Introduction To Wealth Management Course Presentation

Introduction to
Wealth Management
Instructors
Tim Vipond Mary Jeanne (MJ) Lee
Corporate Finance Institute®

Learning Objectives
Describe the various services that make Outline the various career paths within Understand how wealth management is
up wealth management wealth management segmented by client type
Explain the skills needed for success in Build a simple retirement planning model Outline the various asset classes available
wealth management in Excel to wealth management clients

Overview of
Wealth Management
What Is Wealth Management?
Plan
Invest
Wealth Management Grow
Service provided to individuals and families

with the goal of multiplying and Protect
safeguarding wealth to be distributed in
fulfillment of their wishes.
Distribute

What Is Wealth Management?
Wealth Management Services
Estate & Tax Planning Strategic Asset Family Philanthropy Cash Management
Planning
Diversified Investment Family Education & Coordinate With Annual Management

Management & Analysis Reporting Advisors Review

Wealth Management on the Client Side vs. Advisor Side
Client Advisor
Side Side
Life Event Acquire & Understand

Client
Research Options
Initial Engagement,
Strategy & Planning
Select & Engage Advisor
Execution &
Share Information Management
Optimization & Tuning

Provide Updates
Broadening the
Relationship
Careers in Wealth Management?
Wealth
Discretionary
Advice &
Investment
Relationships
Management
Financial Private Financial Investment Investment Portfolio

Advisor Banker Planner Advisor Counselor Manager

Wealth vs. Asset/Investment Management?
Personal / Family Institutional Investment/Asset

Wealth Management Management
• Retail clients • Pension funds

• Mass affluent clients • Sovereign wealth funds
• Super affluent clients • Insurance companies
• High-net-worth (HNW)
clients
• Ultra-high-net-worth
(UHNW) clients

Trends in Wealth Management
Large and growing market Very attractive business for banks
Increasing competition from all sides Increased need to differentiate offering and service

Client Segments Based on Investible Assets
Client Segment Investible Assets (USD)
Ultra High Net Worth > 25,000,000
High Net Worth 5,000,000 – 25,000,000
Super Affluent 1,000,000 – 5,000,000
Mass Affluent 100,000 – 1,000,000
Retail < 100,000

Net Worth vs. Investible Assets
Net Worth
Total Assets Total Liabilities

Net Worth vs. Investible Assets
Investible Assets
Assets Liabilities
• Assets are liquid or can be easily • Includes liabilities associated with

converted to cash investible assets
• Only includes real estate that • Excludes liabilities associated with
generates income excluded personal assets
• Excludes personal assets that do
not generate income or are difficult
to convert to cash

What’s the Difference Between Financial Planning and Wealth Management?
Creating a step-by-step guide or approach to

achieving one’s financial goals
Managing income, expenses, savings, and

Financial Planning investments depending on client’s stage of life
Wealth Management
Financial planning services such as retirement

planning, estate planning, succession planning,
and charitable giving

What’s the Difference Between Financial Planning and Wealth Management?
Advising and managing the financial or

investment assets of clients
Financial Planning
Wealth Management
Building a portfolio that will achieve a client’s
personal planning objectives

Robo Advisor
RA
Focus
Retail and • Retail clients (Investible assets: less than USD 100K)
Mass Affluent • Mass affluent clients (Investible assets: USD 100K – USD 1M)
No touch, wholly Very standardized Provide financial planning Lack subjectivity and do
automated client service investment universe. through online not offer any fully-
model with algorithms Most commonly ETFs questionnaires about personalized services
managing clients clients’ risk-aversion,
financial status, and
desired return
Financial Advisor
FA
Focus
• Retail clients (Investible assets: less than USD 100K)
Retail and
• Mass affluent clients (Investible assets: USD 100K – USD 1M)
Mass / Super
• Super affluent clients (Investible assets: USD 1M – USD 5M)
Affluent
Low touch, standardized Smaller and more Provide financial planning Some limited,
client service model with a standardized investment around personal standardized tax
financial advisor managing universe budgeting, cash flow mitigation strategies,
100 or more clients planning, and saving for insurance advice, and
retirement estate planning

