INDIAN INSTITUTE OF BANKING & FINANCE

WEALTH MANAGEMENT

Presented by
CA. Rakesh Kaushik
Faculty, IIBF, Mumbai
Email: rkaushik@iibf.org.in
Cell: +91 9820151005
INDIAN INSTITUTE OF BANKING & FINANCE
 INDIAN INSTITUTE OF BANKING & FINANCE

For majority of us, the working life starts at

21 and ends at 60; whereas our post-
retirement life starts at 60 with an average
life expectancy of 85. This means that, we
have 39 years to amass wealth to fund the
balance 25 years. Should be easy, right?
But don’t we see many people struggling ?
What is the reason ?
 INDIAN INSTITUTE OF BANKING & FINANCE

WHAT IS WEALTH MANAGEMENT ?

Wealth management combines both financial planning and specialized financial services, including personal
retail banking services, estate Planning, legal and tax advice,
and investment management services.
Goal – Generate Long Term Wealth
 Scope of wealth management includes – Wealth Creation, Wealth Management, Wealth
Preservation and Wealth Transfer
 This service is usually appropriate for wealthy individuals with a broad array of
diverse needs.
 Family offices are full-service private wealth management services that serve just one or a small
number of ultra-high-net-worth families. Concept of wealth management originated out of the
concept of Family Office
 There are majorly three types of wealth management service providers viz. Banks,
Brokerage firms and Boutique advisory firms.
 A wealth management advisor is a high-level professional who manages an affluent client's wealth for
a fee. They are Skilled Fund Managers who deal with more complex asset class (investible assets other
than primary residence, consumables and consumer durables) than loan officers.
 Affluent clients benefit from a holistic approach in which a single manager coordinates all the services
needed to manage their money and plan for their own or their family's current and future needs.
 Assets managed by wealth managers are called AUM- Assets Under Management
 Income is Function of AUM, it is perpetual and grows with time
 INDIAN INSTITUTE OF BANKING & FINANCE

WHAT IS WEALTH MANAGEMENT ?

 Investment Options under Wealth Management:
Category Options
Banking SB,CA,RTD,DEMAT,Retail Loans, Business Loans, Mortgages,
Custody, Safe Keeping,
Investment Bonds, Debentures, MFs, PMS, Commodities, Equities, Gold,
Alternative Investments, Structured products, Forex, Overseas
investments, M & A,
Financial Planning Tax Planning, Retirement Planning, Succession Planning, Estate
Planning,
Value Added Services Art, Antiques, Philanthropy,

 Key Strategies for market Share – Highly Personalised Service 24X7, One Stop
Window, Skilled Staff, Customisation, Confidentiality & Trust, Strong Tie-up for cross
functional support, Diversified Customer Base
 Most Potent Offer – Integrated Financial Planning & Monitoring
 INDIAN INSTITUTE OF BANKING & FINANCE

WHAT IS NOT WEALTH MANAGEMENT ?

 Wealth management is not “Speculation-
investment not based on thorough analysis for
safety of principal and an adequate return”
 Private Banking is subset of Wealth Management
as it deals with only investment activities and nor
financial planning and execution/monitoring
 Asset management involves managing assets
which includes stocks, bonds, real estate of
investors. Whereas Wealth Management is quite
broader financial management services offering
such as investment management, retirement
planning, estate planning etc.
 INDIAN INSTITUTE OF BANKING & FINANCE

IMPORTANCE OF WEALTH MANAGEMENT

 It helps create a financial plan: Wealth Managers comprehend the needs of clients through multiple meetings
and help them to systematically create their corpus to meet all financial goals. Changes in financial situations
can lead to changes in financial objectives. A wealth manager takes this into account, so they regularly meet
with their clients to update goals, investigate whether additional services are necessary, and review and
rebalance the client’s financial portfolio.
 It Is a Holistic Approach – Wealth management is more than just investment advice because it can encompass all
parts of a client’s financial life. A client will benefit from a holistic approach that brings together several services
to meet their specific financial goals. A client no longer has to integrate different pieces of financial advice from
different sources. Wealth Manager will help the client to manage difficult market upheavals.
 It Can Help Maintain Wealth – Wealth management can help maintain a client’s wealth and assist them in
meeting their specific financial objectives. For instance, many solutions are tailored for particular clients. These
solutions take into account a client’s current situation, future goals, current wealth and more.
 It Can Help With Wealth Transfer – This is especially important for high-net worth individuals.
Wealth management includes estate planning. A wealth manager can help a client protect their wealth and
minimize fees and taxes. They will ensure a client’s wealth is distributed according to the client’s wishes.
 BCG Report : Wealth management will move alongside deposit-taking as a baseline service for retail banking.
Banks without a strong wealth offering will lose share, as customers take increasing responsibility for their
lifelong financial well-being and planning in both the developed and emerging worlds, and look for their bank to
meet this need.
 INDIAN INSTITUTE OF BANKING & FINANCE

