 19% of total assets under management of the global hedge
fund industry.21
Based on the 2009 disengagement from ‘opaque’ hedge funds by HNWIs,
‘transparent’ multi family offices will likely have made substantial strides toward closing the assets
under management gap.22
When choosing from among wealth managers, HNWI apparently
value branding and reputation, but size has lost its importance.23
5. Three Resulting Winners Amongst Boutiques
Because the wealth management sector continues to out or evenly pace other sectors in terms of
firms’ and employees’ earnings, certainly in light of the demise of some bonus schemes in the
investment management business units, the sector has grown more competitive with new
boutique firms entering monthly. Is there room for such increasing competition? According to the
Oliver Wyman Report 2008, only 50% of HNWI assets are professionally managed or advised.24
Three types of boutiques have shown significant growth in the past six years. Firstly, investment
team boutiques that create and manage internationally oriented transparent investment funds
focusing on alternative investments, such as emerging market strategies. These boutiques
appeal to both HNWI’s directly, competing with larger institutions, and to the institutions
themselves, in collaborative arrangements. Secondly, family office firms employing holistic family
business and tax management and lifestyle solutions, sometimes in combination with investment
management services. Thirdly, compliance advisory service firms have been established to
serve financial service providers.
6. Required AAFM
®
s’ Skills Sets for New Breed HNWIs
I propose that there is a correlation of well rounded “international” education and service
perspective to a firm’s and professional’s economic success, and regulatory survival. Servicing
modern HNWIs who now demand international elements for their families and their business
19
The Future of the Global Financial System, World Economic Forum’s World Scenario Series
(2009) at 33.
20
Show them the Money, Economist Special Report April 2, 2009.
21
The Future of the Global Financial System, World Economic Forum’s World Scenario Series
(2009) at 36.
22
The KnightFrank (Citi Private Bank) Wealth Report 2009 at 12.
23
The Future of Private Banking: A Wealth of Opportunity?, Oliver Wyman (2008) and The
Wealth Management Report 2009 Meeting the Expectation of UK High Net Worth Clients JP
Morgan.
24

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interests requires a dynamic ability to obtain economic and regulatory information, understand the
clients’ and the markets’ issues and inefficiencies, and create solutions.
Steady HNWI high growth continues within the OECD members, but rapid growth in HNWI
numbers will continue in the BIC countries of Brazil, India and China, and probably again after the
valuation adjustment in Russia/Eastern Europe. The BIC countries, in particular Brazil because
of its vast natural commodities base and recent discovery of what is probably the world’s largest
offshore oil field, will continue to lead the world in both economic and HNWI growth. Thus,
AAFM®
members seeking to attract these HNWI, be in their home country, or in the USA, will
evolve to provide services reflective of the needs of these BIC clients, as well as speak their local
languages.
The HNWI is seeking the one-stop shop model.25
The relationship manager must be able to
source information and services leveraging a team approach, assimilate the pieces, and
communicate it in a collaborative, transparent manner with the HNWI .26
AAFM®
s must be able
to employ a holistic and collaborative team approach for a HNWI including (1) business, (2) tax,
(3) estate, (4) legal, (5) accounting, (6) intra-family governance, (7) philanthropy (8) compliance
and (9) lifestyle issues, and communicate operations and solutions to the HNWI and family
members.27
New breed HNWIs want communication by email weekly from their wealth manager.
Sophisticated advisors will leverage secure, though inexpensive, video conferences to establish
more efficient and effective face time.
By example of collaboration and communication skills, the trusted advisor may need to source
compliance and due diligence skill sets from risk management, compliance, legal, and audit team
members in order to analyze a multinational business that a HNWI is targeting, synthesize the
different jurisdictional regulatory requirements, and communicate effectively the team’s findings to
the client via a video conference.
Thus, education in these aforementioned skill sets, leading to a potential employee’s retooling, is
a key to competing in today’s wealth management industry and job market. Moreover, ‘soft skills’
such as client communication, and even more relevant in this economic downturn, the ability to
counsel through economic and personal stress, will decide for HNWIs who is to become trusted
advisors, and who are simply hawking services.
28
At this point I now turn to address the specific soft-skills that are viewed critical by HNWIs and by
US private clients in choosing their trusted advisors. As promised in the introduction, I will give
away an out-of-the box soft-skill training secret that I will only mention to this AAFM®
audience:
MindFrame Persuasion – and how it will empower you to connect as the trusted advisor.
25
JP Morgan at 5.
26
27
In an interview with Dr. George Mentz, Chairman of the American Academy of Financial
Management, who is consulted by the Department of Labor’s Bureau of Statistics for Financial
Services employment information, he stated that the US wealth management market has seen a
commoditization of financial product offering to private clients, thus requiring advisors to
distinguish themselves upon other services. Asset protection, estate planning, business issues,
Dr. Mentz said, are areas that advisors are now focusing on to attract clients. The Chronicle of
Philanthropy reported that 2008 charitable giving did not substantially suffer, and in some cases
increased amongst certain groups (112% amongst the 50 most generous US philanthropists).
28
See The Wealth Management Report 2009 Meeting the Expectation of UK High Net Worth
Clients, JP Morgan at 11 and the section “Perspective” page 25.

