“The once so powerful financial institutions of the old "German Plc.", which in times of the
economic miracle partly controlled the fortune of the large scale industry, are facing the
greatest test of its latest history."1 This quotation from the year 2002 of two economic experts
reflects the situation, which the German banking industry was in, in recent years, and still is
in respectively. Even if many financial institutions are recovering, the reasons for the poor
situation are manifold.2 Questions about the banking model of the future are raised as well as
questions about the most successful business sectors. While investment banking is particularly
profitable in times of stock market booms, mergers and IPO's, it however turned out, that the
relatively stable business with private clients, especially with the wealthy ones, turns out to be
a solid source of recurrent income. Banks like e.g. UBS, Credit Suisse or Deutsche Bank are
making high profits, whose basis is more and more the private client business. That way, the
UBS drew a record profit of CHF 14.1 billion (approx. 9 billion €) in 2005.
Table of Contents
1. Introduction
1.1. Presentation of the issue
1.2. Objective and structure of the thesis
2. Definition of private clients resp. the private banking market in Germany
2.1. The different private client segments and their differentiation in general
2.1.1. The retail banking
2.1.2. The private banking
2.1.3. The private wealth management
2.1.4. The family office
2.2. Offerings and concepts of client attention of the financial service providers
2.2.1. Offered services within the private banking segment
2.2.2. Offered services within the private wealth management segment
2.2.3. Offered services within the family office segment
2.2.3.1. Types and structure of the family office
2.2.3.2. The products and services of the family office
2.2.3.3. Particularities of families and dynasties
2.2.3.4. Benefits of the family office-concept for providers and clients
2.2.3.5. Disadvantages of the family office-concept for providers and clients
3. Market- and potential analysis of the wealthy private clients in Germany
3.1. Size and potential of the market
3.2. Origin of the wealth and behaviour of the wealthy private clients
3.3. Current requirements of the wealthy private clients
4. The importance of financial planning in the private banking industry
4.1. Initial situation and presentation of the issue
4.2. Definitions
4.2.1. Definition of the Financial Planning Association (FPA)
4.2.2. Definition of the International Association for Financial Planning (IAFP)
4.2.3. Definition of the Institute of Certified Financial Planners (ICFP)
4.2.4. Definition according to Dr. Rolf Tilmes
4.2.5. Definition of Schäfer and Unkel
4.2.6. Summary of the definitions
4.3. Historical development, origin and classification of financial planning
4.4. The customers of financial planning
4.4.1. Target groups and market potential
4.4.2. The use of financial planning in the private banking segment
4.5. Instruments, costs and benefits of financial planning
4.5.1. Benefits for the customer
4.5.2. Benefits for the provider
5. Content and process of financial planning
5.1. Content of financial planning
5.1.1. Principles of duly financial planning
5.2. The process of financial planning and its phases
6. Realisation and problems of the financial planning in practice
6.1. Principal possibilities of price structuring in the financial planning
6.1.1. Commission versus fee
6.2. Diverse price models at the market
6.2.1. Models of banks
6.2.2. Models of independent providers
6.3. Payment willingness of clients
7. The problematic nature of financial planning against fees
7.1. The economical problems
7.1.1. Information asymmetries
7.1.2. The principal-agent problem
7.2. The legal problems
7.2.1. The liability in case of investment procurement and investment advice
7.2.2. The consequences for financial planners
8. Potential methods of resolutions
8.1. Diminution of insecurities and information asymmetries
8.2. Price-transparency and genuine pricing
8.3. Cooperation with tax- and legal experts
9. Summary and perspective
Objectives and Topics
The thesis examines the role and significance of financial planning as a strategic instrument within the German private banking sector. It investigates how financial institutions utilize this service to acquire and retain wealthy clients in an increasingly competitive market, while also addressing the practical, legal, and economic challenges associated with its implementation, such as pricing models and information asymmetries.
- Market segmentation and the requirements of wealthy private clients in Germany.
- The definitions, historical development, and methodologies of professional financial planning.
- Analysis of the "Family Office" concept and its strategic importance for UHNWI (Ultra High Net Worth Individuals).
- Evaluation of pricing strategies, including fee-based vs. commission-based models.
- Mitigation of information asymmetries and legal liabilities in financial consultancy.