WEALTH MANAGEMENT OPPORTUNITIES FOR BANKS

Net Worth ( USD Million) No % Share of Private Wealth
1000+ 55 16 Estimated Market Size
: About 5 Lac
100+ to 1000 626 5 Families will exist with wealth
20+ to 100 3222 4 over Rs 25 Crs by 2025 and
5+ to 20 13545 4 only 25 % are engaged with
Wealth Managers.
1+ to 5 81843 5

Market Leaders – Kotak, ICICI, IIFL, Edelweiss

Other Players – Axis, HDFC, Centrum, Citi, SCB,
Industry is shaped by needs of the one above Rs 20 Crs
Wealth Managers also manage Tax Planning, Business Succession and family Succession. Tax Planning, M & A
Advisory & Succession planning are complex and banks have tieup with investment Banks, Trusteeship
Company , Tax Advisors etc. Clients have to be moved out from family office to professional WMgrs.
Efforts go in to convince clients to shift capital from physical assets – Real Estate, Gold to financial assets.
Instruments – Equity. Debt, MFs, Structured Finance, ETF, Mezzanine Debt, AIF, DAF
 INDIAN INSTITUTE OF BANKING & FINANCE

WEALTH MANAGEMENT OPPORTUNITIES FOR BANKS

Small Business assign isk differently for portion of assets for business and portion marked for inheritance and
and transfer to NextGen. They have aversion to private debt.
 INDIAN INSTITUTE OF BANKING & FINANCE

WEALTH MANAGEMENT OPPORTUNITIES FOR BANKS

Indian banks have
millions of customers
and the wealth of
data they have is
huge - patterns,
behaviours,
investments, life
cycles…Banks may be
use just 25-30% of
this information. if
banks can find a way
to leverage this data,
they will emerge as
winners on the
revenue, market
share and client
satisfaction fronts.
 INDIAN INSTITUTE OF BANKING & FINANCE

WEALTH MANAGEMENT OPPORTUNITIES FOR BANKS

 BCG 2018 Report
 India’s personal financial wealth is at $3 trillion & managed wealth is less than 8%
 12% CAGR since 2012 and is expected to grow at 13% CAGR from 2018 to 2022.
 India the only nation apart from China to have a double digit CAGR for personal wealth.
 India is set to constitute the second largest pool of wealth from emerging markets in the
coming years, second only to China.
 Around 69 percent of total HNI population in India is below the age of 55 years. wealth management has a lot of
consultative element to it for the customers. They seek advice for
 Asset Management
 Financial Planning (specific short term and long term goals)
 Tax Planning
 Estate Planning ( is increasingly in demand as more and more family run businesses see the next generation wanting to
start afresh and not necessarily continue with the traditional family business.)
 The number of unique users who participate in financial markets outside of saving account and fixed deposit is around 24
million out of which around 17 million are active users. This number is very less but will grow to more than 60-70 million in
next few years
 It is a low risk and capital light business compared to credit and investment banking business.
 INDWealth is building a platform for persons earning at least Rs 15 lakh per annum. Most of the wealth management industry
today works on excel sheets but this is not an ‘excel sheet problem’. Increasingly data scientists are being hired to support
business team.
 INDIAN INSTITUTE OF BANKING & FINANCE

WEALTH MANAGEMENT OPPORTUNITIES FOR BANKS

Institutional Players just

manage
Less than 25% of total
wealth. Talent is in short
supply.
Earnings are as much as 20-
25% of revenue generated
against 12-18%
internationally.
Incremental efforts
on investment
book built is less but you get
trail revenues.
 INDIAN INSTITUTE OF BANKING & FINANCE

LIFE CYCLE & WEALTH CYCLE

Clients financial needs can be classified based on either life
cycle or wealth cycle. Typical life cycle based financial needs are
 INDIAN INSTITUTE OF BANKING & FINANCE

LIFE CYCLE & WEALTH CYCLE

Wealth cycle based classification of financial needs are –
STAGE FINANCIAL NEEDS INVESTMENT PREFERENCES

Investing for long term Growth options & long term

Accumulation Stage ( 20- 39) identified financial goals products, high risk appetite
Near Term needs for funds as
Liquid & medium term
pre-specified needs draw
Transition Stage ( 40-59) investments, lower risk appetite
closer
Liquid and medium term
Higher liquidity investments, preferences for
Reaping Stage ( 60 – 80) requirements income and debt products

Low liquidity needs, ability to

Inter Generation transfer Long term investment take risk on long terms

Wealth preservation, preference

Sudden wealth surge
Medium to Long Term for low risk products
 INDIAN INSTITUTE OF BANKING & FINANCE

