Wealth Management Unit 1 - 32168

6/10/20
u  Introduction to wealth management
u  Personal financial statements analysis – sums on

cash management
u  Economic environment analysis

Mrs. Fleur Fernandes, SIESCE
Mrs. Fleur Fernandes, SIESCE TYBMS - Wealth Management Mrs. Fleur Fernandes, SIESCE TYBMS - Wealth Management
  High-level professional service
Wealth management deals with helping an According to Investment Management Consultant

individual to build wealth, preserve it and Association (IMCA),
subsequently transfer it to the next generation in “a distinct field of practice through which
a tax-efficient manner. 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.”
  Client segment – HNIs

  The client is followed throughout life   Manages cash balances as well as income
  Wealth manager could be part of wealth management   Prepare original plan; update goals, review and
firm, or solo practitioner rebalance; check for additional services needed
  Management fees vary widely   Range of products offered
  Inputs from financial experts and attorneys,   Consultative process

accountants, insurance agents.
  Holistic approach instead of advice from several
professionals
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  Fiduciary services
  Cash flow management
  Investment planning
  Legal advice
  Trust and estate planning
  Tax planning
  Accounting and reporting
  Insurance,
  Debt management and mortgages
  Leasing
  Stock broking,
  Retirement planning,
  Banking,
  Charitable giving,
Mrs. Fleur Fernandes, SIESCE TYBMS - Wealth Management
  Financial structuring,Mrs.gearing
Fleur Fernandes, SIESCE TYBMS - Wealth Management
 Wealth accumulation and development

Ø Asset allocation
Ø Rigorous security selection
 Wealth protection
Ø Current and Future Income Planning
Ø Retirement Planning
 Tax minimization strategy
 Estate Investment, Trust and Insurance Planning

Relationship management is a key activity in

INVESTMENT CONSULTING
wealth management. It has three dimensions:-
+ ADVANCED PLANNING
  Fully understanding and meeting client’s critical
+ RELATIONSHIP MANAGEMENT
needs
  Assembling and overseeing a network of financial
Advanced Planning includes Wealth
experts
Enhancement, Wealth Transfer, Wealth
  Working with client’s advisors, like lawyers and
Protection and Charitable giving
accountants.
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INVESTMENT MANAGEMENT WEALTH MANAGEMENT

Investment management is a part of It is a broader area than investment
wealth management. management.
It caters only to the financial It address the individual’s and his
investment aspect. family’s needs, goals and objectives.   Asset management – portfolio management ,
Only financial securities are managed. Along with financial securities, equity , derivatives, etc
Accounting /tax aspects, Retirement
  Structured investment – hedge funds, private
planning, Legal/estate planning,
philanthropy are managed. equity, etc.
  Financial planning – tax strategy ,estate planning ,
It deals with preserving and growing It deals with preserving, growing,
money. bequeathing, donating money. retirement planning,pension funds etc.
This service can be availed by any Only HNIs and Ultra HNIs are normally   All types of bank services
investor. provided this service, though less
wealthy people can also request for the   Other services – research , legal counseling etc
service.
The investment manager normally The wealth manager seeks assistance
functions on his own. from other experts like lawyers,
accountants, etc.
  Data gathering for current situation – goal, relationship,   Growth of HNWI

assets, advisors   Time constraints
  Define the terms of engagement (Signing of MoU)   Expertise
  Goal setting   Complexity in financial products
  Identification of needs   Globalisation
  Analysis of opportunities and challenges (SWOT)   Fee based services vs. commission model
  Report preparation   Goal attainment
  Implementation   Wealth transfer
  Review and revision   Key to retirement
  Lifestyle maintenance
  Customization   Entrepreneurs
  Trusted wealth manager
  Research and product knowledge   Inheritors
  Transparent charges
  Access to information and portfolio   Professionals
  Accounting and taxation aspect

  Regulation and guidelines
  Ease of execution
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  Relationship Clients   Regulatory environment

  Entry blocks
  Finance literacy
  Fear-based Clients
  Sector reach
  Products and services offered
  Curious Clients
  Consistent service
  Client risk tolerance
  Greedy Clients
  Attracting and retaining advisors and clients
  Uncertain markets and prices
  Shortage of talented professionals
  IT technology
Mrs. Fleur Fernandes, SIESCE TYBMS - Wealth Management   Lack of trust Mrs. Fleur Fernandes, SIESCE TYBMS - Wealth Management
  IIFLWealth Management Association of International Wealth Managers is an non profit

