Personal Wealth Management

Module 1

What is Wealth Management?

Wealth management is a consultative process. It involves
consultations with affluent clients, discussions on their financial
needs and goals.

Wealth management (WM) or wealth management

advisory (WMA) is an investment advisory service that provides
financial management and wealth advisory services to a wide
array of clients ranging from affluent to High Net-worth (HNW)
and Ultra-High-Net-worth (UHNW) individuals and families.

Need for wealth management :

1. Growth of HNWI( High Net-worth Individuals ) and
UHNWI ( Ultra Net worth Individuals )
2. Time constrains
3. Expertise service
4. Complexities in financial services
5. Goals ( to meet expenses of marriage , education , trip to
abroad etc)
6. Wealth transfer ( easy transfer of wealth from one
generation to another)

1. Growth of HNWI and UHNWI: High Net Worth Individual (HNWI)

are generally defined as private individuals with more than USD 1
million or ` 7 crore of investable assets.
Ultra High Net Worth Individuals (UHNWI) are private individuals
with more than USD 30 million or ` 200 crore of invest-able assets.
India has increasing number of HNWI and UHNWI Which shows
scope for wealth managers to provide need based advisory services
to clients to manage and grow their wealth in order to achieve their
financial objectives.
2. Time Constrains: Research shows time and expertise are the two
major constrains for any individual to manage his/her own wealth.
Time is a major constrains for almost all HNWI’s as they are usually
busy with their business or profession.

3. Expertise: Many HNWI’s and UHNWI’s may have the time at their
disposal however may lack the expertise to do informed asset
allocation so they require services of wealth management firm.

4. Complexities in Financial Products: Financial Markets are getting

more and more complex global and so are the offerings. It requires
more than just basic knowledge to understand the risk associated
with complex financial instruments like derivate and swaps, Hence
services of wealth management firm are desirable.

[Link]: Financial Goals like Starting business, getting married,

holiday abroad, buying a home, a new car, retiring comfortably
require the assistance of wealth management services to plan
scientifically for attainment of each goal.

[Link] Transfer: There is a strong need for wealth transferring

from one generation to another or charity in a tax efficient manner
and also in a manner which does not give rise to family disputes.
Wealth managers provide Estate planning services where wealth
transfer becomes smooth and without any hurdles.

Scope of wealth management

• Spotting investment opportunities.
• Providing curated estate planning services.
• Providing tax planning services.
• Buying and selling of stocks.
 • Advising clients about financial products and services.
• Managing portfolios.
• Assessment of risks associated with
decisions

Components of Wealth Management

There are three essential components to true wealth management:
1. A consultative process
An adviser’s wealth management process must be consultative to enable
them to gain a detailed understanding of clients’ goals and their most
significant financial wants and needs. A proper wealth management
process is far more than a compliant recommendation for a financial
product. An industrialized wealth management process involves
counseling, challenging, educating, advising, and leading clients to better
manage their financial circumstances and/or more effectively develop the
opportunities in their financial lives.
2. Customized choices and solutions
Wealth management advisers offer their clients solutions designed to fit
the full range of each client’s needs. These services might include several
of the following: investment management, insurance, estate planning,
taxation, cash flow management, debt management, leasing, stock
brokering, retirement planning, mortgages, banking, charitable giving,
financial structuring etc,..
3. Delivery in close consultation with your clients
Wealth managers provide their services by working closely with clients on
an ongoing basis to identify their specific needs and how those needs
change over time, and design solutions around those needs. True wealth
managers continue to help their clients make smart decisions regarding
their money over a period of time.
wealth management can be summed up using a single, all-encompassing
formula:
Wealth management = investment consulting + advanced planning +
relationship management (or WM = IC + AP + RM)
Investment consulting
Investment consulting is the core offering for many wealth managers, and
the foundation upon which they begin the client relationship.
Advanced planning
Advanced planning addresses four key areas of financial needs that clients
have beyond investments: wealth enhancement, wealth transfer, wealth
protection and charitable giving.

