Personal Wealth

Management
FORE School of Management
Submitted to: - Prof Vinay Dutta

Prepared by:
Sourabh Kwatra
FMG 22C
221147

ACKNOWLEDGEMENT

I would like to express my profound gratitude to all those who have been instrumental in the
preparation of my report on Personal Wealth Management.
To start with, I would like to thank Prof. Vinay Dutta, Faculty- Finance, FORE School of
Management, for providing me the chance to undertake this project & gain insights about
Personal Wealth Management which would prove out to be very beneficial to me in my future
assignments, my studies and my career ahead.
I express my profound sense of gratitude and veneration to you for your deep insights and
classroom teaching which provided me with valuable qualitative data that have formed the
backbone of this study.
I would also like to thank my client Mr Vipin Bhardwaj for her continuous co-operation.

(Sourabh Kwatra)

Contents

Literature review ......................................................................... 5

Personal Wealth management:.......................................................................................................5

Portfolio Management process:............................................... 6

Chapter 1 Client profile .............................................................. 9
Profile: ...........................................................................................................................................9
Personal Details .............................................................................................................................9
Financial Information/expenses (cash outflow) ( average Rs per month) ...................................... 10
Balance sheet in the book of Mr. Narander Bhardwaj as on 31 Nov, 2014 ...................................... 11

Chapter-2 Goal Setting ............................................................. 12

Financial Goals in smart form ....................................................................................................... 12

Chapter 3 Ratio Analysis ......................................................... 13

Basic solvency ratio ...................................................................................................................... 13
Liquid Ratio: ................................................................................................................................. 13
Savings Ratio:............................................................................................................................... 13
Debt to asset ratio:....................................................................................................................... 14

Chapter-4 Investor profile...................................................... 15

Chapter 5 Analysis and suggestions .................................... 16
Proposed investment detail .......................................................................................................... 20
Proposed Financial Information/expenses (cash outflow) ( average Rs per month) ....................... 20
Projected Balance sheet in the book of Mr. Vipin Bhardwaj as on 31 March, 2014 ......................... 21

References: .................................................................................. 22
Questionnaires ........................................................................... 23

TABLE OF QUESTIONNAIRES
1.
2.
3.
4.
5.
6.
7.

Questionnaire 1: Money attitude .................................................................27

Questionnaire 2: Financial Values..................................................................28
Questionnaire 3: Emergency Funds : Are you prepared?...............................29
Questionnaire 4: Are you in a DEBT TRAP?.....................................................30
Questionnaire 5:Life style evaluation.............................................................31
Questionnaire 6: Test to Risk Taking Ability...................................................33
Questionnaire 7: Investment risk tolerance...................................................34

Literature review
Personal Wealth management:
Personal wealth management (PWM) is the term generally used to describe highly customized
and sophisticated investment management and financial planning services delivered to high net
worth investors. Generally, this includes advice on the use of trusts and other estate planning,
vehicles, business succession or stock option planning, and the use of hedging derivatives for
large blocks of stock.
Private wealth management is the investment management specialization focused on high-networth individuals and families. Portfolio design and investment solutions in private wealth
management are customized to reflect the complexities of the investors unique circumstances.
This review reflects the current best thinking on private wealth management. Wealth
management is defined as an all-inclusive service to optimize, protect and manage the financial
goal of an individual, household, or corporate. (Wiiliam J. Jennings, 2010)

Each stage requires a different focus. In order that the process is successful, the wealth
manager and the client need to understand the nature of the process and appreciate that are
needed at each stage.
Some of the key things that need to be taken care at different stages of this process are as
under:

Investment strategy: Deploying the proper investment strategy requires that the investors
clearly define the long, medium and short term rational for the investment. The decision should
be based upon clear understanding and evaluation of the: (Vinod Mehta,2011)

Portfolio Management process:

Depending upon various objectives such as Capital preservation, capital growth, cash flows,
aggressive growth, capital growth and cash flows, wealth building etc. various combinations
could be made of various investment options available such as.
1. The ultra high net worth bankers handbook

The book is written by two leading private bankers and dismantles services for clients with
extremely high capital from the perspective of the customer and banker. The main idea is the
importance of confidentiality of client and need to understand complex customer problems and
their correlation with available financial resources. The book is written in simple language
accessible and contains several specific examples from the authors experience in working with
clients, addressing concerns such as family management, the structuring of state, advising on
the risks, asset management and corporate finance and asset monetization. Equifax Free Credit
Report.