Excerpt from the Book
2.2.3.1. Types and structure of the family office
The number of family office providers in the US is approximately estimated on 3500, in Europe approximately on 200, with clearly rising tendency. The potential clients are very uncertain about the question, which provider and which services they do effectively need.66 In contrast to the offers, which primarily concentrate on investment consulting and which are, due to their limited approach to only one generation, positively accepted, the concept of the family office has, due to its very complex business nature, a hard standing in really satisfying the clients.67 Also even empirical data is simply lacking in Europe, since this concept really arose e.g. in Germany only in the last years. UHNWI, which represent the target group for the family office, must try to find a suitable service provider, whereby they are often let by too much influence of emotional aspects, like e.g. the sympathy for the responsible advisor.68 For a proper decision the ideal structure and development of the relationship between client, family office and their particular experts, is of greatest importance. This can almost lead to families founding their own family office, which only represent their interests, since all responsible persons and experts are employees of the family.
If the client does not like to participate in the management or administration of his asset, no matter for what reasons, the family office provider acts as a mediator between the client and the experts and represents his interests and requirements, informing him at the same time about the developments.69 In Germany the client, however, acts very often on one level with the family office provider and also holds contact to the experts, since he often integrates his already existing advisors like e.g. his lawyer and his tax advisor.
Summary of Chapters
1. Introduction: Discusses the evolving landscape of the German banking industry and introduces financial planning as a crucial instrument for client acquisition and retention among the wealthy.
2. Definition of private clients resp. the private banking market in Germany: Categorizes different segments of private clients and analyzes the service concepts employed by financial institutions, including the specialized role of family offices.
3. Market- and potential analysis of the wealthy private clients in Germany: Provides an analytical overview of the size, wealth distribution, and investment behavior of high-net-worth individuals in the German market.
4. The importance of financial planning in the private banking industry: Explores the conceptual foundations, definitions, and specific target groups for financial planning, emphasizing its role as a holistic service.
5. Content and process of financial planning: Describes the methodology, standardization, and core operational phases of financial planning, including the principles required for professional execution.
6. Realisation and problems of the financial planning in practice: Analyzes the practical challenges of implementing financial planning, focusing heavily on pricing structures and the conflict between commissions and fees.
7. The problematic nature of financial planning against fees: Examines the economic and legal barriers to fee-based consulting, particularly addressing information asymmetries and liability risks.
8. Potential methods of resolutions: Proposes strategic solutions to mitigate information asymmetries and legal insecurities, such as brand building, professional networking, and cooperation with tax and legal experts.
9. Summary and perspective: Concludes the thesis by summarizing the findings and offering an outlook on future trends in wealth management and the integration of family office structures with financial planning.
Keywords
Financial Planning, Private Banking, Wealth Management, Family Office, HNWI, UHNWI, Information Asymmetry, Principal-Agent Problem, Investment Strategy, Asset Allocation, Fee-based Consulting, Client Retention, Cross-selling, Financial Advice, Germany.
Frequently Asked Questions
What is the core focus of this publication?
The work focuses on the role and importance of financial planning within the German private banking industry, specifically analyzing how this service is used to serve and retain wealthy private clients.
What are the primary target groups discussed?
The book centers on wealthy private clients, specifically categorized as Affluent Clients, High Net Worth Individuals (HNWI), and Ultra High Net Worth Individuals (UHNWI).
What is the main research objective?
The objective is to gather insights into the use and significance of financial planning for the German private client market, demonstrating why it serves as an ideal instrument for client retention.
Which scientific methodology is primarily used?
The work employs an analytical approach, synthesizing existing industry studies, market data, and legal/economic frameworks to assess the practical implementation and problems of financial planning.
What does the main body cover?
The main part covers market analysis, definitions and processes of financial planning, pricing models (commission vs. fee), legal liability issues, and methods for resolving information asymmetries.
Which keywords best characterize the work?
Key topics include Financial Planning, Private Banking, Wealth Management, Family Office, UHNWI, and the economic problems inherent in advisory fee models.
How does the author define the role of a "Family Office"?
It is defined as an organizational unit established by a family or individual with significant, complex wealth, designed to bundle strategic, tactical, and operative services for managing financial, human, and social assets.
What is the "Malthus-Effect" in the context of dynastic wealth?
It describes the conflict where the number of family members and beneficiaries increases faster than the financial wealth itself, leading to a potential undersupply if not counteracted by professional management.
Why is "open architecture" considered important?
It is presented as a principle of transparency that ensures clients receive the best-in-class products, whether internal or external, thereby proving the provider's objectivity.
What are the primary hurdles to fee-based financial planning?
The main hurdles are information asymmetries between the provider and client, and the challenge of establishing the "benefit" of the service to clients who are accustomed to product-embedded commissions.
- Citation du texte
- Dr. Francisco J. Guadamillas Cortes (Auteur), 2006, The use and importance of financial planning in the German private banking industry, Munich, GRIN Verlag, https://www.grin.com/document/121804