Private Banker
PB
Focus
• High net worth clients (HNW) (Investible assets: USD5M - 25M)
High/Ultra High
• Ultra high net worth clients (UHNW) (Investible assets: >USD25M)
Net Worth
High touch, personalized Much larger investment A team-based approach Highly sophisticated tax
client service model with universe providing highly tailored mitigation strategies, estate
around 50 clients and customized financial planning, bespoke banking
planning and wealth advice solutions, and philanthropy
typically led by a private advice
banker
The Financial Advisor/Private Banker Client Journey
Steps to be successful as a financial advisor or private banker:
01. Identify and acquire clients through networking, prospecting, and segmentation
02. Onboard clients with the proper considerations for risk, legal, and compliance
03. Understand clients’ needs and risk appetites in order to provide appropriate
advice
04. Advise clients on financial planning, estate planning, succession planning, and
investment solutions.
05. Implement the investment strategy or services agreed upon by the client
06. Maintain and manage strong client relationships through periodic reviews

Starting A Relationship
Risk, Legal, and Compliance
Large focus on anti-money laundering and financial crime
Know Your Client (KYC)
• Why are they opening a certain type of account?
• Who are the account holders?
• What is the purpose of the account?
• Where are the funds coming from?

What It Takes to Succeed as a Financial Advisor / Private Banker
To be a successful financial advisor or private banker, you must have:
Good A broad knowledge Manage multiple A willingness to Skills to engage in

interpersonal skills of financial products client relationships ‘hunt’ for new clients networking
and services and be available

Skills Needed to Succeed as a Financial Advisor / Private Banker
Sales Skills
Client Management
Portfolio Management Client Pipeline Delivering

acquisition management against
business plans
Risk Management
and targets

Sales Skills
Client Management
Portfolio Management Client needs Delivering Sustaining Handling

discovery solutions to strong client objections
process clients relationships
Risk Management

Sales Skills
Client Management
Portfolio Management Product Assessing Behavioral Building a

knowledge risk/return finance portfolio for a
client
Risk Management

Sales Skills
Client Management
Portfolio Management Professional Risk Compliance Monitoring

ethics management practices client portfolios
practices
Risk Management

Wealth & Estate Planning Services
Planning & Other Services
Mass Super
Offered Services Retail Affluent Affluent HNW UHNW
Financial Planning
Estate Planning Yes
Business Succession
Planning Limited
Charitable Giving Very Limited
Family Governance &

Family Office No
Lending Solutions
Investment Banking

Financial Planning – Life Stages
Financial planning depends on an individual’s:
Life Stage Financial Long-Term Time Horizon

Situation Financial Goals
• 20s to 40s – Earning • Income • Retirement • When will the client

and Accumulation need to withdraw their
• Expenses • Lifestyle money?
• 40s to 60s – Managing
and Preservation • Assets • Legacy
• +60s – Retirement and • Liabilities

Distribution

Life Stages
People will have different priorities and investment styles at different life stages
Stage 1
STAGE 1: ACCUMULATING AND GROWING WEALTH
Age Starting a Managing expenses / Budgeting

>21 to mid 40s career (starting a family, education, housing, car, insurance)
21-40

Life Stages
Stage 2
STAGE 2: MANAGING AND PRESERVING WEALTH
Age Stable career/ Managing expenses / budgeting Planning for

> mid 40s to 60 growing assets (travel and lifestyle) retirement
40-60

Life Stages
Stage 3
STAGE 3: RETIREMENT AND DISTRIBUTION OF WEALTH (Age: > 60)
Age Retired / Managing expenses / budgeting

>60 Nearly retired (health and lifestyle, retirement needs)
60+

Estate Planning Services
Transfer of wealth to the next generation is a long-term process and often involves planning
Ways to Transfer
Wealth
Having a Will Gifting Assets Life Insurance Setting Up a Trust

Trusts
A trust is a fiduciary
relationship Gives the assets to the
trust
Setting Up a Trust Trustor
Holds title to the assets…
Trustee
A legal entity is created
to hold the assets
…for the benefit of the

beneficiaries
Beneficiaries

Trusts
Control over distribution
Setting Up a Trust
Avoid probate
Why do people set up Tax efficiency

trusts?
Avoid compulsory succession

Trusts
Financial Assets
Setting Up a Trust
Properties
Assets held in a trust
Shares of Private Companies

Life Insurance
Permanent Life
Insurance
Term Life
Insurance
Universal Life Whole Life
Insurance Insurance
• Coverage for a limited
period • Coverage for whole life • Coverage for whole life
• Cheaper initially • Stable premiums • Flexible premiums
• Tax-free death benefit • Tax-free death benefit • Tax-free death benefit
• No cash value • Accumulates cash value • Accumulates cash value

