Kushal Todi - Wealth Management(1)

8/12/2019 Kushal Todi - Wealth Management(1)

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ACKNOWLEDEGEMENT

The Evolution Of Wealth Management In India touches an emerging

concet in India and comilation of this ro!ect "ould not have#een ossi#le "ithout the active guidance$ mentoring and

motivational suort of Ms Meena Desai%

Ac&no"ledgement is also due to our esteemed Course Coordinator

Ms% 'eena Tha&&ar%

I "ould also li&e to ac&no"ledge our esteemed (rincial Dr Indu)hahani for giving me this oortunit* to e+lore this concet%

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Money isn't everything...but it ranks right up there

with oxygen.

- Rita Davenport

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INT,OD-CTION TO WEALT' MANAGEMENT

Wealth management is an investment advisory disipline that

inorporates !inanial planning" investment port!olio management and anumber o! aggregated !inanial servies. #igh $et Worth %ndividuals

$W%s" small business owners and !amilies who desire the assistane

o! a redentialed !inanial advisory speialist all upon wealth managers

to oordinate retail banking" estate planning" legal resoures" tax

pro!essionals and investment management. Wealth managers an be an

independent ()R*%+%)D +%$,$(%, ,$$)R/" M0,s" (+, (harter

holders or any redentialed pro!essional money manager who works to

enhane the inome" growth and tax !avoured treatment o! long-term

investors. 1ne must already have aumulated a signi!iant amount o!

wealth !or wealth management strategies to be e!!etive and is also one

o! the key areas that are growing at a tremendous rate.

Wealth management an be provided by large orporate entities"independent !inanial advisers or multi-liensed port!olio managers

whose servies are designed to !ous on high-net worth ustomers

arge banks and large brokerage houses reate segmentation

marketing-strategies to sell both proprietary and non-proprietary

produts and servies to investors designated as potential high net-

worth ustomers. %ndependent wealth managers use their experiene inestate planning" risk management" and their a!!iliations with tax and

legal speialists" to manage the diverse holdings o! high net worth

lients. 0anks and brokerage !irms use advisory talent pools to

aggregate these same servies.

Wealth management helps people determine their monetary goals and

develop ationable strategies that ould help them reali2e their goals. %t

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also de!ends their !inanes against risks. Wealth management is a

servie designed spei!ially !or high net worth individuals. *he

threshold !or high net worth varies by ountry and institution" but the

most ommon de!inition is individuals who have more than 3456 million

in assets" not inluding their home. 4ome high net worth individuals

have done well in growing their assets !rom a low base to their urrent

levels" and may !eel that they an ontinue to manage their own

port!olios. #owever" as a person7s wealth grows and8or the markets get

more hallenging" it beomes inreasingly di!!iult to reali2e the

expeted returns.

With greater wealth ome greater investment options as well as more

omplex risks and threats in terms o! legal regulations" taxation issues

and opportunities !or loss. *he level o! !ear or even outright pani that

an be experiened grows with the si2e o! the investment involves.9reater diversi!iation is needed than in earlier stages o! investing. *his

is where independent !inanial advisers or large orporate entities help

their lients through pro!essional wealth management.

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(,INCI(LE) O. WEALT' MANAGEMENT

Mr 4tuart uas has developed what wealth managers onsider to be a

use!ul set o! priniples !or e!!etive long-term wealth management. *hey

apply e:ually well whether you're managing a nest egg o! 56 million or

56 billion. The Eight (rinciles of )trategic Wealth Management are

at the heart of "hat "ealth managers do ever* da*% The* are/

6. Ta&e Charge and Do It Earl* /0*he 4trategi Wealth Management

+ramework re:uires that you" as Wealth 4trategist" artiulate a set

o! values that will be the !oundation o! !uture wealth managementplanning. 1ne must eduate onesel! about their !amily !inanes"

existing assets" spending patterns" expeted rates o! return" and

urrent estate plans. ,nd one must deide how to struture long-

term !amily and !inanial goals so they beome integrated and an

positively rein!ore one another. ;ou may wind up with good

produts but without an integrated strategy or the resoures toimplement it over time.