  AVENDUS Wealth Management organisation which encourages, promotes and strength global
education for private banking industry and to set recognised
  Centrum
standards for qualifications and service ethics of private
  Kotak Wealth Management banking professional.
  Edelweiss Rule 1
  SMC Global u  Principles of professional ethics
  Karvy Wealth u  Independence
  ICICI Asset Management Company u  Integrity

u  Professional and diligence
  Reliance Asset Management Company
u  Loyalty and priorities for clients interest
  Anand Rathi
  Sanctum Wealth Management

Rule 2
u Compliance with applicable rules
Financial Planning Standards Board of India is a public private
Rule 3
enterprise and a professional standards setting body that
u Duty of information closely works with all the stakeholders.
Rule 4 u  Client first
u Conflict of interest u  Integrity
Rule 5 u  Objectivity
u Personal investment transaction of members u  Fairness
Rule 6 u  Professional
u Duty to inform the employer u  Competence
Rule 7 u  Confidentiality
u Sanctions u  Diligence
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Definition - It's a document or spreadsheet outlining an

individual’s financial position in terms of assets and liabilities
at any given point in time.
Example,
Annual expenses of Mr. Rajiv – Rs.2,00,000   Assessment
Net worth – Rs.8,00,000   Goal setting
If he has no income, his net worth will become zero in
  Plan creation
just 4 years.
  Execution
  Monitoring and reassessment
  Itrefers to peoples’ ability to process economic   The OECD INFE has defined financial literacy as follows:
information and make informed decisions about ‘A combination of awareness, knowledge, skill, attitude and
financial planning , wealth accumulation, behaviour necessary to make sound financial decisions and
pensions, and debt. It also involves intimate ultimately achieve individual financial wellbeing.’
knowledge of financial concepts like compound
interest, financial planning, mechanics of a u  Financial stability traid includes
credit card, savings methods, consumer rights,
time value of money, etc. - Financial literacy
- Financial inclusions
- Consumers protection
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  RBI u  Specific
  SEBI u  Measurable
  IRDA – Pan India u  Achievable
  PFRDA u  Realistic
  Various other market players u  Time bound
  Others – stock exchanges, broking houses, mutual funds,
insurance companies S M A R T
  Goal value   Get out of debt completely

  Plan for early retirement
  Time period   Well stocked emergency fund
  Multiple income streams
  Funding the goal   Have enough – But not too much – Insurance to
cover contingencies
  Be able to live on less than you earn
  Financial planning
  Definition
  Avoid under savings   Process
  Plan ahead
  Choose a professional financial advisor
  Data driven target
  Identify your goals and objectives
  Analyse your financial status
  Tangible outcome
  Implement your plan
  Guilt free spending
  Periodically review your plan
  Automated plan
  Optimal return
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  Income   Essential needs

  Cash flow
  Capital   Lifestyle wants
  Family security
  Investment   Legacy aspirations
  Standard of living
  Financial literacy
  Assets
  Saving
u  Meaning   Income
u  Importance   Expenses
  Discretionary expenses
The Plan consists of   Want and needs
  Realistic expectations
  Family on board
u  Identifying income and expenditure
  Budget form
u  Category of income
u  Time period
u  Amount required
u  Build financial plan
  Cover sheet   Risk profile

  Forwarding letter   Asset allocation
  Table of content   Investment
  Personal data   Recommendations and projections
  Executive summary   Risk management
  Clients goal and objective   New plans and costs

  Issue and problems   Tax
  Assumption   Estate and will
  Financial statement
  Authority to process
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  Accumulation   Wealth Building(16-20)

  Wealth Accumulation(21-35)
  Consolidation   Diversifying (36-45)
  Retirement Planning (46-65)
  Spending   Living (Beyond 66)
  Transferring
  Giving
The LCM should be SMART.
u  It consists of external factors in a business environment that   GDP – Gross domestic product is the final value
influence a business. of all goods and services produced by a country
u  Macro environment consists of the entire economy. in a given time period.
Interest rates
Tax   Index of Industrial production measures changes
Inflation in industrial activity with reference to a base
u  Micro environment consists of internal factors of the year.
business   22 industry classifications
Market size   Indsustrial sector - Mining , manufacturing ,
Competition electricity and use based sector – consumer
Suppliers goods, basic goods etc.
  It is the rate at which the general level of prices for   It is the rate which is charged or paid for the use of money.
goods and services is rising form one period to
another.
  It changes with changes in inflation and government
  It reduces purchasing power.
policies.
  Headline inflation refers to change in the value of all
goods in a particular basket.
  Core inflation excludes food and fuel items since
they are more volatile.
  Wholesale price index is computed on monthly basis
using the wholesale prices of a basket.
  Consumer price index is a retail index computed on
monthly basis.
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  Decides borrowing cost   Floating/ variable
  Impacts government deficit   Fixed rate
  Impacts capital flow   Capped rate
  Split rate
  Political movements   Bank discount rate – Rate charged by central

