Have you ever thought about the differences between wealth management and investing in exchange traded funds (ETFs)? That’s the topic of today’s article and we’re going to examine it by means of a pizza…
Suppose we have two pizza sellers. One is a plush restaurant with cotton table cloths, candles, well positioned lighting and relaxing music. The other is a stall on the corner of a busy street that sells pizza by the slice. Let’s assume for this example that both sellers sell exactly the same product. It is possible that these two business could both be successful and yet charge different amounts for exactly the same product to equally happy customers.
How is this possible? The answer lies in the in understanding the “want” of the person buying the pizza. In the street stall example, the stall is on a busy street and the customer is likely to be in a rush, so the stall sells pizza by the slice.
In the restaurant example, the want of the customer is very different. They want to be waited on, they want a pleasant atmosphere, and they don’t want to be hurried in any way. They are also prepared to pay more to have these wants fulfilled.
This pizza example is analogous to the difference between wealth management and ETFs.
ETFs can be considered similar to the street stall, except that here the investor must have time to determine the best ETF for them. In return for putting in the initial effort themselves the investor benefits from low cost annual investment management fees. The “want” of the customer is low cost investment.
Wealth management can be considered similar to the restaurant. Here the wealth management company tries to focus on building their credibility, maintaining trust and openness, and their personal relationship with the client. The want of the customer is entirely different – they want a personal service given by experts.
There you have it, a brief introduction to understanding the different business models behind wealth management (have a look at http://www.ap-executive.com if you’re interested in some wealth management jobs) and ETFs by way of pizza!
*Image by jean-louis zimmermann