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put aountability systems and per!ormane metris in plae.

Doing so helps to rein!ore ob?etive business goals and

per!ormane expetations. %t also helps drive implementation o!

wealth-reation strategies and provides a reliable benhmark by

whih to ?udge the per!ormane o! the Wealth 4trategist.

@. Caitali2e on 3our .amil*4s Com#ined ,esources / 0 +amilies

an overome this tendeny toward randomness. %n !amilies o! any

si2e" resoures beome distributed aross the membership with

the passage o! time. *he hallenge is to !igure out how -- and how

muh -- to reassemble these distributed resoures so they !untion

more e!!etively. *he tools !or reversing entropy are apitali2ing on

the !amily's !inanial sale and the ombined strength o! !amily

members' personalities" experiene" skills" a!!iliations" and

networks" all within a meritorati ulture.

A. Delegate$ Emo"er$ and ,esect Indeendence / 0 Members o!a healthy !amily group learn how to grow together and grow

separately. *here are advantages o! working together" but it is also

important to respet the individual ambitions and values o! eah

!amily member and" over generations" eah !amily unit. *he

hallenge !or the Wealth 4trategist and !or other !amily members is

to balane the two and rein!ore the strengths o! eah. 4upporting

!amily members to identi!y and pursue hallenges that they an

all their own" away !rom the !amily's immediate in!luene"

enourages sel!-reliane and risk-taking. *his is an exellent way

to enourage the personal growth o! young adults" who" i!

supported by their !amily in their personal interests or business

pursuits" learn to embrae responsibility !or their li!e hoies and to

develop a sturdy sense o! sel!-on!idene.

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B. Diversification And .ocus Com#ine The 1est Of 1oth Worlds.

With diversi!iation you ahieve risk mitigation" and with !ous

ome the laser intensity that most people need to sueed in li!e.

Diversi!ying your investments is !undamental to prudent risk

ontrol. Wealth is reated most :uikly and most o!ten through

suess in a single business. #owever" wealth is also most :uikly

lost by onentrating it on only one or a !ew investments. 4o" in

order to protet your wealth" it's best to diversi!y it. *he priniple o!

diversi!iation applies in other ways as well. Most individuals have

both taxable and tax-de!erred &retirement and de!erred

ompensation plans investment port!olios. 4ome have li!e

insurane savings plans that are tax exempt to the bene!iiary. ,

!ew people also ontrol orporations. ,hieving ompetitive

advantage in the deployment o! apital -- a ritial omponent to

growing diversi!ied wealth is very di!!iult to ahieve. Without the

!ous to develop investment skills that are superior to mostpro!essionals" one will not add value to your investment port!olio.

C. Err On The )ide of )imlicit* When (ossi#le /0%nevitably"

advisors will present you with many !any options !or doing great

things with your money. 4ome o! these are terri!i ideas" but it is

reommend to most people that they stik to simple wealth

management strategies and produts. )ven i! you're wealthy" it

might be best !or you to peg most o! your investments to !inanial

indies or to other simple" low-ost" and proven wealth

management produts. 0e!ore hoosing omplex solutions to

wealth management issues" evaluate the simple ones. 4imple

solutions &suh as indexing may o!!er you most o! the bene!its o!

more ompliated plans" a higher degree o! ertainty" easier

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6G. International e+osure and diversification>- *hrough this

strength in numbers investor will have aess to international

investment opportunities and ahieve diversi!iation.

LIMITATION) O. WEALT' MANAGEMENT%

*he limitations o! wealth management are as !ollows

6. *he big limitation o! Wealth management is that they do not show

their atual position to the ustomers. 4o" there may be hanes o!

!raud and !orgery with ustomers.