  Deferred consumption bank
  Inflation
  Alternative investments   Funds rate – Interbank rate for call money mostly
  Risks of investment
  Liquidity preferences   Primerate – Banks lending rate to its most credit
  Taxes
worthy customers.
  Economy
  Treasury bills/Notes/Bonds
  Yield refers to annual return on investment

  It is based on purchase price of the bond and u  Yield curve is a line that plots interest rates at a set point in
interest rate. time of bonds having equal credit quality but differing maturity
  Bond yields are of two types : dates.
  Current yield – Annual return earned on the price u  It is used as a benchmark for debt rate in the market such as
paid for a bond. mortgage rates or bank lending rates.
  C Y = Bonds annual coupon interest payment u  It is also used to predict changes in economic output and
amt. / Purchase price growth.
  Yield to maturity – Total return on investors
receives by holding the bond till maturity.
  It includes appreciation or depreciation in the
price of bonds.
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Normal yield curve Steep yield curve

u  Upwards sloping, all else being equal, a bond with long-term u  Investors expect interest rates to rise in future so demand
maturity pays a higher yield than that of shorter maturity. high rate of interest and high rate of return when buying long
u  Longer the duration higher is the risk. term bonds.
u  So to compensate for extra risk with lending money for long- u  This is because economic recovery is normally accompanied
term lenders demand high rate of interest. by corporation wanting to borrow more money thus increasing
it's demand and putting upwards pressure on interest rates.
u Upward economy
u Upward economy
Flat yield curve Humped yield curve

u  Yield of all maturity are close to each other. u  Short term and long term rates are close to each other.
u  Inflation expectations have decreased. u  It happens when there is an increase in demand or decrease
u  Investors are demanding no premium. in supply of long term bonds.
u  It is a sign of pending or ongoing economy. u Recession
u Slow down economy Inverted yield curve

u  Long term rates are lower than short term interest rates.
u  Very rarely happens.
u  Sign of an upcoming economic slow down.
u Recession
  RR = ROI - INFLATION RATE   Investors expectations for future interest rates

  R =(1+N)/(1+I)–1
  Risk premium required
  Realadjusted for today’s inflation
  Nominal only on paper
Importance
  Forecasting interest rates
  Used for financial intermediary
  Detecting over priced and under priced security
  Indicates trade off between maturity and yield.
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u  Pure expectations theory   Preferred habitat theory

It says that slope of the yield curve reflects only investors
expectations for future short term interest rates. Investors It states that in addition to interest rate
expect interest rates to rise in future which causes upward expectations , investors have distinct
slope of the yield curve. investment horizons and require a meaningful
premium to buy bonds with maturities outside
u  The liquidity preference theory the preferred maturity or habitat.
It asserts that long term interest rate not only reflect investors It believes that short term investors are more
assumptions about future interest rates but also include a prevalent in the fixed income market and
premium for holding long term bonds. It therefore long term rates tend to be higher than
short term rates.
compensates investors for the added risk. Due to this long term
yields tend to be higher than short term yields and the yield
curve slopes upwards.
u  It is anything that can be used to predict future financial

  Bullet– Maturities of all securities are highly
and economic trends.
concentrated at one point on the yield curve.
E.g.. Most bonds of the portfolio maturing in u  They are used to forecast changes in business cycle and
10 years from now. economy and use time series for forecasting.
u  They are useful to study cyclical expansions and contractions
in business activities.
  Barbell
– Maturities at two extremes say 5 and
25 years. u  They are of three types as follows:
u  Leading signals future events
  Ladder– Equal amount of securities maturing u  Lagging is one that follows an event
periodically. u  Coincident occur at the same time as the conditions they

signify.
They signal changes before changes actually occur.   Building permit ( more construction,
Indicate both expansion and recession. employment, supply more than demand ,
Used by policy makers and government. builders bottom line, undervalued real estate
Top leading indicators are : prices )
1.  Stock market ( + , - , bubbles, storm of 2008
overvalued subprime loans and credit defaults   Housing market (decline is related to building but
swept the market ) decline estate investments returns )
2.  Manufacturing activity ( GDP , Employment , -   Level of new business start ups ( Increase in
wholesaler & retailor piling up goods ) small business indicate growth )
3.  Inventory levels ( demand to rise or lack in
demand, stock of inventory )
4.  Retail sales ( GDP , Employment but does not
account the inflow of money used for purchase of
goods )
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Lagging indicator shift after the economy changes.