ASSET CLASSES – RISK/REWARD

Maturity
Security Class Return Potential Risk Volatility Liquidity Complexity
Period
Cash Interest/ Below High Nil
Equivalents Short Inflation Low Nil
Fixed Interest/ Near High Nil
Deposits Short/Long Inflation Medium Nil
Govt Interest/ Near High Low
Securities Long Inflation Low Low
Debt Mutual Interest/ Above Medium Low
Funds Short/Long Inflation Medium Low
Corporate Interest/ Above Medium Low
Bonds Long Inflation Medium Low
Preference Dividend/Above
Shares Perpetual Inflation Moderately high Low Low Average
Dividend and High Average
Equity CG/Above Inflation
Shares/MFs Perpetual High High
Capital
Real Estate Long Gain/Above High High Low High
Inflation
Interest/CG/Abov
Commodities Short e Inflation High High Low High
Structured Interst/CG/Above
Instruments Short/Long Inflation Medium Medium Low Medium
 INDIAN INSTITUTE OF BANKING & FINANCE

ASSET CLASSES – RISK/REWARD

 INDIAN INSTITUTE OF BANKING & FINANCE

INVES TMENT AVENUES

Equity
Growth
Funds
R
I Index
Don’t Invest here S
K
Balance
Funds
Funds

Gilt
Funds
Aggres s ive
Income
Stance
Funds

RETURN High

Liquid Comp FD
Fund

GOI Sec
P.O.
Sedate Zone Bank FD Optimal

## the size of the circle denotes the level of liquidity

 INDIAN INSTITUTE OF BANKING & FINANCE

AUM OF TOP 20 PRIVATE BANKS AND WEALTH MANAGERS

Source: https://asianprivatebanker.com/india-2019-aum-league-table/

YOY CHANGE
+20.9%
2015-19 CAGR
+36.2%
 INDIAN INSTITUTE OF BANKING & FINANCE

AUM OF TOP 20 PVT. BANKS/WEALTH MANAGERS IN INDIA

AUM US$ Bn.
YEAR
DOMESTIC FOREIGN TOTAL
2015 40.30 27.00 67.30

2016 70.60 30.70 101.30

2017 111.80 41.70 153.50

2018 149.30 42.40 191.70

2019 179.70 52.00 231.70

 INDIAN INSTITUTE OF BANKING & FINANCE

ASIAN PRIVATE BANKER 2019 LEAGUE TABLE

BANK WEALTH MANAGERS
AUM
AUM YOY 2015-19 No. of AAUM per RM
Name including
(Rs Crs.) Change(%) CAGR(%) RMs ( Rs.
AUM Crs.)
Loans
Kotak 267,001 14.70 41.5 No 122 2,186
ICICI 213,739 26.40 - Yes 1,380 155
AXIS 151,485 17.30 - Yes 562 269
BNP PARIBAS 114,133 19.70 32.2 No 11 10,376
HDFC 72,630 15.40 14.5 NA 300 242
SCB 71,938 6.70 12.8 No 19 3,768
Barclays 63,638 - - Yes 30 2,117
NON-BANK WEALTH MANAGERS
IIFL 163,936 6.8 28.9 No 288 569
Edelweiss 107,907 5.90 49.7 No 151 713
Julius Baer 83,006 33.30 18.9 No 42 1,976
ASK 56,029 34.10 73.2 No 70 800
JM Financials 45,653 6.90 16.7 No 68 668
Top 5 Bank & Non-Bank players control 57% of the total AUM. Others players have AUM less than USD 5 Billion ( INR <34585.65Crs)
 INDIAN INSTITUTE OF BANKING & FINANCE

FINANCIAL PLANNING STEPS & OBJECTIVES

STEPS
• Assisting Client in Goal Setting by
• Collecting & Organising the Financial Data
• Analysing the financial data/Net Worth
• Estimating funds required for the goal and timeline
• Preparing Income/Expenses/Cash Flow Statement & evaluating each head
• Budgeting income/expenses & savings to make room for savings necessary for the goal
• Working out strategies to meet the Goal after understanding risk appetite & tax efficiency
• Discussing the pros and cons of Strategy with client
• Finalising the strategy and implementing the same
• Monitoring progress and repositioning when required

GOALS
• Children Education
• Marriage
• Retirement
• Foreign Vacation
• First Home/Second Home
• Medical Emergency

Time Frame could be Long Term, Medium Term or Short Term

 INDIAN INSTITUTE OF BANKING & FINANCE

ASSET ALLOCATION
Cash Stocks
An asset allocation is a strategy of dividing
the portfolio among various asset classes
so as to
obtain the desired portfolio
characteristics to suit distinct
investor profiles.
Bonds, Stocks and Cash Bonds
equivalents are the most
commonly used asset classes in any asset allocation.
It is an organized and ef ective method of
diversification.