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Source: Reserve Bank of India

T'E E..ECT O. DEMOG,A('IC) ON IN5E)TMENT IN INDIA

Parameters Number of Investors Percentage

Gender

Male 120 80

Female 30 20

Total 150 100

Age (Years)

Below 35 55 36.7

35-50 80 53.3

51-60 10 6.7

Above 60 5 3.3

Total 150 100

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INTE,(,ETATION/ 0 *he above table shows" that 6


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)O-,CE) O. IN.O,MATION .O, T'E INDIAN IN5E)TO,

+rom the below table it is noteworthy to !ind that AF &=FH o! the

investors read !our or more soures" @G &


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O16ECTI5E)7 ,I)K TOLE,ANCE LE5EL O. T'E INDIAN

IN5E)TO,

We an onlude that the investors7 ob?etive o! investment plan is

apital appreiation or balane o! apital appreiation and urrent

inome. %t is investors invest to aumulate wealth rather as an avenue

to supplement their inome.

*he port!olio suggested to investors onsists o! !our types o! asset

lasses i.e." ):uities" +ixed %nome 4eurities" (ash I ):uivalents and

other ,lternative assets suh as art. Depending on their risk tolerane

the orresponding asset lass has been inreased or dereased and

orresponding asset mix has been suggested to eah type o! investor.

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W'3 I) INDIA A GOOD WEALT' MANAGEMENT DE)TINATION;

%ndia represents the greatest opportunities to wealth managers over the

oming years. %n !at" in urrent !inanial environment" the wealthy

population in %ndia is large as well as growing" yet an underdeveloped

Wealth Management industry served the market. 3rbani2ation "growing

middle lass and larger disposable inome with the young. Moreover ,

large proportion o! the younger population is expeted to ome out o!universities over the next 6G J


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K Wealth Management will need to adapt with lients" to spread

beyond the largest ities and eduate its lients on the hanging

business environment

K *o !oreign banks" non-resident %ndians represent a large asset

K %ndian people are looking inreasingly beyond their own borders !or

their investments. *here!ore" !oreign banks must leverage their global

expertise.

WEALT' MANAGEMENT IN INDIA

Wealth management is lassi!ied as a type o! !inanial planning tool that

provides orporate and their !amilies with private banking" asset

management" legal resoures" real estate planning" investment

management and port!olio management with the goal o! sustaining and

growing long-term wealth. Wealth management servie providers have

segmented the %ndian market into !our ategories>

a *he mass market &investible surplus 34DA"GGG to


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5=GG"GGG. , true wealth management market is ?ust beginning to

develop in %ndia.

*he inrease in the number o! wealthy %ndians to a ombination o!

!ators. +or one" many are invested in the e:uity markets and have

bene!ited !rom strong orporate results in reent years. 4tok market

earnings multiples are also riding high" and so is sentiment in the market

!or initial publi o!!erings" she says. romoters o! %ndian ompanies have

also been able to unlok signi!iant wealth through mergers anda:uisitions.

E5OL-TION O. WEALT' MANAGEMENT IN INDIA < 9==>09=88?


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3*% and 4tandard (hartered bank were the only ones providing wealth

management servies.

*he reason !or the growth o! #$%7s in %ndia an be attributed to three

!ators namely>-

ow interest rates

ow exhange rates

4ubstantial in!low o! +oreign Diret %nvestment

%mprovement in %nvestor sentiment

*he number o! #$%7s grew !rom B6million individuals to CGmillion

individuals.

Source: Capemini !errill "ynch Asia #acific $ealth Report %&&'(


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T'E INDIAN N,I

%n the ontext o! this report" we re!er to $R%s as those individuals o!

%ndian origin or desent who are working or living outside o! %ndia. $R%s

ontinue to maintain strong eonomi links with %ndia" as demonstrated

by almost 345== billionC6 o! $R% deposits in the banking system and

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ompare priing aross numerous wealth management advisors. +rom

the standpoint o! the !inanial advisor" there!ore" the business owner

ommunity makes !or di!!iult" but rewarding" lients.

,s a lient group" $R% #$W%s and 3ltra-#$W%s are di!!erent !rom other

overseas ommunities. *hey tend to retain a strong allegiane to their

roots and are bound by traditional %ndian language" and religious and

ultural praties" inluding !amily values.

