WEALTH MANAGEMENT

An introduction

INTRODUCTION OF WEALTH MANAGEMENT

Wealth Management is an all inclusive set of strategies that aims to grow, manage, protect and distribute assets in a much planned systematic and integrated manner."

MEANING OF WEALTH
The meaning of wealth is Funds, Assets, investments and cash.
it means the term wealth management deals with funds, Asset, instrument, cash and any other item of similar nature. Wealth, is an aggregate of a persons tangible and intangible assets.

 While asset management is a key feature, wealth management has a greater emphasis on financial advice and is concerned with gathering, maintaining, preserving, enhancing and transferring wealth.

Wealth Management
Wealth Management is a term that originated in the 1990s in the US with the Broker Dealers, Banks, and Insurance Companies Wealth Management has generally evolved from high net worth financial consulting for persons who are top clients of any firm Wealth Management is classified as an advanced type of financial planning that provides individuals and even families: Private banking Estate planning Asset management Legal service resources Trust management Investment management

Wealth is held on behalf of clients by Fund managers Trustees Banks Investment Banks Commercial Banks Greater majority of wealth is managed by fund managers Mutual fund assets worldwide increased 6.2 percent to $25.82 trillion at the end of the third quarter of 2007

Products include

Core banking-type products Lending products, such as margin lending, credit cards, mortgages and private jet finance. Insurance and protection products, such as property and health insurance, life assurance and pensions. Asset management in its broadest sense: discretionary and advisory, financial and non-financial assets (such as real estate, commodities, wine and art), conventional, structured and alternative investments. Advice in all shapes and forms: asset allocation, wealth structuring, tax and trusts, various types of planning (financial, inheritance, pensions, philanthropic), familydispute arbitration even psychotherapy to children suffering from affluenza. A wide range of concierge-type services, including yacht broking, art storage, real estate location, and hotel, restaurant and theatre booking.

Asset classes in wealth management

EQUITIES BONDS REAL ESTATE MUTUAL FUNDS GOLD/GOLD FUNDS

Wealth Management: financial services provided to wealthy clients, mainly individuals and their families , typically with $100,000+ investable assets Private banking: an important, more exclusive, subset of wealth management, typically with $1 million + of investable assets. Private banking traditionally consisted of banking services (deposit taking and payments), discretionary asset management, brokerage, limited tax advisory services and some basic concierge-type services, offered by a single designated relationship manager. On the whole, private banking relationships were mainly passive Wealth management is broader and typically deals with managing both the assets & liabilities side of clients balance sheets

Prerequisites Power of Planning Great preparation is the foundation for painless retirement You must build according to a blue print Where am I? Where am I going? How do I get there? How do I perpetuate my wealth and success? You must have the discipline to work out your plan

GOAL SETTING Enables quantification of results Acts as a guidance for risk tolerance Enables setting of investment policy and objective Goals should be time specific and can be Hidden Intermediate Lifetime

Constraints in Wealth Management

CONSTRAINTS Constraints are unique and tied to goals Constraints include Time Horizon Liquidity and Marketability Requirement Risk Tolerance Available Resources Environmental

Wealth Life Cycle Getting It Right?

AGE 26 TO 50 ACCUMULATION AGE 50-65 CONSOLIDATION AND PRESERVATION AGE ABOVE 65 Dissipation and Transfer

PRIVATE BANKING vs WEALTH MANAGEMENT

Private

banking targets only the very wealthiest clients or high net worth individuals (HNWIs): broadly speaking, those with more than around $1 million in investable assets. Wealth management, by contrast, targets clients with assets as low as $100,000, i.e. affluent as well as high net worth (HNW) clients.

Definition of Private banking:

Traditionally, Private banking means to provide banking services to wealthy people and families. It is differentiated from retail, investment and corporate banking

Characteristics :

The client is an individual or a Family He knows his banker and has a close relationship with him, based on trust The banker provides services and tailor made investment solutions, answering the specific needs of the client Today, private banking has to combine the one on one features of a traditional approach with on-line access to information on a 24/7 basis

Defining the Wealth Management Service Proposition

The relationship that wealth managers have with their clients, both in terms of breadth (where providers emphasise terms such as holistic, comprehensive and all-inclusive) and depth (intimate and individualised). The products and services provided, with a particular emphasis on estate planning and multigenerational planning services, as well as tax advisory expertise and alternative investments. The specific objectives of wealthy clients, such as investment performance, wealth preservation or wealth transfer.

Investment Mandates
Custodian for a clients assets. That involves, essentially, asset safekeeping, income collection, fund disbursement and associated reporting. Execution-only mandate, the wealth manager executes, or selects brokers to execute, securities transactions on behalf of the client. Not investment advice, service aimed primarily at self-directed clients. Advisory mandate Discretionary mandate

Discretionary Mandates
The wealth manager usually has sole authority to buy and sell assets and execute transactions for the benefit of the client, in addition to providing investment advice. Starts off with: Construction of a brief with the client, detailing investment aims, level of risk-aversion and other factors that will influence the portfolio (In some discretionary accounts, the wealth manager is given only limited investment authority). However, in all cases, major investment decisions, such as changing the accounts investment strategy or asset allocation guidelines, may be subject to the clients approval. The wealth manager is generally paid on the basis of a flat-fee arrangement linked to the value of the assets under management. The gross revenue margin of a discretionary mandate is typically at least double that of an execution-only mandate.