The asset allocation for an investor depends on the investors expectations of

returns and the risk the investor is willing to take. The Portfolio needs to be
monitored over a period of time and rebalanced.
 INDIAN INSTITUTE OF BANKING & FINANCE

INVES TMENTS : KEY DETERMINANTS

 The most important determinant of portfolio return is
asset allocation .
Security Selection 4.6%
Market Timing 1.8%

Other Factors 2.1%

Asset Allocation 91.5%

Source: Brinson, Singer & Beebower

( 1991 )
 INDIAN INSTITUTE OF BANKING & FINANCE

ASSET ALLOCATION - DRIVERS

Asset Allocation takes into account –

• Age
• Socio Economic Status
• Background – Academic & Work Place
• General Nature – Timid, Modest, Aggressive, Practical, Humble
• Time horizon: the number of years clients have to invest
• Preference for Liquidity
• Concern for Inflation – higher concern leads to more exposure to Debt funds
• Volatility – Higher concern means less exposure to equity and even in equity to
defensive stocks.
• Taxation – Higher concern warrants more exposure to equity oriented investments
• Risk tolerance: Ability/Willingness of client to endure short- term declines in
the value of investments in course to pursue long-term investmentgoal
 INDIAN INSTITUTE OF BANKING & FINANCE

ASSET ALLOCATION - TYPES

Strategic Asset Allocation –
• Long Term Investment Plan
• Structuring the individual asset classes within a portfolio to meet long term
investment objectives. This is a proportional mix of assetsbased on expected rates
of returnforeachassetclass.
• No switches in asset classes done in short term

Tactical Asset allocation -

• Dynamic Portfolio Technique that seeks to take advantage of short term opportunities
• It is a fact that at times market valuation may not be proper – it could be over valued
or under valued. It is possible to take advantage of this unusual opportunity through
temporary switches between asset classes
• This flexibility adds a component of market timing to the portfolio, allowing
investors to participate in economic conditions that are more favourable for the
performance of oneassetclassthanfor others
 INDIAN INSTITUTE OF BANKING & FINANCE

ASSET ALLOCATION - TYPES

This demands some discipline from the investor as he or she must first be able to
recognize when short-term opportunities have run their course, and then rebalance the
portfolio to the long-term asset position

Allocation approaches involving anticipating and reacting to market movements require

a great deal of expertise and talent in using particular tools for timing these movements.

Accurately timing the market is next to impossible.

Asset Class Strategic AA Tactical Asset Allocation

Equity 40% 25% 50%

Debt 60% 75% 50%

 INDIAN INSTITUTE OF BANKING & FINANCE

ASSET ALLOCATION - INVESTMENT GUIDE

Mid Twenties Late Thirties to Early Forties

10% 10%
5% REAL ESTA TE 5% R E A L ESTATE
CASH CASH
20% 55%
BONDS BONDS
30%
65% STOCKS STOCKS

Mid Fifties Late Sixtiesand beyond

13% 15%
25% REAL ESTATE
5% REAL ESTATE
44% CASH 10% CASH BONDS
BO NDS STOCKS
STOCKS
38%
50%
 INDIAN INSTITUTE OF BANKING & FINANCE

WEALTH MANAGEMENT REGULATIONS

 SEBI introduced concept of “Registered Investment Advisors” in 2013.
 Since Oct 2013, registration with SEBI is mandatory for Investment Advisor. Code of conduct laid
down by “Financial Planning Standards Board, India” is followed by all voluntarily. Financial
planner also come under this ambit.
 SEBI is considering tighter regulation for Investment Advisory services. Individual/banks, NBFCs,
corporates, LLPs and firms providing distribution services may not be able to provide investment
advice in financial products
 Regulatory space is still evolving.
 Globally, regulatory reforms are revolving around three areas: 1) Focus on improving
professional education skills of advisers 2) Move towards fee-only advisory 3) Holding
advisers to fiduciary standards.
 Banks needs to obtain permission from RBI to start this activity
 Banks cannot offer investment advisory services at their existing branch offices; instead, they
have to open a separate office to offer wealth management services.
 MF & Insurance sales needs to be delivered by persons who are qualified by IRDA/AMFI. The
bank shall treat its customers fairly, honestly and transparently, with regard to suitability and
appropriateness of the insurance/MF product sold. It shall also be ensured that no incentive
(cash or non-cash) is paid to the staff engaged in insurance broking/corporate agency services by
the insurance/MF company.
 The basic tenet is informed advice and quality service.
INDIAN INSTITUTE OF BANKING & FINANCE

THANK YOU
&
HAVE A NICE DAY