Business Succession Planning
Team of advisors will suggest custom solutions based on client’s needs and goals
Includes planning for:
Preference in terms of Best way to structure

ownership transfer transaction

Charitable Giving / Philanthropy
Philanthropy is an act or gift done for humanitarian purposes
Client sets up and funds a foundation with the help of the bank
Client supports a foundation controlled by the bank by giving

funds through the bank
Financing/ Lending Solutions
Collateralized credit facilities are available to Private Banking clients
Liquid assets and assets of higher quality are

assigned higher lending value as collateral
Leverage
Low interest rates Clients use debt… …to purchase assets

Financing/ Lending Solutions
Collateralized credit facilities are available to Private Banking clients
Hedging Liquidity
Losses mitigated by Clients avoid having to

gains in another liquidate any of their
investment investments

Family Governance
Family Governance
Decisions based on shared values and vision

for the family’s future
Relationship Managers within a bank are

trained to identify this need

Family Office
Private Wealth
Family Office Management Firm
Manages finances and provides services such as

Acts as a treasury department to manage the
education and facilitating communications within a
finances of a family
family

Investment Banking
For large ultra high net worth

clients or family offices
Institutional investment banking products and services:
• M&A
Bill Gates
• Direct Investments
• Co-investments
• Private placements
• Capital Markets
Investment Management
Investment Management Process
Providing good service is the key to being a successful financial advisor
Investment Process
Understanding
Advising Implementing Reviewing
Clients’ Needs

Discretionary or Advisory Wealth Management
Advisory
Client decides on every single Relationship manager makes

investment made recommendations and executes trades
Discretionary
Clients do not have time to Bank manages funds based on risk

manage their own investments and return expectations of the client

Investing
When investing, we need to consider:
Purpose of Investing Return Expectations Risks Involved Time Horizon
Defining these factors will serve as a guide on how we allocate investments into various asset classes

Expected Return and Risk Profile
Before making any investment recommendation, it is important to determine the client’s Risk Profile
Low Risk Medium Risk High Risk
• Capital preservation • Balance between yield • More interested in making

enhancement and capital gains capital gains
• Yield enhancement
• Willing to take more risks for • Higher risks and higher returns
• Cash, fixed income/bonds, and higher returns
mutual funds • Equities, commodities, and/or
• Fixed income, equities, mutual alternative asset classes
funds/ETFs

Expected Return Versus Risk
Higher
HEDGE FUNDS
expected 8
return
PRIVATE EQUITY
7
FOREIGN
EXCHANGE 6
COMMODITIES
5
EQUITIES
4
REAL ESTATE
3
FIXED INCOME 2
Lower CASH
expected 1
return
Low risk High risk

Investment Management Solutions
Traditional Asset High Net Ultra High Net

Classes Retail Mass Affluent Super Affluent Worth Worth
Cash/Savings
Fixed Income Yes
Limited
Equities
No
Mutual Funds, ETFs,
REITs
Foreign Exchange
Commodities

Investment Management Solutions
Alternative Asset
Classes High Net Ultra High Net
(Non-traditional) Retail Mass Affluent Super Affluent Worth Worth
Hedge Funds
Private Equity Yes
Limited
Real Estate
No
Art
Wine

Traditional Asset Classes: Fixed Income / Bonds
Issuer
OR
Pays periodic
interest…
Fixed Income / Bonds
Loans owed by the issuer to the …and principal to

investor investor

Traditional Asset Classes: Fixed Income / Bonds
Bonds provide yield and a steady stream of income
Credit Risk Interest Rate Risk
• Borrower or issuer of the

• Investment amount falls
bond goes bankrupt
in value as interest rates
rise
• Investor stands to lose
part or all the investment

Traditional Asset Classes: Equities
Equities are “stocks” or shares of a company
Equities are listed on public Stocks represent ownership

stock exchanges all over interest in a company
the world

Equities are “stocks” or shares of a company
Investors expect to make a

Dividend stocks provide
gain when the company
income to investors
whose stock they bought
makes more
revenue/profit/cash flow

Equities are usually considered medium or high-risk investments
Company risks Economic cycle risks

Traditional Asset Classes: Mutual Funds / ETFs
Exchange Traded
Mutual Funds
Funds
• Funds are pooled together then invested • Funds that track indices, sectors,
in various financial securities commodities, or other assets
• Actively/passive managed • Listed and traded like stocks
• Higher fees • Passive/active managed
• Less liquidity • Lower fees
• More liquidity
Generally, less risky than investing in individual bonds or stocks (diversification)

Traditional Asset Classes: Foreign Exchange (FX)
Domestic/Local Currency Foreign Currency
Diversification Hedging Speculation