2. Advising ultra-affluent clients and family offices

The author defines as a key trend reassesses asset management and the desire of customers to
understand the nature of the services provided by their financial advisors: their core
competencies and how they adjust to the overall program of wealth management client. The
most affluent customers now separate consulting from accounting and investment products
and are looking for independent consultants to help select the best in class investment
products from the worlds range of suppliers and then assemble and track the results with
special guarantees. The book is a comprehensive guide, which outlines the individual building
blocks for building an informed decision on management of the states.
3. Wealth: how the worlds high-net-worth grow, sustain and manage their fortunes
What are the opportunities for wealth creation are now available and how investors can take
advantage of them? Major trends include globalization and advances in technology that
contribute to diversification of investments in various investment funds, asset classes and
geographic locations. Improvement of investment products and investors themselves represent
different challenges for the industry, which is inherently a long time remains popular. In
addition, for wealthy clients are important family matters, transfer of state through the
generations and more philanthropic goals.
4. Global private banking and wealth management: the new realities
This compact and comprehensive overview of wealth management industry was published in
2006 before the financial crisis, but it still has significance today. The chapter examines changes
in the global market, clients and their segmentation, products and pricing, distribution
channels, the players, operating excellence, organizational design, regulatory and tax issues. It
included the definition of financial instruments and a glossary of terms, market analysis, states
in 25 countries and an application with FATF recommendations on combating money
laundering.
5.
Bernet
&
Partner:
Private
banking
library:
The portal has links to reviews and reports on private banking, made by researchers and
consultants, for example, Swiss Banking Institute, Capgemini / Merrill Lynch,
PricewaterhouseCoopers, Boston Consulting Group and Barclays Wealth. However, most

surveys since 2009, as the most recent surveys, is not publicly available. Updated information is
presented in the survey in 2011 Euromoney, but complete results are available only to
subscribers. (William Reichenstein,2011)

Chapter 1 Client profile

Profile: Vipin Bhardwaj
Mr. Vipin Bhardwaj, 50 years old, is currently owns a business in Delhi of retail outlet. He did his
schooling till 10th standard only and since then he is working. He is single father of a 16 year old
boy, whose mother passed away 8 years back. His is living in Delhi in 450 square feet flat and
apart from this he owes 1 commercial shop and 450 square feet 2 story house which is
currently rented to a family. He had never paid any tax nor have any life or health cover, debt
free.

Personal Details
Name: Vipin Bhardwaj
Age: 50 years
Marital Status: single father
Educational Background: 10th standard
Occupation: retail outlet owner
Spending Habits: donations, eating, reading novels
Financial Knowledge: very low

Family Details

Brother: 2 brothers and 3 sisters all settled

Child: A 16 year old son studying in a good school

Financial Details

Income: Rs. 3 lakh per annum plus 60 k (from rent but not sure income) total 3.6 lakh per
annum
Liabilities: Nil
Investments: Gold and property

Investment details:

Name

of

the Duration

Total

investment
Gold( 250 gm )
Property(

Long term
1 Long term

7,50,000
2,00,00,000

commercial shop ,
1 450 sq ft flat and
1 2 storey 450 sq
ft house)

Financial Information/expenses (cash outflow) ( average Rs per month)

Food

6000

Travel( child school van)

1000

School fees and tution fee and other school expenses

6000

Utilities

2000

Telephone

500

Medical Expenses

1000

Recreation & Entertainment

1000

Electricity bill

1000

Water bill

500

Clothing and other

1000

There for depending upon net inflows and outflows the surplus is 1.2 lakh per annum

Balance sheet in the book of Mr. Narander Bhardwaj as on 31 Nov, 2014

Assets

Rs.