It indicates long term trends. If an indicator that lags Inflation encourages spending and investing, which
recession starts rising, it means that trough has been helps an economy to grow. It keeps interest rates at a
reached and expansion has began. high level which encourages investments.
Few of the lagging indicators are as follows : Deflation is reduction in cost of living , not always
good can indicate economic slowdown as well.
5. Currency strength
1. Changes in GDP ( GDP drops for more than 2 quarters,
6. Interest rates ( Interest rate cycle based on central
recession is approaching, artificial increase in GDP if
central bank puts in money in the economy ) banks interest rate )
7. Corporate profits ( GDP , Stock market , can be
2. Income and wages ( Declining income, reduced
employment , problems arise in economy ) false as well )
8. Balance of trade – Net difference between the value
3. Unemployment rate
of exports and imports.( Trade surplus coming in to
4. Consumer price index ( Inflation ) – calculated by the country or trade deficit money going out o0f the
measuring the cost o9f essential goods and services. country )
9. Value of commodity to US $ They tell us about current economic conditions ie.

Gold and silver are priced in US $ Rising or declining, growth is good or bad etc.
They are viewed as substitutes to US $ The few major ones are as follows :
When US $ declines , these commodities increase
in price since more people buy them as a measure 1.  No. of employees on non agricultural payrolls
of protection and consider these metals to have an 2.  Industrialproduction
inherent value which does not decline. 3.  Real personal income
E.G. 2001 GOLD $1900 AN OUNCE AS $ PRICE 4.  Real mfg. and trade sales
DETERIORATED.
5.  GDP
6.  Current sales
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Wealth Management Unit 1 - 32168

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6/10/20

u Introduction to wealth management

u Personal financial statements analysis – sums on

u Economic environment analysis

 High-level professional service

Wealth management deals with helping an According to Investment Management Consultant

 Client segment – HNIs

 Inputs from financial experts and attorneys,  Consultative process

 Wealth accumulation and development

 Tax minimization strategy

 Estate Investment, Trust and Insurance Planning

Relationship management is a key activity in

INVESTMENT MANAGEMENT WEALTH MANAGEMENT

 Data gathering for current situation – goal, relationship,  Growth of HNWI

 Accounting and taxation aspect

 Relationship Clients  Regulatory environment

 IIFLWealth Management Association of International Wealth Managers is an non profit

 Karvy Wealth u Independence

 ICICI Asset Management Company u Integrity

 Sanctum Wealth Management

Definition - It's a document or spreadsheet outlining an

 Goal value  Get out of debt completely

 Income  Essential needs

 Cover sheet  Risk profile

 Clients goal and objective  New plans and costs

 Accumulation  Wealth Building(16-20)

 Decides borrowing cost  Floating/ variable

 Impacts government deficit  Fixed rate

 Impacts capital flow  Capped rate

 Political movements  Bank discount rate – Rate charged by central

 Yield refers to annual return on investment

Normal yield curve Steep yield curve

Flat yield curve Humped yield curve

u Slow down economy Inverted yield curve

 RR = ROI - INFLATION RATE  Investors expectations for future interest rates

u Pure expectations theory  Preferred habitat theory

u It is anything that can be used to predict future financial

periodically. u Coincident occur at the same time as the conditions they

Lagging indicator shift after the economy changes.

9. Value of commodity to US $ They tell us about current economic conditions ie.

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u  Introduction to wealth management

u  Personal financial statements analysis – sums on

u  Economic environment analysis

  High-level professional service

  Client segment – HNIs

  Inputs from financial experts and attorneys,   Consultative process

 Wealth accumulation and development

 Tax minimization strategy

 Estate Investment, Trust and Insurance Planning

  Data gathering for current situation – goal, relationship,   Growth of HNWI

  Accounting and taxation aspect

  Relationship Clients   Regulatory environment

  IIFLWealth Management Association of International Wealth Managers is an non profit

  Karvy Wealth u  Independence

  ICICI Asset Management Company u  Integrity

  Sanctum Wealth Management

  Goal value   Get out of debt completely

  Income   Essential needs

  Cover sheet   Risk profile

  Clients goal and objective   New plans and costs

  Accumulation   Wealth Building(16-20)

  Decides borrowing cost   Floating/ variable

  Impacts government deficit   Fixed rate

  Impacts capital flow   Capped rate

  Political movements   Bank discount rate – Rate charged by central

  Yield refers to annual return on investment

u Slow down economy Inverted yield curve

  RR = ROI - INFLATION RATE   Investors expectations for future interest rates

u  Pure expectations theory   Preferred habitat theory

u  It is anything that can be used to predict future financial

periodically. u  Coincident occur at the same time as the conditions they