Relationship management
Relationship management focuses on three areas: fully understanding and
meeting clients critical needs over time; assembling and overseeing a
network of financial experts to help you meet client needs; working
effectively with your affluent clients’ other professional advisors, such as
their lawyers and accountants.

The 6 Stages of Wealth Management

(Process of Wealth Management)
1. Gathering financial data
2. Establishing financial goals
3. Auditing and analyzing the portfolio
4. Recommending a financial plan
5. Implementing the plan
6. Monitoring and reporting on the plan.

1. Gathering financial data : First and the most important stage of

wealth management is to collect the financial data of a client .
Wealth manager will have a proper meeting with the client to
understand the financial position of the client , requirement and
financial goals . This is typically a free, no-obligation consult that
offers clients the opportunity to explain what they need from the
financial advisor.
2. Establishing financial goals : Giving wealth manager as much
information as possible about client’s current finances,
circumstances, and risk tolerance. Provide all recent statements,
insurance information, and current investments so the financial
advisor can evaluate the financial goal as a whole — policy values,
terms, benefits, and more. Offering this information upfront helps
tailor your planning process according to the clients unique needs.
3. Auditing and analysing the portfolio: Once the client has shared all
the information, wealth management team examines current
strategy and determines what's working and what's not. They'll also
 review the implications of any potential changes to arrive at an
updated strategy And suggests best possible portfolio .
4. Recommending a financial plan : Under this stage the Financial
advisor will outline how effective current investment strategy
works, discuss potential tweaks, and together,builds an effective
portfolio and design the plan most appropriate to guide the client
toward goals.
5. Implementing the plan: The implementation stage involves
several steps itself, but this is where the details are worked out.
This is where your plan comes together. Financial advisor can then
work toward assuring the client’s wishes are carried out accurately
and on a schedule that works for the client.
6. Monitoring and reporting on the plan: Regular reviews keep the
client updated on plan's progress, performance, and anything else
that may develop. Having access to an elite team of wealth
managers in between review meetings is also important.

Types of Clients and their expectations :

Client Profiling :
Client profiling is a useful concept that helps in establishing a
relationship with the client. It helps in figuring out the financial personality
of the client.
While clients within each profile may be dissimilar, they can be broadly
identified as following types:
• Relationship clients
• Fear based clients
• Curious clients
Greedy clients

Relationship clients
*These people want to form a bond with someone whom they trust. They
tend to be easy to talk to at the initial meeting.
*Much of the interaction is informal and conversational.
*They want to feel comfortable.
*They tend to be very good, long-term clients and very nice to work
with.

Fear-based clients:
 These people tend to have very little financial experience or have had bad
financial experiences.

Curious clients
*They are knowledgeable clients. They are working with financial advisors
because of time constraints.
*They take a great interest in what a financial advisor does.

Greedy clients
• These are often the clients who are only interested in some in-
articulated and ever-changing objectives, usually measured by
short-term results.
They may appear to be charming initially because they are often
marked by high energy and a quick mind.

Code of ethics for wealth manager

A code of ethics is a guide of principles designed to help professionals

conduct business honestly and with integrity.
Following are the two different sets of board which provide code of
ethics to the wealth manager
(i) Association of International Wealth Manager (AIWM) Code
of Ethics
(ii)FPSB Code of Ethics (Financial Planning Standards Board
India

(i) Association of International Wealth Manager (AIWM) Code of

Ethics:

The Association of International Wealth Management AIWM is

a non-profit association established to encourage, promote and
strengthen global education in the private banking industry and
to set a globally recognized standard for the qualification of
private banking professionals. The AIWM objectives seek to
 ensure the highest ethical conduct of its members and thus
contribute to the integrity of global capital markets

Rule 1 Principle of Professional Ethics:

Independence: Members must exercise independent and objective
judgment in their professional activities.
Integrity: Members must preserve their professional and personal
integrity.
Professionalism and diligence: Members must always act
as qualified professionals and perform their activities with
the diligence required from qualified professionals
Loyalty and priority of the clients’ interests: Members
owe a duty of loyalty to the clients. They must under all
circumstances give priority to the clients’ interests and
ensure that they are treated fairly and equitably.