*he pro!essional $R% lient segment o!!ers some distintive

opportunities !or speialist !inanial advisors. 0eause o! urreny

onvertibility restritions" it makes sense !or these %ndians to retain some

wealth o!!shore in !oreign urreny. 9iven their language and ultural

a!!inity" speialist !inanial advisors are ideally plaed to serve them. +or

example" whereas previous generations looked to 4wit2erland" %ndians

today are ontent to bank in ,sia-ai!i markets suh as 4ingapore. %n

ontrast to $R% business owners" emigrating $R% pro!essionals typially

have less investment experiene and tend to initiate their port!olios with

prinipal-guaranteed produts or mutual !unds. *hey are" however" very

interested in learning more.

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Source: Capemini !errill "ynch Asia #acific $ealth Report %&&8

*he assets alloated by #$%7s in %ndia during the year


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Source: Capemini !errill "ynch Asia #acific $ealth Report %&&+

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%ndia7s two largest exhanges" the 0ombay 4tok )xhange and the

$ational 4tok )xhange o! %ndia" bene!ited !rom rapidly expanding

initial publi o!!ering &%1 markets and heightened international interest

by the end o!


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,t the end o!


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A. 6=H in ash deposits a !all o! @H sine the previous year.

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%ndia7s growth is expeted to keep aelerating" with 9D !oreast to

expand E.6H in


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9=8=

The economic recover* in Asia0(acific has #een driven #* #othdomestic demand$ rimaril* in China and India$ and rising e+orts

@from Tai"an$ )ingaore$ Indonesia$ Ne" ealand$ 6aan$ andAustralia%

(rivate #an&s and local "ealth management firms "ill have moreaffluent clients to serve in the coming *ears% India4s oulation of'NIs surged 98B to 8$:$=== in 9=8=$

This is the second straight *ear in "hich India4s 'NI oulationgro"th has #een among the to gainers$ the reort said% Indiaied )ain to gain entr* into the 4to 89 league4 of countries"hich have highest num#er of rich eole% Indian 'NIs continue to

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#enefit from a ro#ust econom* and asset classes li&e euities andreal estate

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This economic strength attracted caital from develoed

economies in 9=8=$ "hich led to rising commodit* and asset

rices$ and caused u"ard ressure on regional currencies%

Central #an&s in the region have resonded to these inflationar*

ressures "ith monetar* and fiscal tightening% The resultant

rise in interest rates ma* lead to a temering of the economic

e+ansion in 9=88% At the same time$ the rising rice of oil$ the

Middle East crisis$ and the ongoing effects of the earthua&e in

6aan are all adding to concerns a#out the sustaina#ilit* of the

regions gro"th rate% More #roadl*$ the macroeconomic divide

#et"een Asia0(acifics fast0develoing emerging economies and

the "orlds mature mar&ets has onl* increased since the financial

crisis% Each faces its o"n economic and structural challenges

going for"ard$ #ut #oth "ill need to "ean their economies from

crisis0related stimuli$ and manage inflationar* ressures% It is clear

Asia0(acific "ill continue to #e the engine of glo#al gro"th through

9=89 at least$ #ut the actions Asia(acific governments ta&e to

restrain inflation$ control foreign0caital inflo"s$ and deflate

otential asset #u##les "ill certainl* affect the ace of that

e+ansion%

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-)

)%-

98

*

INVESTMENTS MADE BY HNI's

IN THE YEAR 2010 !" #!$$!%" &

E./IT0

A"TER1ATI2E

I12EST!E1T

REA" ESTATE

3I4E5 I1C6!E

SEC/RITIES

CAS7 5E#6SITS

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GEOG,A('ICAL A))ET ALLOCATION 13 'NI) IN INDIA

< 9==F09==?

