Overview of Wealth Management

Wealth Definition
Wealth means the condition of well being Wealth is the present value of all future cash flows from financial assets and real assets Wealth management refers to passive income and not active income

Wealth management issues

Current life style needs - Income client needs for living, needs for children-dependants, short and long term goals. Income tax considerations - The timing of Stock or Bond purchases and sales might affect total tax liability. Inheritance goals - To whom the client wants to hand over their money and how much control to grant upon potential inheritor-heir. Humanitarian pursuits - The clients liking for charities-gifts (also determining any tax benefits to the client.)

Phases in wealth management process

Understanding Opportunities and Issues Planning Wealth Management Strategy

mplementing the Wealth Management Plan

Supervising and Monitoring

A. Understanding Opportunities and Issues

a.Investors know thyself
Each

investor is unique and should know his financial goals. They should define their comfort zone that helps in appropriate asset allocation.

b.Understanding values, goals and needs

Where

am I (in financial terms)? Where do I want to go? How do I get there?

A. Understanding Opportunities and Issues

c.Developing rational investment expectations
The

goals of a customer must be reasonable Their expectations must be based on their riskreturn profile

B. Planning a wealth management strategy

a.Impact of taxes
Impact

of taxes on wealth management strategy must be closely looked into

b.Developing an investment policy

Help

clients in determining their specific goals including their hidden goals Evaluate the existing portfolio of the client Determine the cash flow needs of the client Determine the constraints Determine the risk tolerance level of the client Develop an asset allocation plan

B. Planning a wealth management strategy

c.Importance of asset allocation

Three decisions that influence the portfolio performance are Asset allocation decisions asset allocation is dependent on the wealth managers assumptions about the financial markets, clients goals and constraints Security selection decisions depending on the risk profile, type of securities are to be chosen to create the investment portfolio Market timing decisions wealth managers depend on technical analysis tools to decide on the timing of entry and exit from securities

B. Planning a wealth management strategy

d.Integrated wealth planning
This

refers to three different disciplines estate planning, financial planning and investment planning. Estate planning deals with transfer of wealth across generations in the most tax efficient manner. Financial planning refers to cash flow needs in the present and the future Investment planning deals with the selection of investment strategies

C. Supervising and Monitoring Process

This

is a continuous process to see if the initial plan is producing the desired results or not. The financial plan needs to be altered in case of deviations.

D. Implementing the wealth management plan

It

involves important issues like market timing, tactical portfolio rebalancing, use of derivative instruments, and initial portfolio funding.

Wealth management market in India

Demographics
Sustained

GDP growth has created wealth in many sectors, like gems and jewellery, retailing, financial services, and BPO. GDP growth is concentrated in Maharashtra, UP and West Bengal Mumbai alone accounts for 50% of the deposits held by foreign banks High net worth individuals (HNWI) are defined as those with financial assets of atleast US$ 1 million excluding residential property. Estimated 70,000 HNWIs are there in India (compared to 8.3 million worldwide)

Wealth Pyramid

Major product offerings

Portfolio

management services (PMS) Mutual funds Insurance products Equity Fixed income instruments Real estate Mortgage lending Art funds Derivates and structured products

Key trends
Rapidly

growing market Clients becoming increasingly sophisticated Open product architecture approach adopted by wealth managers Wealth managers are looked upon as trusted advisors rather than money managers for their clients

Key limitations
Market

is in its nascent stage 85% of financial assets are still in the form of bank deposits Low usage of technology tools by wealth managers Shortage of skilled and experienced wealth managers

CASELET
Smita

has just graduated from college and is starting her career. She has heard about the importance of financial planning in one of the guest lectures which was organized in her college. She wants to make sure that she develops a plan for financial success. Her goals are to be able to retire at 45 years and live comfortably on her savings. Smita is 22 years old and believes that if she makes the right financial decisions now, she will be more likely to meet her financial goals. Smita has seen many people retire without enough savings to support themselves and does not want this to happen to her.

CASELET
What

are some of the financial decisions Smita will probably have to make as a fresh graduate? What are the advantages of starting early on her financial plans? Smita is thinking about using a savings strategy based on paying all of her expenses and saving whatever is left at the end of the month. Do you think this is a good strategy for wealth creation?