Unit - IV

Wealth Management
Definition of Wealth
• Wealth is an accumulation of valuable economic
resources that can be measured in terms of either real
goods or money value.
• Net worth is the most common measure of wealth,
determined by taking the total market value of all physical
and intangible assets owned, then subtracting all debts.
Wealth Management

• High Level Professional

Service.
• Helping an individual to
build wealth, preserve it
and subsequently transfer
it to the next generation in
a tax efficient manner.
Definition of Wealth Management
• According to Investment Management Consultant
Association (IMCA),
“a distinct field of practice through which qualified
professionals help high net worth client achieve their goals
and objectives related to accumulation, protection and
distribution of wealth by applying a set of specialized
knowledge and skill.”
Features of Wealth Management
• Client segment – HNIs (High Networth Individuals)
• Networth of more than 5crs.
• The client is followed throughout life.
• Wealth manager could be part of wealth management firm, or
solo practitioner.
• Management fees vary widely.
• Inputs from financial experts and attorneys, accountants,
insurance agents.
• Holistic approach instead of advice from several professionals.
Features of Wealth Management
• Manages cash balances as well as income
• Prepare original plan; update goals, review and
rebalance; check for additional services needed
• Range of products offered
• Consultative process
Scope of Wealth Management
• Wealth accumulation and development
 Asset allocation
 Rigorous security selection
• Wealth protection
Current and Future Income Planning
Retirement Planning
• ž Tax minimization strategy
• ž Estate Investment, Trust and Insurance Planning
Wealth Management Process
Wealth Management Process
• Data gathering for current situation – goal, relationship,
assets, advisors
• Define the terms of engagement (Signing of MoU)
• Goal setting
• Identification of needs
• Analysis of opportunities and challenges (SWOT)
• Report preparation
• Implementation
• Review and revision
Top 10 Wealth Management Companies in India

• HDFC Bank Private Banking

• ICICI Bank Private Banking
• Kotak Mahindra Bank Wealth Management
• Axis Bank Wealth Management
• SBI Wealth Management
• BNP Paribas Wealth Management
• Standard Chartered Private Banking
• Citibank Private Banking
• Deutsche Bank Wealth Management
• Edelweiss Wealth Management
Spectrum of Services provided by WM Companies.

