What is Wealth Management?

Wealth provides you with money that can be used to realize your financial and personal goals. It aids you to sustain life and remain in good stead even when you are no longer employed. Wealth can get eroded, i.e., reduce in value, over time, if parked on the wrong avenues. Proper wealth management can help plan your money better so that it continues to grow.

Wealth Management – Definition

Wealth management is a part of financial services that assists you in managing your money and provides you with advisory services.

Wealth management includes comprehensive guidance on finance, taxation, estate and legal. Your wealth manager can be your single point of contact who will collaborate with accountants, estate managers, and tax experts to design a holistic wealth plan.

How does Wealth Management Work?

Wealth management revolves around financial planning with a crystal-clear objective of offering better returns on investments. Some broad pointers on how wealth management works:

a) Your wealth manager will note your financial goals with specific timelines if any.

b) By probing with a wide variety of questions, they will figure out your risk appetite.

c) Needless to say, you must provide details of how much money you want the wealth manager to “manage” or invest.

d) At this stage, your wealth manager will draft an investment plan recommending different asset classes, financial instrument, timelines and allocations.

e) Taxation will always be factored in so that you get the best possible exemptions and rebates.

f) Once you approve the plan, your wealth manager would go ahead and execute the same.

g) The investments are monitored and modified if the need arises.

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Advantages of Wealth Management

There are several benefits of using professional wealth management methods. The margins of error reduce because the dos and don’ts are clear.

a) Wealth management is customized to suit your need, objective, funds available and risk appetite

b) It is a 360-degree service comprising tax advice, investment advice, legal advice, retirement planning, accounting, and estate management.

c) Wealth management is more strategic than investment advice. Investment advice is a subset of wealth management and is more tactical in approach. For wealth creation, a holistic approach to strategic wealth management is needed.

d) If the magnitude of your assets is huge, the wealth manager will work alongside a team of specialized wealth managers who have expertise in specific domains of finance and investments.

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Wealth Management Strategies

Earning money, creating wealth and managing wealth does not mean the same. Some points to note:

a) Your primary source of income gave you considerable money because of your expertise in your chosen profession.

b) You must invest wisely so that this income works by itself and generates wealth.

c) All along, managing this entire process is critical so that your money is safe, growing and available at planned intervals/milestones.

A few pro tips for SMART wealth management:

1. Set Specific, Measurable, Attainable, Realistic and Time-Bound (SMART) goals.

2. Work on clear budgets

3. Diversify your investment

4. Stay clear of the bad debt or at least keep them to the minimum

5. Buy insurance to mitigate risks. Term insurance, health insurance, property insurance etc should be in place.

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6. Work with reputed, credible, qualified wealth managers

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Financial goals, plans, and aspirations change as you traverse through the journey of life. Needs and wants are dynamic and therefore your wealth management plan should adapt to your life stage. Retirement is the final stage and you most certainly do not want to enter this stage with inadequate money in hand. Adopting different strategies for different life stages is recommended:

Accumulation:

Preservation:

Distribution:

Investment Options in India for Wealth Management

Each of the strategies described above has corresponding investment options that can help you achieve the goals for that stage. Some examples of popular instruments for each stage are listed below:

1. Accumulation Strategy

The focus is clearly on getting above-average returns and building a strong base so that the power of compounding gives better returns in the medium/long run.

i. Mutual Funds/ELSS:

ii. Unit Linked Insurance Plan (ULIP):

iii. National Pension System (NPS):

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Other than the diversified portfolios you can also consider buying stocks directly. Stocks can offer huge value accretion over time as well as a possibility of dividend income. Investing in Gold ETFs, and REITs (Real Estate Investment Trusts) will also fall under this strategy. However, these investment options may not allow tax-saving.

2. Preservation Strategy

Consolidation is the mantra here. The degree of consolidation will increase as you progress through this stage and approach retirement.

i. National Savings Certificate (NSC):

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ii. Life Insurance Savings Plans:

iii. ULIP/Guaranteed Return Plans:

Alternatively, you may invest in guaranteed return life insurance plans where the return is assured so that you can predict the maturity value.

3. Distribution or Income Strategy

You need the money at this stage. Moreover, you need guaranteed cash flow post retirement when your income from employment or profession will dry up.

i. Life Insurance Annuity:

ii. Bank and Post Office Fixed Deposit (FD):

Unless one is investing in the 5-year tax-saving FDs, you will not get any tax benefits for other FDs. But you can receive a defined sum into your account as interest payments.

iii. Monthly Income Plans:

Your current state of finance portfolio is important when planning your wealth growth strategies. Keep a holistic view when investing and have the patience to stay invested. Hiring professional wealth managers to help you make decisions basis concrete data and preclude you from making costly mistakes. Factoring in constraints, opportunities, goals, and personal circumstances is essential when drawing a wealth management strategy.