Rule 2 Compliance with Applicable Rules:

• Comply with the provisions of the laws,
regulations and self regulatory rules as well as all
internal rules of their employer.
• Members must comply with the provisions of
laws, regulations and rules enacted by self
regulatory bodies.
• They must also abide with the internal guidelines
issued by their employer.

Role 3 Duty of Information:

 • Members must ensure that the information
they provide to clients and investors is clear,
timely and accurate.
• They are prohibited from promising a given
return.
Rule 4 Conflicts of Interests:
• Members shall avoid any situation of
conflict with interests of clients.
• If a conflict cannot be avoided, priority has
to be given to the interests of the clients.
Members treat the interests of clients and investors in
accordance with the principle of equal treatment.

Rule 5 Duty to Inform the Employer:

Members shall inform their employer that they have to
comply with these Rules of Conduct and Fundamental
Principles of Professional Ethics.
.Rule 6 Sanctions
The effectiveness of regulating professional conduct by
professional standards arises from the existence of
efficient penalties, recognized as such by and in the
profession.

(ii) FPSB Code of Ethics

Financial Planning Standards Board India is a Public -
Private Enterprises and a Professional Standards Setting
body that proactively guides the professionals to benefit
and protect the public in the country. FPSB India closely
works with all the stakeholders' viz. the Government, the
Regulators, the Industries/Associations, the Corporate, the
Media and the General objectives

Code of Ethic 1 - Client First

Place the client’s interests first. Placing the client's
interests first is a hallmark of professionalism, requiring
the Financial Planning professional to act honestly and not
place personal gain or advantage before the client’s
interest.
Code of Ethic 2- Integrity
Provide professional services with integrity. Integrity
requires honesty and condor in all professional matters.
Financial Planning professionals are placed in positions of
trust by clients, and the ultimate source of that trust is the
Financial Planning professional's personal integrity..
Code of Ethic 3 - Objectivity
Provide professional services objectively. Objectivity
requires intellectual honesty and impartiality. Regardless
of the services delivered or the capacity in which a
financial planning Professional functions, objectivity
requires Financial Planning professionals to ensure the
integrity of their work, manage conflicts and exercise
sound professional judgment.
Code of Ethic 4 - Fairness
Be fair and reasonable in all professional relationships.
Disclose and manage conflicts of interest. Fairness
requires providing clients what they are due, owed or
should expect from a professional relationship, and
includes honesty and disclosure of material conflicts of
interest.
Code of Ethic 5 - Professionalism
Act in a manner that demonstrates exemplary
professional conduct. Professionalism requires behaving
with dignity and showing respect and courtesy to clients,
fellow professionals, and others in business-related
activities, and complying with appropriate rules,
regulations and professional requirements.
Code of Ethic 6 - Competence
Maintain the abilities, skills and knowledge necessary to
provide professional services competently. Competence
requires attaining and maintaining an adequate level of
abilities, skills and knowledge in the provision of
professional services. Competence also includes the
wisdom to recognize one’s own limitations and when
consultation with other professionals is appropriate.
Code of Ethic 7 - Confidentiality
Protect the confidentiality of all client information.
Confidentiality requires client information to be protected
and maintained in such a manner that allows access only
to those who are authorized.
Code of Ethic 8 – Diligence
Provide professional services diligently. Diligence requires
fulfilling professional commitments in a timely and
through manner, and taking due care in planning,
supervising and delivering professional services.
Financial Planning
What Is a Financial Plan?
A financial plan is a document that details a person’s current
financial circumstances and their short- and long-term monetary
goals. It includes strategies to achieve those goals.
Financial planning involves a thorough evaluation of one’s money
situation (income, spending, debt, and saving) and expectations for
the future.

