A prospect with $8 million in liquid assets is shopping advisors. A bank trust officer, a registered investment adviser, a wirehouse broker, and a multi-family office all want the relationship. Each charges differently, is supervised by a different regulator, and serves a different client segment by design. Knowing why is the work of this reading.
Wealth segments are usually defined by investable assets, not net worth. Mass affluent covers roughly $250,000 to $1 million. High-net-worth (HNW) covers $1 million to $30 million. Ultra-high-net-worth (UHNW) sits above $30 million. Firms specialize because cost-to-serve scales with complexity, not just dollars.
Private banks bundle investment management with credit, deposits, and concierge services. The credit relationship (mortgage on a vineyard, art-backed loan, capital call line) is often the entry point. Cross-sell economics push proprietary product placement.
Wirehouses dominate the US mass-affluent and lower-HNW market through large captive sales forces. Advisors are employees, paid on a grid that rewards production, retention, and a managed-account mix.
Common mistakes
- Confusing suitability with fiduciary. Suitability requires only a reasonable fit. Fiduciary requires the client's best interest plus conflict disclosure. Reg BI sits between them but is not full fiduciary. Trap: calling a wirehouse broker a "fiduciary" because Reg BI applies.
- Adding AUM-fee tiers as if they were marginal-rate stack-ups but applying the top rate to the full balance. Tiers apply marginally, like income-tax brackets. Trap: charging 1.00% on the whole $12 million when the schedule tops out at 0.40% on the highest tier.
- Treating source-of-wealth and source-of-funds as the same. Source of wealth is the lifetime story (business sale, inheritance, executive compensation). Source of funds is this specific transaction's origin (wire from Account X). Trap: documenting only one.
Bottom line
- Five dominant models (private banks, wirehouses, independent broker-dealers, RIAs, family offices) are segmented by economics, not prestige; each pairs custody, advice, and product to a wealth tier.
- Fees fall into four buckets: AUM percentage (default), fixed retainer, performance (rare outside UHNW), and commission; AUM adds an asset-gathering bias against payoffs, gifts, and annuitization.
- Tiered AUM schedules apply marginally like tax brackets; always compute the blended effective rate before comparing firms.
- Fiduciary duty (best interest plus full conflict disclosure) is stricter than suitability; Reg BI sits between, requiring disclosure and mitigation, not avoidance.
Exam shortcut
When a vignette asks you to pick a service model, anchor on three facts: AUM, complexity (alternatives, cross-border, business interests), and the client's top non-investment need (credit, estate, philanthropy, governance). The right model matches all three. When a vignette presents a fee schedule, always compute the effective blended rate first, then add fund-level expense ratios, then add custody and trading.
The full lesson (about 3,049 words, 20 min read) adds 2 worked examples, all 6 common mistakes, a self-check, free in the app.
Browse all free CFA L3 Private Wealth lessons or jump into free CFA L3 Private Wealth practice questions.