Traditional/Alternative Asset Classes: Commodities
Diversification
Commodities are raw materials
used to create products
Inflation
Why invest in
commodities?
Speculation

Traditional Asset Classes: Commodities
Precious Metals Industrial Metals
Platinum, palladium,
Gold & silver
copper, etc.
Soft Commodities Energy
Agriculture related
Oil & gas
products

Traditional Asset Classes: Commodities
How to invest in
Exchange Traded Funds (ETFs)
commodities
Mutual Funds
Equities of commodity producers or traders
• Prices influenced by various economic

activities, politics, weather patterns, and man-
made / natural disasters
Direct ownership of the commodity
• Investing in commodities is considered risky

Alternative Asset Classes: Hedge Funds
Alternative investments are less liquid and less transparent than traditional investments
Hedge Funds
Pool money primarily from Actively managed, but with Employ various investment Less liquid than mutual funds
private investors and only limited regulation and strategies
from accredited investors transparency

Alternative Asset Classes: Private Equity
Privately negotiated… …ownership in a privately held business enterprise
Funds for expansion plans, restructuring, research and development, etc.
Long-term investment (7-10 years)

Capital Call: Private equity fund draws funds from investors as needed
Private Equity
Higher ROI HNW or Institutional Diversification Control

Investors
Private Equity
Illiquid investment Long investment Initially negative Positive returns in

horizon returns later years
Private equity is only for institutional clients or accredited investors

Accredited Investor
An individual/entity that is permitted to purchase

investment securities that may not be registered with
financial regulators
• Income
• Net worth
• Asset size
• Professional experience
• Income >$200,000
• Net worth >$1,000,000, excluding primary residence

Alternative Asset Classes: Real Estate
Tangible assets
Real Estate ≠ REITs

Held long term
• Direct or co-ownership
• Income producing, or value add

Highly diversified
Predictable cash flows

Illiquid investment
Potential for capital appreciation

Alternative Asset Classes: Art
Specialist teams advise HNW and UHNW investors on:
International art What to buy & How to store and

Where to exhibit
market acquisition strategy transport art
How to use art as Estate planning Philanthropic Coordinating sale of

collateral specific to art giving art with auction houses

Alternative Asset Classes: Wine
Specialist teams advise HNW and UHNW investors on:
Investment-grade What to buy and

wines acquisition strategy
How to store and Coordinating sale of wine

transport wine with auction houses

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Introduction to

Tim Vipond Mary Jeanne (MJ) Lee

Corporate Finance Institute®

Corporate Finance Institute®

Wealth Management Grow

Service provided to individuals and families

Corporate Finance Institute®

Diversified Investment Family Education & Coordinate With Annual Management

Corporate Finance Institute®

Life Event Acquire & Understand

Optimization & Tuning

Financial Private Financial Investment Investment Portfolio

Corporate Finance Institute®

Personal / Family Institutional Investment/Asset

• Retail clients • Pension funds

Corporate Finance Institute®

Large and growing market Very attractive business for banks

Corporate Finance Institute®

Client Segment Investible Assets (USD)

Ultra High Net Worth > 25,000,000

High Net Worth 5,000,000 – 25,000,000

Super Affluent 1,000,000 – 5,000,000

Mass Affluent 100,000 – 1,000,000

Retail < 100,000

Corporate Finance Institute®

Total Assets Total Liabilities

Corporate Finance Institute®

• Assets are liquid or can be easily • Includes liabilities associated with

Corporate Finance Institute®

Creating a step-by-step guide or approach to

Managing income, expenses, savings, and

Financial planning services such as retirement

Corporate Finance Institute®

Advising and managing the financial or

Corporate Finance Institute®

Corporate Finance Institute®

Steps to be successful as a financial advisor or private banker:

Corporate Finance Institute®

Risk, Legal, and Compliance

Large focus on anti-money laundering and financial crime

Know Your Client (KYC)

• Why are they opening a certain type of account?

• Who are the account holders?

• What is the purpose of the account?

• Where are the funds coming from?

Corporate Finance Institute®

To be a successful financial advisor or private banker, you must have:

Good A broad knowledge Manage multiple A willingness to Skills to engage in

Corporate Finance Institute®

Portfolio Management Client Pipeline Delivering

Corporate Finance Institute®

Portfolio Management Client needs Delivering Sustaining Handling

Corporate Finance Institute®

Portfolio Management Product Assessing Behavioral Building a

Corporate Finance Institute®

Portfolio Management Professional Risk Compliance Monitoring

Corporate Finance Institute®

Estate Planning Yes