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WMK INVESTMENT ADVISORY SERVICES (B)

In June, 1987, WM Khan, Managing Director of WMK Investment Advisory Services, was
reviewing the files of four clients. Each of these clients had a very specific problem which
required a good understanding of finance.

WMK Investment Advisory

Khan started WMK Investment Advisory Services in January, 1987. The goal of the company
was to provide comprehensive portfolio management services for investors. Prior to January,
1987, most of the investment advisory services fell under three broad categories. The first and
the oldest, was the real estate broker, who advised clients on the viability of real-estate deals.
The stock-broker came under the second category and advised clients about potential
investments in stocks and bonds. The third and the latest addition to this list, were financial
institutions and insurance companies. The financial institutions initiated deposit schemes with high
interest rates to attract depositors. The insurance companies had their own schemes ranging from
life assurance to retirement plans. The financial institutions got their clients by soliciting the public
through advertising while the insurance companies relied on both advertising and insurance
agents.

As Khan saw it, the brokers, financial institutions and insurance companies were selling their own
services and products. The public at large had no means of evaluating and comparing these
investments. He felt that an investment advisory service was in order. He envisioned an advisory
service which concentrated primarily on the needs of the clients and then helped them find the
appropriate financial product.

As a rule, all new clients spent their first session defining their financial objectives. According to
Khan, this was the most important service his organisation provided. This process of financial
goal-setting helped his clients to be clear about their financial plans. The next step was to find the
most appropriate investment scheme for his clients. Usually, the clients would have a time frame
for their investments, and a rough estimate of their future financial goals. Khan used these guide-
lines to help his clients in their investment decisions.

The clients would usually look at a wide range of investments, namely: stocks, bonds, modarba
(Islamic equity funds) certificates, Investment Corporation of Pakistan (ICP) Participation

This case was written by Teaching Fellow Nasser Aziz to serve as a basis for class discussion rather than to
illustrate either effective or ineffective handling of an administrative situation. This material may not be
quoted, photocopied or reproduced in any form without the prior written consent of the Lahore University of
Management Sciences.

 1987 Lahore University of Management Sciences

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Accounts, National Development Finance Corporation (NDFC) deposit schemes, Khas Deposit
Schemes offered by the National Savings Organisation, real estate investments, etc. This list
would gradually be narrowed down to suit the needs and inclinations of the clients.

Khan had made a special effort in helping his clients understand the financial principles involved in
their investment choices.

Each of the four files Khan was currently reviewing had a unique problem. Khan was keen on
providing quantitative and qualitative solutions for his clients.

Mr and Mrs Tirmizi

Mr and Mrs Tirmizi had three children aged six, four and one. The couple wanted to start a
savings plan for the children’s college education, which would start at the age of 15. They
estimated that each child would take two years to complete their FSc; a degree awarded after
the 12th grade, and would then take at least five years to complete their professional/university
education.

The expenses for the FSc degree were estimated to be Rs 2,400 per annum. Following the FSc
degree the parents calculated expenses to be about Rs 6,000 per annum per child.

Mr and Mrs Tirmizi knew that with their very limited resources they would have to initiate a
savings plan very soon. They wanted an estimated savings plan for the next nine years, which
would enable them to meet their future obligations. Khan estimated that the appropriate discount
rate for such a plan was 15%.

Gul Zaman

Gul Zaman was an entrepreneur. He had an import/export business in Lahore. He had seen the
Defence Savings Certificate advertisements (offered by the National Savings Organisation) in the
newspapers whic h claimed that these certificates earned on average 32.6% tax-free profit after
10 years. In addition the investors were eligible for an income tax rebate as well as other
incentives (Figure 1).

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Figure 1
Defence Savings Certificate

SAFEST WAY TO
PROSPERITY

GUARANTEED SECURITY.
HIGHEST INCOME TAX FREE PROFIT
INCOME TAX REBATE ALSO AVAILABLE

BUY DEFENCE SAVINGS CERTIFICATES

Average 32.6% income tax free profit

Rs. 100 becomes Rs. 426 after 10 years

NATIONAL SAVINGS CENTRE

Issued by:
CENTRAL DIRECTORATE OF NATIONAL SAVINGS
CDA. Block No. 1. Islamabad. Phone 829828 Telex 5730 SAVE-PK

Shamim Rizvi

Shamim Rizvi was in his mid-50s and planning for his post-retirement finances. He wanted to
work until the mandatory retirement age of 65. Following retirement, he wanted to build a small
house in Hunza for the summers and spend his winters in Lahore. The house he planned to build
in Hunza, was on a small tract of land at the foot of the hills. He wanted to buy two acres of land
immediately, for Rs 25,000. Shamim estimated that by the time he retired he could sell one of the
two acres for Rs 60,000. This could help him defray the cost of building the house. The new
house would cost Rs 100,000. He estimated that he needed Rs 5,500 per month for his post-
retirement living expenses. Shamim wanted to initiate a savings plan which could later be
converted to the NDFC’s Monthly Income Certificate of Deposit scheme, to enable him to meet
his post-retirement expenses. This scheme paid Rs 1,100 a month for every Rs 100,000
invested. Khan calculated that the relevant discount rate would be 10%.

Kismat Ravi

Kismat Ravi was a doctor with a general practice in one of the poorer suburbs of Lahore. He
and his wife were planning to build a trust hospital. The hospital would start with an outdoor
patients service. This would cost Rs 400,000 including land and construction. He further needed
Rs 10,000 per annum to maintain the outdoor centre. After two years, Kismet planned to expand
the services to include a maternity ward. This service would cost Rs 600,000 for building and
furniture, plus an additional Rs 5,000 per annum for maintenance. Kismet had spoken with some
of his old college friends who agreed to set up a foundation to support this programme. Khan
was working with a 12% discount rate and assuming a project life of 10 years.

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