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Regarding an example of a neuro-linguistic persuasion course being leveraged by one major
institution see MindFrame Persuasion http://www.mindframepersuasion.com/launch/
7. Winning Strategy of the Holistic Service Model
My forecast for an expanding and robust sector the past years has not been drawn from the
conclusion of “what doesn’t kill you makes you stronger”, though I often lecture that “the survivors
shall inherit the spoils”. Rather, I have examined the upward trend in expenditures by firms, and
the sector as a whole, that allows them to the flexibility to adapt to changing climates and to
evolve distinguishing services, such as the “well rounded, trusted advisors” trend required by
new-breed HNWIs.
By example, for ten years I have measured that growing firms increase investment in education
and information, and an increase in these two areas support that firm’s growth. On the other
hand, firms' declining revenues, by example through loss of clients and key staff, correlate to a
reduction in education and information spending. In the 2008 poll by Robert Half's Accountemps
of 1,000 top companies, 94% offered tuition benefits to their key employees. Naturally, this
correlation begs the causation question of whether the decline in spending caused decline of
revenues, the other way around, or some other factor caused both.
In support of the winners investing in education that supports a holistic service model approach,
this past year Cap Gemeni reported that “While most HNWIs and UHNWIs have relationships
with multiple wealth management firms,many clients seek long-term “trusted advisors” who can
help them navigate complex topics and strategies.” The trusted advisor must understand the
HNWI “in the context of a larger relationship that encompasses personal and family finances as
well as business partnerships or estate planning.”
Most importantly for the employing firms of wealth managers, the Oliver Wyman study reinforced
what is already generally known in the wealth management / private banking industry: the lifetime
contribution value of an average private client under the European onshore model (the Advisory
model) is three to four times than that earned from the US Broker/ Dealer model, while the
European offshore client model - five times!29
The new breed HNWI will pay an asset under management (AUM) based fee for the trusted
advisors holistic service, but prefers that the wealth manager employ this model dually with
performance based fees – lowering the AUM fee but allowing a high blue sky for meeting and
exceeding performance objectives.
8. Winner AAFM®
s
This AAFM®
audience will not find the “trusted advisor” concept unique, and neither the family
office that has gained so much attention amongst training companies the last seven years, as the
“new” path forward. This is the way that the most successful AAFM®
members’ firms have
always provided service to their clients. Competency to offer these services has been assessed
via the AAFM®
examination.
Also, and more dear to many of the AAFM®
audience, Cap Gemeni reported that employing
qualified talent will sharply increase because of the retirement of the baby boomer wealth
manager generation. “Bidding wars among firms for top advisors are not uncommon” and that
packages will include “bonuses equaling two or three times the payouts from just a few years
ago.” As noted earlier, the industry career newsletter, Jobs in the Money, reports that
credentialed professionals with certifications earn over 30% more than their colleagues. Also
29

