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Understanding Wealth Management

Wealth Management is a combination of financial planning, investment management, estate and tax planning and risk management of an individual’s money. The wealth is usually handled by a wealth manager who has the certifications to handle and operate with funds.

Financial planning includes goal setting, retirement planning, college funding, business planning or whatever the client’s needs may be. The manager also takes care of his/her client’s investments by way of asset allocation, preparing individual stock and bond portfolios, monitoring and rebalancing the portfolios and tax management. The tasks of optimizing family and charity gifts, IRA and retirement plan distribution and retirement plan design fall under the category of estate and tax planning by the manager. As a final set of tasks, but very important, risk management cannot be negated from wealth management, one must analyze insurance; stock options exercise strategy, manage concentrated positions, and protect assets.

In short, wealth management is a comprehensive devise to optimize and effectively put to use an individual’s wealth to help maintain and meet his/her goals.

The formula for wealth management is given by,

 WM = IC + AP

The wealth management (WM) approach is comprised of Investment Consulting (IC) plus Advanced Planning (AP). The first part of the equation, Investment Consulting, plays an integral role in the long term success of goals and objectives. Investments are the mechanisms behind the other planning of an individual financial affair.

The second part of the equation is Advanced Planning. The intention here is to ensure that the financial house is in order so that one can fully achieve the goals. Industry research is clear that financially successful people are concerned with much more than just their investment assets. In fact, preserving wealth is often more important than growing wealth. Thus, the various components of advanced planning address the key concerns of many clients, including wealth enhancement through income tax mitigation, wealth transfer via estate planning, and wealth protection through insurance.

Wealth Management Process

The designation of a wealth manager requires him/her to profile the client and place his/her in the appropriate segment. The client’s asset is allocated and a review is done of the existing portfolio. The portfolio is then optimized. Investment proposal, execution, monitoring and updating, and periodic restructuring are all tasks that fall into the process of wealth management. The process of wealth management involves a cycle with 3 broad stages.

• Money Management (Accumulation)
• Personal Financial Planning (Protection)
• Integration of Life Goals & Financial Planning (Distribution)

Stage I: Money Management (Accumulation)

During this stage the wealth manager becomes acquainted with the client’s current position and needs, through the process of investment goals analysis. The needs may comprise of education, insurance, retirement, homes and mortgages, emergency funds, savings etc. According to his/her age, goals and risk taking capacity, portfolio risk analysis is carried out followed by a process to stabilize the client’s current portfolio consisting of bonds, mutual funds, indices, annuities, stock options, short-term assets and stocks. Once this is done, assets are allocated to provide the best returns possible.

Stage II: Personal Financial Planning (Protection)

Having an overall view of how the money will be managed, a wealth manager can start putting together the finer details to achieve the goals. He/she manages the financial risk management and plans for contingencies. A roadmap for retirement is drawn followed by life, disability and long-term care analysis. A cash-flow analysis is also done that leads to projections for the client’s net-worth.

Stage III: Integration of Life Goals and Financial Plan (Distribution)

Once the goals and the plans have come into light, plans can be executed according to the strategy devised by the manager. Here, another set of analyses is done for the purpose of the client’s will and trust that needs to be put in place along with the legacy planning. Reviewing is done on a regular interval to monitor the estate plan and tax plan. The wealth transfer strategy and business transfer process must be laid out by the manager and explained to the client for approval.