+rom this hart we an onlude that %ndian #$%7s pre!er investing in

,sia .,mong this most %ndians invested their wealth in %ndia itsel!. %n

%ndia they have invested ma?orly into the real estate setor and they

pre!erred domesti investment over !oreign investment. %n $orth

,meria %ndians ma?orly invested in *he 3nited 4tates stok exhanges

like $asda: and $;4). #owever due to the !inanial meltdown they

have onsiderably redued their exposure !rom 6


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ME AND M3 C.O


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et us now analy2e the di!!erent !orms o! wealth management servies

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M4 riority 0anking Multi +amily 1!!ie

, standalone produt +ouses on

investment advisoryand !inanial planning

+ouses not only on

investment advisorybut wealth protetion

and !inanial planning.

Pust one investment

option that !orms the

port!olio

(lients usually have

more than one

advisor.

4olutions are

ustomised using an

entire range o!

produts.Managed on a

disretionary basis.

+re:uent hange in

advisors lead to

relationship ontinuity

(lients have a single

point o! ontat whih

ensures superior

oordination and

exeution

*he lient has no sayover the port!olio

%nentive may lead tohard selling o!

produts.

1perates on an openoperation model. $o

sense o! produt

pushing

Deision lies in the

hands o! the !und

manager

imited or negligible

level o!

personalisation

,ts like a one stop

shop !or !inane. %t is

akin to being the !amily(+1 and onsultant.


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*he multi !amily o!!ie is !ast gaining pae among super rih %ndians. ,s

opposed to wealth management servie a multi !amily o!!ie provides a

one stop shop to meet the !amilies7 diverse needs.

,part !rom providing traditional wealth management servies multi!amily

o!!ies also render !untions like

%. )state planning and systemati wealth trans!er

%%. +inanial and *ax lanning.

%%%. hilanthropy (ounselling.

%O. )xpertise in ,lternatives.

O. Risk Management

O%. (onsolidated Reporting

O%%. ,dministrative servies like doumentation and payment o! bills.

O%%%. (o ordinate with external advisors.

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Source: Business Today !aaine(

*he multi !amily o!!ie aggregates your port!olio7s and ensures that allthe port!olios meet the asset alloation plan. *oday this onept not only

restrited to #$%7s but even the middle lass are now being servied by

a large number o! !inanial planners.

A))ET ALLOCATION 13 WEALT' MANAGE,)%


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*he two !undamental :uestions investors must address" are the likely

li!e expetany o! the investor &or ouple and the perentage o! assets

the person &or ouple expets to spend every year in retirement. %n

terms o! the latter" %! it's AH" and bonds are earning AH" the investor is

in trouble" beause o! in!lation.

6. Wealth managers would invest the total amount o! the !unds by

determining asset alloation" along with the health and the

expeted li!espan o! the individuals.


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@. *he alloation is hanged based on eonomi onditions" but is

broadly aligned with the risk tolerane and return ob?etives o! the

lient. +or example" i! the stok market is soaring" one needn't

trespass an asset alloation skewed in !avour o! bond investments

in the ase o! a risk-averse investor. ort!olio rebalaning is also a

good way to maintain risk-return parity among various asset

lasses.

A. Wealth Managers use alternative investments only i! the total

amount was very substantial and the individuals had some

expertise in that !ield. ,lternative investments" while o!!ering good

diversi!iation and risk-ontrol bene!its" tend to be restritive in

their investment struture" with high minimums" in!re:uent prie

valuations and tightly ontrolled li:uidity !or withdrawals.

B. Wealth Managers rebalane their port!olio7 asset struture yearly

so as to boost the overall return. #owever Wealth Managers mayrebalane the asset mix :uarterly i! the port!olio is overexposed to

a ertain setor.

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1I1LIOG,A('3

1OOK) /0 HWealth Management The .inancial Advisors Guide

To Manage Clients Assets

NEW)(A(E,)/0

8% T'E ECONOMIC TIME)

9% T'E 1-)INE)) )TANDA,D

:% T'E 'IND-

>% T'E .INANCIAL TIME)

% T'E .INANCIAL C',ONICLE

MAGAINE) /0

8% 1-)INE)) TODA3

9% 1-)INE)) INDIA

:% 1-)INE)) WEEK

>% .INANCIAL CONNECT

6O-,NAL)/0 T'E W'A,TON 6O-,NAL O. .INANCE

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Kushal Todi - Wealth Management(1)

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