Rs.

Liquid Assets
Cash at hand

100,000
Total liquid assets

1,00,000

1,00,000

Real Estate
Current market value of property

2,00,00,000

Personal possessions
Market value of scooty

15,000

Furniture and Appliances

25,000

Stereo and Video equipment and others

10,000

Jewellery

7,50,000
Total Household assets

Investment assets

2,08,00,000

2,08,00,000

00
Total Investment Assets

00

Total assets

00
2,09,00,000

Liabilities
Current liabilities
Total liabilities (no long term liabilities)
Net Worth (assets minus liabilities)

Nil
00
2,09,00,000

Chapter-2 Goal Setting

Financial Goals in smart form
Goals( specific)

Objectives (measureable)

Key Dates(
bound)

Buy a computer for child

Save Rs 40,000

2014

Buy a bike

Save 70,000

2016

Trip

Spend Rs. 50,000

2016

Buy a car

Save Rs 10 lakh

2018

Child education including higher Save at least 20 lakh

studies

2022

Marriage of son

Save up to 25 lakh

2024

Retirement Planning

Corpus of Rs. 50 lakh

2027

time

What is missing here is the attainable and realistic part that will depend upon the surplus that is
1.2 lakh per annum savings.
Ignoring the inflation factor as the income will also be growing in the same proportion so the
inflation impact on goals will either be nil or marginal to consider (assumption).

Chapter 3 Ratio Analysis

Basic solvency ratio
This ratio indicates your ability to meet monthly expenses in case of any emergency or
catastrophe. It is calculated by dividing the near-term cash you have with your monthly
expenses.
Basic solvency ratio = Cash / Monthly expenses (this ratio is not mentioned in percentage)
You can also call it as emergency or contingency planning ratio. This ratio helps you prepare for
unforeseen problems.
In given case:
Cash= 1, 00,000
Monthly expenses= 20000
Therefore Basic solvency ratio= 10000/20000
5 times
What is adequate ratio= at least 3 months. In the given case at the person is at 50 age, single
father, unstable income souse 3 times is not adequate. It has to be much at least close to 10
times at no medical cover is there nether possible at 50 age.

Liquid Ratio:
Liquidity ratio = Liquid assets / Net worth
In the given case:
Liquid assets are only cash i.e. 1, 00,000 and net worth is 2.09 crore
Which means its like .5 % and At least 15% is the ideal ratio.
The liquidity is a huge matter of concern.

Savings Ratio:
Savings ratio = Savings / Gross income, where
In given case:
Savings are 1.2 lakh per annum against the gross income of 3.6 lakh

Which means ratio is 33% that is good.

Debt to asset ratio:

It is the percentage of total assets of an individual that goes towards payment of debt. This
ratio is calculated by dividing your total liabilities by total assets
Debt to asset ratio = Total liabilities / Total assets
In given case:
Liability is zero. So debt to asset ratio is in good shape.
Depending on the analysis of these core financial ratios we can see that the matter of concern
liquidity and the savings which is not sufficient to fulfil the kinds of financial goals Mr Vipin
has.

Chapter-4 Investor profile

The following is the summary of the answers given by Mr Vipin Bhardwaj which will help in
understanding the nature of risk appetite, their objectives, etc. In doing the further financial
planning for him in the succeeding chapter:
Investor

Mr. Vipin Bhardwaj

Age

50

Type Of Investor

Conservative

Occupation

Business

No. Of Dependents

1 son

Liability

Zero

Risk Appetite

Very low

Return Required

High (depending upon goals)

Knowledge

Low

Absorbing Power

Medium

Money attitude

Money dependent

Liquidity

Very low

Major plan dominating goals

Child education, child marriage, and his

retirement

Chapter 5 Analysis and suggestions

Analysis of current situation:

In the given case at the person is at 50 age, single father, unstable income souse 3 times
is not adequate. It has to be much at least close to 10 times at no medical cover is there
nether possible at 50 age.

The liquidity conditions are very low apart from some cash in hand nothing else is liquid,
though gold can be but there is emotional cost associated with it.