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referring to recent reports from recruiters, financial planner salaries are holding a steady range of
$150,000 - $400,000.30
9. Threats to Profitability or an Opportunity to Restore Confidence?
Financial service providers are required by the provisions of the USA Patriot Act to make
substantial investments in technology (though many in the industry have questioned the
effectiveness of these investments in preventing the funding of terrorist groups or other nefarious
activities).31
Senior banking management perceives rising and unpredictable compliance costs
that undermine global competitiveness as the most significant threats to the future growth of
banking.32
Based on the survey of Miami banks significantly engaged in international banking, staffing costs
rose to 271 full-time employees of anti-terrorism/anti-money laundering compliance for
approximately $25 million in 2005. The average survey respondents indicated that it devoted 2.9
FTE employment positions to BSA/AML compliance in 2002 versus 6.8 FTE positions in 2005.
The number of full-time employees devoted to compliance represented 9% of the workforce in
2005. Staff resources devoted to compliance increased by 160% between 2002 and 2005.
The results have been that Miami’s banking industry has been characterized by contraction. The
number of foreign bank agencies operating in Florida fell from 38 in 2000 to 31 in 2005, of which
7 did not book any deposits. There were 10 Edge Act banks operating in Florida in 2000, but only
7 in 2005. The number of international banking employees (in foreign agencies, Edge Acts and
the international divisions of domestic banks chartered in Florida) declined from 4,660 in 2000 to
3,027 in 2005.
While the cost of AML compliance increased around 71% in North America between 2004 and
2007, it rose 58% globally.
33
By example, in 2003, the UK’s FSA’s Anti-Money Laundering
Current Customer Review Cost Benefit Analysis estimated the implementation costs of the AML
regime to firms at 152 million pounds sterling, substantial by European standards though paltry by
America’s.
In a 2006 Economist Intelligence Unit survey, international senior bank executives were asked
about the costs of compliance of government regulation. When asked what changes they
expected in the regulatory environment over the coming three to five year, over 91% stated that
they expected regulations affecting their institution to grow in complexity and breadth, 88% stated
that compliance with industry regulations will become more onerous, and 81% reported that they
expect penalties for non-compliance to increase in severity.
On the other hand, perhaps more (or more effective implementation of current) compliance and
its resulting governance would have protected against or softened the blow of the systemic
iceberg as well as protected against or softened the blow of the most recent investment fraud
scandals. And UBS’ level of compliance expenditure neither deterred its activity regarding 19,000
USA non-complaint persons, nor its substantial investments in US mortgages leading to write-
downs requiring a Swiss government substantial investment to shore up its capital. Certainly,
based on the G7 and G20 meetings, as well as the discussions at the World Economic Forum,
30
Headhunter Boils Business Down to Wealth Management San Diego Business Journal March,
23, 2009 at 17.
31
STANDARD AND POOR'S INDUSTRY SURVEYS: BANKING (Dec. 6, 2007).
32
The Washington Economics Group, THE ECONOMIC IMPACTS OF INTERNATIONAL BANKING IN
FLORIDA AND INDUSTRY SURVEY: 2005.
33
KPMG'S GLOBAL ANTI-MONEY LAUNDERING SURVEY 2007.

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levels of compliance expenditure, compliance education, and governance will be required to be
increased in order to restore institutional confidence.34
Based upon HNWI clients seeking transparency, there may be an opportunity for AAFM®
members / firms to market to stung HNWIs not just as well rounded advisors, but as trustable
compliance and governance oriented advisors, collaborating transparently regarding developing
the HNWIs portfolio of opportunities.
10. Information Tools
Besides the army of lawyers advising regulated firms and the chartered accountants
undertaking compliance, anti-fraud, AML, terrorist activity, and qualified intermediary (QI)
audits, near and dear to myself, the publications market employment is continuing to grow.
Because compliance regulations, costs, and penalties are growing more onerous, all regulated
financial service providers and their advisors must purchase some information resource to
address the variety of compliance issues encountered regularly. Moreover, to undertake the
role of the ‘trusted advisor’, a sophisticated wealth manager must have a bundle of reliable
resources enabling the holistic, international, business partner approach that modern HNWIs
and UHNWIs now demand.
Indication of this trend is that the legal, tax and regulatory publishing market has been and is
growing consistently. Legal publishing is the largest segment in professional publishing,
accounting for approximately 36% of the total market. In 2007, legal publishing revenue was
about $10 billion, up 7.5% from $9.3 billion in 2006 and 14.9% from $8.7 billion in 2005.
35
Legal publishers are sparking growth by developing digital tools and software out of their
reference book and journal content designed to make it easier for legal professionals to find
information and automate mundane tasks. New online publishing will use mind-mapping
technology to educate users about holistic connections amongst ideas, issues, and strategies.
Growth in publishing for an industry tends to indicate growth in that industry.
34
See The Future Of Global Financial System, World Economic Forum World Scenario Series
(2009) at 22.
35
Simba Information, GLOBAL LEGAL & BUSINESS PUBLISHING 2007-2008 (2007).

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