 The proportion of clients using advisory mandates is, in general, relatively stable across the various client wealth bands. Execution-only mandates become more prevalent the greater the clients wealth Discretionary mandates less prevalent, as client wealth rises. Wealth management can mean different things in different geographic regions. In the US, wealth management is more closely allied to transaction-driven brokerage and is typically investmentproduct driven. In Europe, the term is more synonymous with traditional private banking, with its greater emphasis on advice and exclusivity.

The Concept And Structure Of Wealth

Onshore & Offshore Wealth Management

Onshore wealth management is the provision of products and services within the clients main country of residence. Offshore wealth management, by contrast, serves clients wishing to manage their wealth outside their main country of residence for reasons such as: financial confidentiality; legal-system flexibility; tax considerations; the lack of appropriate products and services onshore; a low level of trust in domestic financial markets and governments; and the need for safety and geographical diversification in response to domestic political and macroeconomic risks. Some clients treat their offshore account(s) primarily as a vault

Main players
Pure private banks Trust banks Retail and universal banks Family offices Financial advisors Stockbrokers and wirehouses (US term for large brokerage houses) Direct banks Asset managers Investment banks Others insurance companies, accountants, solicitors, financial planners

Key Wealth Drivers

Economic growth Asset prices Wealth allocation concentration of wealth (US) households in the top 1% of the wealth distribution hold around one third of the total wealth in the economy, and those in the top 5% hold more than half. At the other extreme, many households (more than 10%) have little or no assets at all Demographic factors

Where does HNWI wealth come from?

Threats to the wealth

Income Taxes Creditors claims Loss of retirement plan assets Long term health care costs Guardian ship and probate Wealth transfer taxes Procrastination Divorce

Six dimensions of wealth management

Family continuity Strategic philanthropy Risk management Integrated planning Investment diversification Lifestyle enhancement

Comprehensive wealth management

Discovery identifying values and goals Analysis and recommendations Building an action plan Implementation choosing services and providers Monitoring ongoing evaluation and reporting

Discovery
Family, key issues Goals, retirement timing, special needs and values Comprehensive view of current financial picture Risk tolerance, time horizon, attitude towards volatility

Analysis and recommendations

Analyse personal and financial information Income goals and probability analysis Analyse liabilities Analysis of risks and threats Coordination with outside advisors Action plan: Growth, preservation and transition

Implementation
Retirement and educational plans Estate plan, trust and philanthropic plans Borrowing plan Risk plan diversification, hedging, insurance, tax minimization Family mission and bye laws Asset management

Monitoring
Track progress towards goals Set/follow guidelines for liquidity, asset allocation Notification when portfolio strays outside guidelines Performance reporting Online access

Wealth Management services

Comprehensive wealth Planning - Integrate analysis and planning for family issues, wealth transfer, asset allocation and protection Family advisory Maintain family unity across generations focusing on family missions, goals, and governance Philanthropic services Investment management Tax sensitive, asset allocation, hedge funds and private equity, concentrated positions, diversification, control and restricted security management, hedging and monetization strategies Reporting, monitoring, aggregating and access comprehensive view of assets and portfolio

 Definiton of Private banking: Traditionally, Private banking means to provide banking services to wealthy people and families. It is differentiated from retail, investment and corporate banking

Characteristics :

The client is an individual or a Family He knows his banker and has a close relationship with him, based on trust The banker provides services and tailor made investment solutions, answering the specific needs of the client Today, private banking has to combine the one on one features of a traditional approach with on-line access to information on a 24/7 basis

Wealth Management, understanding the client

A fruitful, long-lasting relationship depends on our knowledge of the client, his objectives and his financial situation

ICICI BANK & WEALTH MANAGEMENT

In India ICICI bank and Axis-Bank are very well known banks in the field of wealth management. ICICI Bank will float subsidiary for the purpose of WM activities in Canada & other market even as ICICI has rolled out ICICI Group Global Private Clients for those with net worth of $ 1 million or more. ICICI GCPC launched their business in Dubai very recently in the month of April-08 and caught 2500 clients. They are going to add another 1000 high network clients this year. ICICI Bank is using the services of global players like Merrill Lynch, City group, and UBS for catching the clients for Wealth Management business. ICICI Bank and its subsidiaries are engaged in the development of various attractive products (services) for the clients with net worth of $ 1 million. The eyes of ICICI Group Global Pvt. Clients on the rising number of dollar millionaires at present they are 100,000 in number in few year the number will definitely increase. India's No.2 lender banker ICICI expects to sustain the 70% growth in its private wealth management business. ICICI has 150,000 customers with investible surplus of at least Rs. 10 lakhs equity, real estate and private equity is driving the private banking business in India.

India has market of wealth management about $ 600 billion.

Definition of 'High Net Worth Individual HNWI'

A classification used by the financial services industry to denote an individual or a family with high net worth. Although there is no precise definition of how rich somebody must be to fit into this category, high net worth is generally quoted in terms of liquid assets over a certain figure. The exact amount differs by financial institution and region. The categorization is relevant because high net worth individuals generally qualify for separately managed investment accounts instead of regular mutual funds. The most commonly quoted figure for membership in the high net worth "club" is $1 million in liquid financial assets. An investor with less than $1 million but more than $100,000 is considered to be "affluent", or perhaps even "sub-HNWI". The upper end of HNWI is around $5 million, at which point the client is then referred to as "very HNWI". More than $50 million in wealth classifies a person as "ultra HNWI". HNWIs are in high demand by private wealth managers. The more money a person has, the more work it takes to maintain and preserve those assets. These individuals generally demand (and can justify) personalized services in investment management, estate planning, tax planning, and so on.