The risk is too high as life is uncertain estate planning is required, so that if anything
happened to Mr Bhardwaj his child can still be safe. The wealth will be in the right hand
and no legal problems will be created.

Retirement planning is required as he had already reached a stage of retirement but still
working, which is causing health issues to him. Now its time he start thinking about
retirement and put illiquid assets into good investable options, so that he will not only
be able to increase the corpus but also get regular flow of income to meet various
financial goals he has.

He should open a bank account as currently no bank account is operating nature.

Start paying tax by doing proper tax planning.

Its the time he should think who will look upon his child if in case anything happened to
him to feed him.

Invest in PPF, which not only help in post retirement time but also helps in tax benefit.

Take life insurance even if costly for both he and his child with medical cover as well.

Options where he can invest after restructuring of some of his Assets:

The first restructuring suggested is to sell the flat he owns and shift to the 2 storey
house he has. This will result in cash generation of approx 40 lakh to him but it will
result in the elimination of rent income he was generation (60 thousand per year).

The second suggestion will be to invest a part of this 40 lakh in various investment
option depending upon the profile in the following manner

As Mr Bhardwaj is 55 years of age the possible investment in equity at this stage for a normal
profile is 100-age i.e. 45 % but given the fact his risk tolerance level is low plus he is single
father this % could be well low to 20 % ( and is because along with capital preservation capital
appreciation is also required given near term retirement and child related expenses) rest 80 %
will be divide between fixed income and mutual funds in the ratio of 50% and 30 % so that
regular flow and retirement plan will be fulfilled with fixed income investments and capital
appreciation will be done by mutual funds and equity investments.
So even in equity the investment should be made in:
1.
2.
3.
4.

high growth shares

income
balanced
momentum

10
Growth

15
50
25

Income
Balanced
Momentum

Now after equity investment in fixed income securities are required that will reduce risk and
provide other benefits such as tax benefit and regular flow of income etc.

30
40

FD
NSC
Bonds
Savings Bank/flexi deposit

20
10

Now mutual funds investment:

Sales
10
40

20

Growth
Fixed Income
Balanced
Money Market related

30

Apart from investing this 40 lakh the surplus of 60 thousand after eliminating rented income
should also go in creation of emergency fund every yr.

Now based on the following investment of 40 lakh in the given proportion the following tax
planning can also be done:

Medical insurance: A deduction of up to Rs 15,000 pa under section 80D is applicable

under this.

Donations: Tax advantages under Section 80G entitle the donations to particular
funds/institutions.

1 Make full use of the entire Section 80C deduction - The maximum reduction available
in Section 80C is Rs 100,000

Following investments/contributions meet the criteria for Section 80C reduction:

Public Provident Fund

Accrued interest on National Saving Certificate

Life Insurance Premium

National Saving Certificate

Tuition fees paid for children's education (maximum 2 children)

5-Year fixed deposits with banks and Post Office

Equity Linked Savings Schemes (ELSS)

New restructured financial statement will be:

Proposed investment detail

Name of the investment

Duration

Total

Gold( 250 gm )

Long term

7,50,000

Property( 1 commercial shop and Long term

1,60,00,000

1 2 storey 450 sq ft house)

Equity investment

Medium to long term

8,00,000

Fixed income investments

Short to long term

20,00,000

Mutual funds

Medium to long term

12,00,000

Proposed Financial Information/expenses (cash outflow) ( average Rs per

month)
Food

6000

Travel( child school van)

1000

School fees and tuition fee and other school expenses

6000

Utilities

2000

Telephone

500

Medical Expenses

1000

Recreation & Entertainment

1000

Electricity bill

1000

Water bill

500

Clothing and other

1000

Health and life insurance premium

1500

Investment in some of the fixed income in mutual funds

5000

Projected Balance sheet in the book of Mr. Vipin Bhardwaj as on 31 March,

2014
Assets

Rs.

Rs.