1. Investment Management
2. Financial Planning
3. Estate Planning
4. Tax Planning
5. Retirement Planning
6. Risk Management
How to Measure Wealth?
• Wealth is measured by subtracting the total value of all debts from
the total value of all assets owned.
• It can be measured for an individual, household, company, or
country.
Wealth can be measured in different categories, including:
• Net financial wealth: The total value of market financial
assets(market value) minus any debts
• Net property wealth: The total value of properties minus
mortgage debt
• Private pensions wealth: The value of private pensions
• Physical wealth: The value of physical assets
Types of Service Mandate
• Custodian mandate
• Advisory mandate
• Discretionary mandate
Custodian mandate
• A custodian manages institutional investments.
• Be responsible for collecting of dividends and income in
relation to investments of the scheme.
• Be responsible for processing and transferring
documents. Report to the Authority on matters relating to
assets and investments of the scheme.
Advisory mandate
• Under an advisory mandate, the Investment Advisor (IA)
provides periodic investment reviews.
• The ultimate investment decisions, based on consultation
with IA, are taken by the clients.
• The benefits of entering into an advisory mandate include
the independence of receiving advisory on pre-existing
client portfolio at other banks and having transactions
executed in those accounts.
• This is a more “Hands-on” approach.
Discretionary mandate
• Under a discretionary mandate, the Portfolio Manager
(PM) manages your wealth on your behalf.
• Based on objectives and risk parameters described
during the first meeting, the PM takes investment
decisions.
• The benefits of entering into a discretionary mandate
include low time commitment and low availability
requirement due to it being a “Hands-off” approach.
Reason for looking at HNIs
• HNI investors are individuals who possess a very high
net worth.
• HNIs can grow their wealth by investing in numerous
avenues, including Equities, Real Estate and Venture
Capital.
• HNIs seek assistance from wealth management firms
to manage their wealth and optimise growth as well as
tax efficiency.
Customer Segmentation
• Demographics: Age, Income.
– Gold Customer, Silver Customer, Platinum Customer etc.,
• Profitability
– High Networth Individual (HNI) - liquid assets - Rs. 5L to Rs. 5Cr
– VHNI - liquid assets - Rs. 5Cr to Rs. 25 Cr.
– UHNI - liquid assets > Rs. 25 Cr.
– Mass Affluent > $100,000.
• Referral Value
Client Profiling
• Best way - lisenting to client without asking.
• Develop a deeper level of understanding.
• Understand the Clients’s needs, expectations, constraints
and fears.
• Helps in estabilishing a relationship with the client.
• Helps in figuring out the financial personality of the client.
Types of Clients
• Relationship Clients
• Fear based Clients
• Curious Clients
• Greedy Clients
Client Profiling
• Know your type of client
• Collect the facts and financial statements of the client.
• Go through the assembled data and ask why the owns
those assets.
• Be careful not to criticize past financial decisions of the
client.
Building relationship with HNI client
• Make a good first impression - Invest in your site’s user
experience.
• Emphasize communication - user-friendly mobile
application and automated communication offerings,
increase client engagement by sending emails.
• Build trust - Keeping clients consistently informed about
their financial health
• Be social - Social media can be a dynamic tool for
finding, engaging and retaining HNI investors.
Building relationship with HNI client
• Give up control - HNI investors value being part of the
decisions you’re making with their money. They’re
educated, self-assured and heavily invested in their
financial outcomes.
• Be multi-dimensional - they require a wide range of
services. Align your service model to include the services
they value most like tax and legal advice, estate and trust
management and impact investing or philanthropic.
Asset Allocation: optimal portfolio
Large cap Stocks Mid cap Stocks Small cap Stocks
Market capitalization of Rs. 5,000 and Rs. 20,000 less than Rs. 5,000 crores.
more than Rs. 20,000 crores. crores.
Considered to be of low risk Slightly more riskier Very risky
Enjoys high liquidity and Moderately volatile and Characterized by low
low volatility liquid liquidity but are high
volatile
Tends to generate stable The potential for growth is The potential for growth is
returns with low growth moderate to high very high
potential
These stocks are perfect for These stocks are ideal for These stocks are the right
conservative investors. investors with moderate option for aggressive
risk tolerance. investors.
Asset Allocation: optimal portfolio
• Market Capitalization =
Total number of outstanding shares x Current market
price
Portfolio Monitoring
• Portfolio monitoring involves tracking and analyzing the
performance of a portfolio of assets or investments.
• This includes tracking the market conditions, economic
indicators, and other factors that can impact the
portfolio’s performance.
• The goal of portfolio monitoring is to identify trends and
make adjustments to the portfolio to maximize returns
and minimize risk.
Portfolio Monitoring
• Investors use various metrics and performance indicators
to monitor their portfolio, including:

• Investment returns
• Volatility
• Asset allocation
• Sector exposure
• Risk management
Portfolio Management
• Portfolio management is the process of overseeing a
collection of assets or investments to meet specific
investment objectives.
• It involves the selection of investments, asset allocation,
and ongoing management of the portfolio.
• Investors use various strategies for portfolio
management, such as passive management, active
management, and tactical management.
Portfolio Management
• Passive management involves creating a portfolio that
tracks the performance of a benchmark index.
• Active management involves making investment
decisions.
• Tactical management involves making adjustments to
the portfolio based on changes in market conditions
and economic indicators.
Portfolio Rebalancing
• Portfolio rebalancing is the process of realigning the
asset allocation within an investment portfolio to bring it
back in line with the investor's intended allocation.
• This practice is critical in ensuring that the portfolio
maintains the desired risk-return profile.
• It involves buying or selling assets within the portfolio to
restore the original asset allocation.
Portfolio Rebalancing

Portfolio rebalancing is essential for several reasons:

 Maintaining Risk Tolerance
 Optimizing Returns
 Discipline and Control
 Long-Term Strategy
 Risk Reduction
Portfolio Rebalancing

Challenges and Considerations:

 Transaction Costs
 Tax Implications
 Market Timing
 Emotional Discipline
 External Factors