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President Presentation

The Difference between Wealth Management and Investment

Source:JingBo WangDate:January 19, 2010【font-size:Large Medium Small

Over the years that I have been engaged in wealth management, I have often been asked about my job, and people always assume wealth management is about investing and ask “How’s the stock market?” At first, I simply explained the differences between wealth management and investing. Unfortunately, my efforts were in vain and I became frustrated having to make this correction repeatedly. It seems it’s difficult to make the distinction clearly between wealth management and investing in a few sentences. Even among some financial institutions, such as wealth management companies, private banks and investment firms, there is confusion about the differences between the two concepts. They just recommend investment products to clients and believe products’ performance determines the quality of wealth management.

In my point of view, wealth management and investing are totally different businesses covering separate domains.

Robert Miles, global spokesmen of Warren Buffett, once said, “If you want to make fortune quickly, don’t copy Buffett; if you want to possess wealth, come to study and follow Buffett’s investment philosophy”. These words may not clarify the differences between investing and wealth management, but it does indicate the differences between success of investments and long-term wealth possession from a certain perspective.

In other words, professional investors are similar to accountants and lawyers, which require related professional knowledge and skills; while wealth management is a kind of concept every individual should build, no matter what line of business you are in. As long as you possess a certain amount of money or you want to make fortune, you’d better have the basic ability to assess investment options, and more importantly, you should set up wealth targets based on your goals and risk profiles. These two concepts refer to different domains, but are still connected.

We once mentioned in the previous article the idea that as our fortune increases, our happiness diminishes. As an individual begins to accumulate wealth, we have to take certain risks; but we should think twice about the necessity of such endless risk-taking as our fortune increases. It’s very likely that banks’ low-risk fixed income products in Wenzhou will be ignored, as we all know that Wenzhou clients have high risk appetite, and many speculators have made windfalls from lending illicit debts through underground banks. Customer preference is always mentioned by financial institutions in their marketing materials.

Actually I don’t agree with this point, instead, I believe all of us that work in the financial industry have the responsibility to popularize reasonable wealth management knowledge, like that it’s better for the high-end clients in Wenzhou to allocate certain assets to fixed income products. Let me paraphrase Warren Buffet’s words to illustrate: Do not use your money or your most previous assets to make profits that don’t belong to you or you don’t need. It is unimaginable to use your wealth to make money that doesn’t matter, even if you can get 100% or even 1000% return.

Sometimes I believe wealth management is 60% client communication, 20% investor education and 20% product selection.  Over 70% of the fortune of high net worth individuals around the world is generated from those individuals’ respective businesses. Wealth management companies should endeavor to help clients form a proper investment outlook, set up inheritance plans and make sustainable profit in what has proved to be a complex and volatile market.

One big difference between wealth management and investing is that, the former emphasizes the optimization of asset allocation, while the latter focuses on maximizing the gain of every investment. However, maximizing each investment may not necessarily result in wealth optimization. Take two university students for example: One got a job at a Fortune 500 company; the other chose to set up his own business. The former was promoted to be a senior manager; the latter’s company builds a global market share of 10% for its products. Here, we just discuss the possession of wealth, not their ambitions, and from this example I hope you can understand the difference between overall optimization and decision optimization. Investment is a professional skill, decision optimization, while wealth management is overall optimization. In the short-term, we may have to give up some fine investment opportunities in order to lower our debt ratio and improve our long-term quality of life. Wealth targets, life quality, age and physical condition should all be taken into consideration in wealth management, and consequently we will pay more attention to implementing the right long-term target and direction, and minimize the focus on short term volatility. Wealth management is not simply about investment; if we have a sound understanding about wealth management, we will be endowed with a sound and satisfied life.

Different concepts of wealth management represent different lifestyles and quality of life goals. Possessing a large fortune happily and living a meaningful and productive life is my consistent recommendation to my clients.

Just like an elegant and happy young lady that inspires you with her internal grace and joy, you will be inspired by a good concept of wealth management to seek your own wonderful fortune.

Fortune is unbiased and we can lay a solid foundation for a bright future with our efforts and achievements in pursuit of wealth.