Liquid Assets
Cash at hand

160,000
Total liquid assets

1,60,000

1,60,000

Real Estate
Current market value of property

1,60,00,000

Personal possessions
Market value of scooty

15,000

Furniture and Appliances

25,000

Stereo and Video equipment and others

10,000

Jewellery

7,50,000
Total Household assets

1,68,00,000

1,68,00,000

Investment assets
Equity

8,00,000

Fixed income investments

20,00,000

Mutual funds

12,00,000
Total Investment Assets

40,00,000

Total assets

2,09,00,000

Liabilities
Current liabilities
Total liabilities (no long term liabilities)
Net Worth (assets minus liabilities)

Nil
00
2,09,00,000

Such a portfolio will not only provide the liquidity plus help in corpus building for financial
goals he have.

References:

Contemporary Management Research, Vol. 6, No. 2, June 2010, 111-124

William W. Jennings, CFA and William Reichenstein, CFA, Research Foundation

Literature Reviews, December 2006, 1-29.

Wealth management(2013), dun and Bradstreet

www.cfainstitute.org/learning/topics/pages/privatewealth

PRIVATEBANKING_guide_SEPT10.pdf

Asset-Management.pdf, Vinod Shah, June 2012

Economic times article Top 10 financial steps to take in your lifetime published on
Oct 16, 2014

Economic times article Invest in mutual funds for better retirement planning
published on Aug 13, 2014

Economic times article Ensure your dependents get insurance policy benefits, not
creditors published on 5 Oct, 2014

The Literature of Private Wealth Management, William W. Jennings & William

Reichenstein, Nov,2006

Personal Wealth Review,Wiiliam J. Jennings, 2010

Questionnaires
Questionnaire-1

Money Attitude:
Statements :

Options

I need more money than I can use

Yes

No

It bothers me when I discover I could have gotten the same Yes

thing for less somewhere else.
I behave as if money were the ultimate symbol of success.
Yes

No

Yes

No

Yes

No

I worry that I will not have enough money to live comfortably Yes
when I retire.
Money controls the things I do or dont do in my life.
Yes

No

When I was a child, money seemed to be the most important Yes

thing in my life.
I argue or complain about the cost of things.
Yes

No

I show signs of nervousness when I dont have enough money.

I dream I will one day be fabulously rich.

No

No

No

This exercise on money attitude is meant to check what value does money have in an
individuals life and how much control does money have in his/her life. Count of yes is more
than the count of no which means that money has more influence over the life of Mr. Vipin
Bhardwaj.

Questionnaire-2 Financial values Inventory This exercise is meant to decide the priorities
where the individual will put in his/her money if asked to choose between two options.
S.no.
1
2
3
4

Option 1
Housing (Dream Home)
Education: Self/Others
Retirement Savings/Investment
Hobbies/Sports

Vacation/Travel

6
7
8
9

Charitable Giving/Religious Activity

Social Activities/Eating Out
Education: Self/Others
Hobbies/Sports
Personal
Appearance/Grooming/Clothes
Savings/Investment Retirement
Hobbies/Sports
Retirement Savings/Investments
Housing ( Dream House)
Education : Self/Others

10
11
12
13
14
15
16
17

Option 2
Investments/Retirement Savings
Vacation/Travel
Hobbies/Sports
Charitable Giving/Religious Activity
Personal
Appearance/Grooming/Clothes
Social Activities/Eating Out
Car
Housing (Dream House)
Housing (Dream House)
Car

Hobbies/Sports
Car
Social Activities/Eating Out
Vacation/Travel
Car
Charitable
Giving/Religious
Vacation/Travel
Activities
Personal Appearance/Grooming/Clothes Education: Self/Others

Number of times circled each item in the pair activity:

Car
Charitable Giving
Education

3
2
4

Hobbies/Sports
Housing
Retirement

0
1
4

Vacation/Travel

We can see that the things that are coming out as most important are retirement, child
education and travel and car for child in future. As housing is not a matter of concern for them,
they are high on real assets.

Questionnaire-3
Emergency Fund
Is your income stable?

Not at all

More or less

Completely

How dependant are you on Totally

interest, dividends and capital
gains on your investments to
cover your regular expenses?