Systematic approx to Investing( SIP, SWP and STP)

SIP( Systematic Investment plan):

SIP, or Systematic Investment Plan, is an investment
strategy that allows individuals to invest in mutual
funds/stocks/bonds regularly over a specified period. It involves
investing a fixed amount at regular intervals, typically monthly.

Benefits of SIP:
• Makes you disciplined investor
• Power of compounding( re investing the return )
• Lighter on the pocket
• Eliminates the need to time the market
• Higher returns
• Flexible
• Acts as an emergency fund
1. Makes you disciplined investor:
SIP can be the best investment option for you if you do not possess
superior financial knowledge about the way the market moves.
You do not have to spend your time analysing the market movements
or the right time to invest in.
2. Power of compounding:
SIP is a disciplined way of investing and ensures you constantly
strive to make your investments grow The small amount you
 invest daily grows up to a large corpus due as a sum of your
contribution and the returns compounded over the years.
3. Lighter on the pocket :
With SIP, you can start investing small amounts as small as Rs
500 each month and watch it grow. A SIP is not only simple and
convenient to track, but also makes you save more.
4. Eliminates the need to time the market :
SIPs are about disciplined investments, and they help avoid the
guesswork involved in timing the market.
5. Higher returns :
As compared to traditional fixed deposits or recurring deposits,
SIP provides double the returns. This can help you beat the
inflated costs.
6. Flexible:
SIP provides greater flexibility in terms of investment and
withdrawal. You can either withdraw the full or a partial amount
from your investment, without incurring any losses. The amount
of investment is also flexible: it can be increased or decreased.
7. Acts as an emergency fund:
Being an open-ended fund without any tenor, you can
withdraw your SIP Investment as a contingent fund.

Disadvantages of SIP
• SIPs are for people with fixed cash flow
• Not for short term investors
• SIPs might creat liquidity risk
• skipping an instalment is hassle
• Returns can decrease over time
SWP( Systematic Withdrawal Plan):
A Systematic Withdrawal Plan or SWP is a facility extended to
investors allowing them to withdraw a fixed amount from
a mutual fund scheme regularly.
You can choose the amount and frequency of withdrawal. You can
also choose to just withdraw the gains on your investment keeping
your invested capital intact.

There are two types of SWP:

• Fixed Withdrawal and
• Appreciation Withdrawal.
In a fixed withdrawal
option, the investor specifies the amount he wants
to withdraw from his investment on a
monthly/quarterly basis.
In an appreciation withdrawal option, the investor withdraws

only the appreciated amount on a monthly/quarterly basis .

Benefits of SWP
• Flexibility ( amount , date of withdrawal, stop
investment)
• Regular income
• Capital appreciation in the long run
• No TDS

STP( Systematic Transfer Plan ) :

A systematic transfer plan allows investors to shift their

financial resources from one scheme to the other
without any hassles.
This transfer occurs periodically, enabling investors to gain market
advantage by changing to securities when they offer higher
returns.

Types of STP
1. Fixed STP: A fixed amount is drawn from investment and
invested in another.
2. Capital appreciation ST: The profit gained from one
investment is drawn out and invested in other.
3. Flexi STP: A flexi-STP allows you to keep one set of funds in
one investment type say debt funds and transfer it to other
type say equity funds depending upon the market
condition.

Benefits of STP
• Higher returns
• Stable
• Taxability
Life cycle and wealth cycle

The life cycle stages of an investor can be classified as follows :

o Childhood stage

o Young unmarried stage

o Young married with children stage

o Married with older children stage

o Pre-retirement stage

o Retirement stage

The income level of investors, the saving potential, the

time horizon and the risk appetite of the investor depend
on his life cycle.
Younger investors have higher income and saving potential,
take longer term view and may be willing to take risks.
Older investors may have limited income and saving,
shorter time horizon, and unwilling to risk their savings.