CHAPTER-1

OVERVIEW OF WEALTH
MANAGEMENT
 Meaning of Wealth
 The word Wealth comes from the old English word
“Weal” meaning “Well Being” and “Th” meaning
“condition”; taken together, means “the condition of
well being”.
 Defining Wealth
 Wealth is defined as the present value of all future cash
flows that are expected to flow in from one’s assets- be it
financial asset or a real asset.
 Limitations of this approach:
 Accuracy in estimating the future cash flows,

 Appropriateness of the discount rate used to find the

present value of theses cash flows.

 Defining 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.
 Features of Wealth
Management
i. It ensures an enduring and committed relationship for
a long tenure by taking care of the entire clients’ needs.
ii. It is best conceptualized as a platform, where a valid set
of services and products are provided.
iii. It is a comprehensive model, which can offer guidance
on investment management, tax planning, asset
protection, cash flow management, debt
management, retirement solutions, and real estate
investment.
 Other Terms Defined
 Investment Management:
 An art of selecting investments- such as stocks, bonds

and derivatives- and combining them in a way that

compliments a client’s specific risk to reward
requirements.
 Often called as “money management” and “asset

management”.
 Money Manager:
 Is a product centric professional.

 Specializes in a certain financial product.

 Goal is to provide a risk-adjusted return superior to an

index (say BSE-SENSEX).

 Contd…
 Asset Manager:
 Specializes not in a single asset but a portfolio of

assets.
 Also has certain “portfolio” (say an equity fund or a

debt fund) to offer his clients irrespective of their

specific requirements.
 Wealth Manager:
 Focus is client.

 Efforts are devoted to assisting clients to achieve life

goals through the proper management of their

financial resources.
Contd…
 Clients’ Needs w.r.t
Wealth Management
i. Current Lifestyle needs:
• Income for meeting their living expenses.
• Needs of their children.
• Short term and long term financial/ personal goals.
ii. Income tax considerations:
• Tax planning.
• Timing of stock or bonds purchase and sales.
iii. Inheritance goals:
• Whom to entrust the money
• How much control to confer upon probable
successors.
 Contd…
iv. Humanitarian pursuits:
• For charitable clients.
• When and how to donate their money or assets.
• Determining tax advantages
Phases in Wealth
Management Process
Understanding Planning Wealth
Opportunities & Management
Issues Strategy

Implementing the
Supervising and
Wealth
Monitoring
Management Plan

Wealth Management Process

 I. Understanding
Opportunities and Issues
• Investors Know Thyself: Try to define their “comfort
zone” clearly and without ambiguity.
• Understanding Values, Goals, and Needs: How these
values determine and interact with the family’s goals.
• Where am I (in financial terms) ?
• Where do I want to go ?
• How do I get there ?
• Developing Rational Investment Expectations: What is
reasonable for them to expect.
 II. Planning a Wealth
Management Strategy
1. Impact of Taxes:
• Tax policy changes in terms of incentives for investing in
certain financial instruments.
• Changes in capital gain tax.
2. Developing an Investment Policy: Wealth Manager should:
• Help clients in determining their specific goals including
hidden goals.
• Evaluate the existing portfolio.
• Determine the cash flow needs.
• Determine the constraints.
• Determine the risk-tolerance level.
• Develop an asset allocation plan.
 Contd…
3. Importance of Asset Allocation:
• Asset allocation Decision
• Security Selection Decision
• Market Timing Decision
4. Integrated Wealth Planning: Deals with three different
disciplines:
i. Estate Planning
ii. Financial Planning
iii. Investment Planning
 Contd…
i. Estate Planning: deals with the transfer of wealth
across generations in the most tax- efficient manner.
ii. Financial Planning: concerned with meeting cash
flows needs in the present and in the future.
iii. Investment Planning: deals with the selection of the
investment strategies.
 III. Implementing the
Wealth Management Plan
 Concerned with manager selection and management.
 Market timing, tactical portfolio rebalancing, use of
derivative instruments, and initial portfolio funding.
 IV. Supervising and
Monitoring Process
 Ongoing process to see if the initial plan is producing the
desired results or not.
 Any deviations from the the desired result needs to be
altered.
 Exploring investment opportunities with better returns.
WEALTH PYRAMID

Ultra HNWI
$50 Million
Very HNWI
$5 Million
HNWI
$1 Million
Affluent
$1,00,000
 Major Product Offerings
 Portfolio Management Services
 Mutual funds
 Insurance Products
 Equity
 Fixed Income Securities
 Mortgage lending
 Real estate
 Art funds
 Derivatives and Structured Products
 Key trends
 Rapidly Growing market.
 Clients becoming increasingly sophisticated.
 Open product architecture approach adopted by wealth
managers.
 Wealth managers are being looked upon as “trusted
advisors” rather than “money managers” for their clients.
 Key Limitations
 Market is in its nascent stage.
 Most of the Financial assets in India are still in
the form of Bank deposits.
 Low usage of technology tools by Wealth
Managers.
 Shortage of skilled and experienced Wealth
Managers.
 PLAYERS
 Bank of America Corporation
 Barclays PLC
 Citibank
 Credit Suisse Group
 Deutsche Bank
 HDFC Bank Limited
 State Bank of India
 HSBC Holding PLC
 ICICI Bank Limited
 ING Group
 JP Morgan Chase & Co.
 Standard Chartered PLC