Slightly

Not at all

Do you have life, health, auto and Little/No cover

disability insurance?

Some
covered

risks All risk covered

As a multiple of your regular 15 days

monthly expenses (including loan
repayments
and
insurance
premium), how much of your
investments are in liquid options
like savings account, savings cum
deposit accounts and liquid
funds?

Two months

Three months

What is the percentage of regular 0-5%

income generating assets to your
net worth?

6-15 %

Over 15%

Do you have access to No access

comparatively cheap credit like
overdraft facilities against assets
like shares and home?

Limited access

Ample access

Mr Vipin Bhardwaj is having a highly risky lifestyle with no insurance cover at the age of 50 now
he is not even insurable even if premium will be too high. The regular income sources are on

lower side despite current cash in hand he not even enjoying a bank account facility. In case of
big medical emergency like heart problem or any other thing at 50 age the emergency fund or
liquid assets have to be huge which is not the case here.
Questionnaire 4:Are you in a DEBT TRAP?
You are using your savings to pay current Yes

No

expenses.
You dont know how much you owe.

Yes

No

You make late payment a habit.

Yes

No

Mr Vipin is completely debt free person, so he is in no Debt trap at all.

Questionnaire 5: What kind of lifestyle do you want?

1. Shelter

At home with parents

Own apartment/ home

Share with friends and colleagues

Rented flat

2. Transportation

New car

Used car

Motor cycle

Public transportation

3. Food

Food at home

Eat out

4. Utilities

Electricity/gas

Water

Telephone

Mobile

5. Expenses

Internet

Clothing

Personal care

Health care

6. Entertainment

Cable

Cds

Movies

Sports events

Concerts

Club/Gym

Vacations

Lessons

7. Personal

Cosmetics/make up

Laundry

Newspaper

Pets

Gifts

Health club membership

Personal hygiene

Reading/educationof child

Tobacco/alcohol products

Religious contributions/charity

Savings

Questionnaire 6
Even if some things are to be assumed
RISK TAKING ABILITY
1. How do you think of risk in a money context?
a. Danger

b. Uncertainty

c. Opportunity

2. Your portfolio has

a. Only cash

b. PF, FDs and funds

c. Mostly funds and stocks

3. How much fall in your investment makes you panic?

a. Any fall

b.

10%

c. 20%

4. A PSU bank making an IPO is offering a soft loan to subscribe. Will you take it?
a. No.

b. Maybe

c. Yes

5. Hows your investment knowledge?

a. Bad

b. Average

c. Good

6. How important is it to make your money inflation-proof?

a. Not important

b. Not sure

c. Very important

7. How easily do you adapt when things go wrong financially?

a. Not easily
b. Some resistance
c. Very easily
On the basis of given answers ewe can see that risk tolerance is very low which is quite obvious
with limited knowledge , limited money supply and risky family dynamics.
Questionnaire 7
Test to Measure Investment Risk Tolerance
1. You are winner of a TV game show. Which price would you choose?

Rs 30,000 in cash ( 1 point)

A 50 percent chance to win Rs 60,000 (3 points)

A 20 percent chance to win Rs 150,000 ( 5 points)

A 2 percent chance to win Rs 1,500,000 ( 10 points)

2. You are down Rs 15,000 in a game. How much you would be willing to put up to win Rs
15,000 back?

More than Rs 15,000 ( 8 points)

Rs 15,000 ( 6 points)

Rs 7,500 (4 points)

None ( 0 point)

3. A month after you invest in a share, it suddenly goes up 15 percent. With no further
information, what would you do?

Hold it, hoping for further gains (3 points)

Sell it and take your gains (1 point)

Buy more-it will probably go higher (4 points)

4. Your investment suddenly goes down 15 percent one month after you invest. Its
fundamentals still look good. What would you do?

Buy more. If it looked good at the original price, it looks even better now (4 points)

Hold on and wait for it to come back (3 points)

Sell it to avoid losing even more (1 point)

Depending on the answers given we can see that the risk taking ability is marginal or even zero
to some extent.