Personal Wealth Management

8/10/2019 Personal Wealth Management

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P r e p a r e d b y :

S o u r a b h K w a t r a

F M G 2 2 C

2 2 1 1 4 7

FORE School of Management

Submitted to: - Prof Vinay Dutta

Personal Wealth

Management


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ACKNOWLEDGEMENT

I would like to express my profound gratitude to all those who have been instrumental in the

preparation of my report on Personal Wealth Management.

To start with, I would like to thank Prof. Vinay Dutta, Faculty- Finance, FORE School of

Management, for providing me the chance to undertake this project & gain insights about

Personal Wealth Management which would prove out to be very beneficial to me in my future

assignments, my studies and my career ahead.

I express my profound sense of gratitude and veneration to you for your deep insights and

classroom teaching which provided me with valuable qualitative data that have formed the

backbone of this study.

I would also like to thank my client Mr Vipin Bhardwaj for her continuous co-operation.

(Sourabh Kwatra)


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Contents

Literature review ......................................................................... 5Personal Wealth management: .......................................................................................................5

Portfolio Management process: ............................................... 6

Chapter 1 Client profile .............................................................. 9Profile: ...........................................................................................................................................9

Personal Details .............................................................................................................................9

Financial Information/expenses (cash outflow) ( average Rs per month) ...................................... 10

Balance sheet in the book of Mr. Narander Bhardwaj as on 31 Nov, 2014 ...................................... 11

Chapter-2 Goal Setting ............................................................. 12Financial Goals in smart form ....................................................................................................... 12

Chapter 3 Ratio Analysis ......................................................... 13Basic solvency ratio ...................................................................................................................... 13

Liquid Ratio: ................................................................................................................................. 13

Savings Ratio: ............................................................................................................................... 13

Debt to asset ratio: ....................................................................................................................... 14

Chapter-4 Investor profile...................................................... 15

Chapter 5 Analysis and suggestions .................................... 16Proposed investment detail .......................................................................................................... 20

Proposed Financial Information/expenses (cash outflow) ( average Rs per month) ....................... 20

Projected Balance sheet in the book of Mr. Vipin Bhardwaj as on 31 March, 2014 ......................... 21

References: .................................................................................. 22

Questionnaires ........................................................................... 23


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TABLE OF QUESTIONNAIRES

1.

Questionnaire 1: Money attitude .................................................................27

2.

Questionnaire 2: Financial Values..................................................................28

3.

Questionnaire 3: Emergency Funds : Are you prepared?...............................29

4.

Questionnaire 4: Are you in a DEBT TRAP?.....................................................30

5.

Questionnaire 5:Life style evaluation.............................................................31

6.

Questionnaire 6: Test to Risk Taking Ability...................................................33

7. Questionnaire 7: Investment risk tolerance...................................................34


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Literature review

Personal Wealth management:

Personal wealth management (PWM) is the term generally used to describe highly customized

and sophisticated investment management and financial planning services delivered to high net

worth investors. Generally, this includes advice on the use of trusts and other estate planning,

vehicles, business succession or stock option planning, and the use of hedging derivatives for

large blocks of stock.

Private wealth management is the investment management specialization focused on high-net-

worth individuals and families. Portfolio design and investment solutions in private wealth

management are customized to reflect the complexities of the investors unique circumstances.

This review reflects the current best thinking on private wealth management. Wealth

management is defined as an all-inclusive service to optimize, protect and manage the financial

goal of an individual, household, or corporate. (Wiiliam J. Jennings, 2010)

Each stage requires a different focus. In order that the process is successful, the wealth

manager and the client need to understand the nature of the process and appreciate that are

needed at each stage.

Some of the key things that need to be taken care at different stages of this process are as

under:


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Investment strategy: Deploying the proper investment strategy requires that the investors

clearly define the long, medium and short term rational for the investment. The decision should

be based upon clear understanding and evaluation of the: (Vinod Mehta,2011)

Portfolio Management process:

Depending upon various objectives such as Capital preservation, capital growth, cash flows,

aggressive growth, capital growth and cash flows, wealth building etc. various combinations

could be made of various investment options available such as.

1. The ultra high net worth bankers handbook

The book is written by two leading private bankers and dismantles services for clients with

extremely high capital from the perspective of the customer and banker. The main idea is the

importance of confidentiality of client and need to understand complex customer problems andtheir correlation with available financial resources. The book is written in simple language

accessible and contains several specific examples from the authors experience in working with

clients, addressing concerns such as family management, the structuring of state, advising on

the risks, asset management and corporate finance and asset monetization.Equifax Free Credit

Report.
http://whitepoems.com/equifax-free-credit-report-are-they-really-freehttp://whitepoems.com/equifax-free-credit-report-are-they-really-freehttp://whitepoems.com/equifax-free-credit-report-are-they-really-freehttp://whitepoems.com/equifax-free-credit-report-are-they-really-free


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2. Advising ultra-affluent clients and family offices

The author defines as a key trend reassesses asset management and the desire of customers to

understand the nature of the services provided by their financial advisors: their core

competencies and how they adjust to the overall program of wealth management client. The

most affluent customers now separate consulting from accounting and investment products

and are looking for independent consultants to help select the best in class investment

products from the worlds range of suppliers and then assemble and track the results with

special guarantees. The book is a comprehensive guide, which outlines the individual building

blocks for building an informed decision on management of the states.

3.Wealth: how the worlds high-net-worth grow, sustain and manage their fortunes

What are the opportunities for wealth creation are now available and how investors can take

advantage of them? Major trends include globalization and advances in technology that

contribute to diversification of investments in various investment funds, asset classes and

geographic locations. Improvement of investment products and investors themselves represent

different challenges for the industry, which is inherently a long time remains popular. In

addition, for wealthy clients are important family matters, transfer of state through the

generations and more philanthropic goals.

4. Global private banking and wealth management: the new realities

This compact and comprehensive overview of wealth management industry was published in

2006 before the financial crisis, but it still has significance today. The chapter examines changes

in the global market, clients and their segmentation, products and pricing, distribution

channels, the players, operating excellence, organizational design, regulatory and tax issues. It

included the definition of financial instruments and a glossary of terms, market analysis, states

in 25 countries and an application with FATF recommendations on combating money

laundering.

5. Bernet & Partner: Private banking library:

The portal has links to reviews and reports on private banking, made by researchers and

consultants, for example, Swiss Banking Institute, Capgemini / Merrill Lynch,

PricewaterhouseCoopers, Boston Consulting Group and Barclays Wealth. However, most


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Chapter 1 Client profile

Profile:Vipin Bhardwaj

Mr. Vipin Bhardwaj, 50 years old, is currently owns a business in Delhi of retail outlet. He did his

schooling till 10thstandard only and since then he is working. He is single father of a 16 year old

boy, whose mother passed away 8 years back. His is living in Delhi in 450 square feet flat and

apart from this he owes 1 commercial shop and 450 square feet 2 story house which is

currently rented to a family. He had never paid any tax nor have any life or health cover, debt

free.

Personal Details

Name: Vipin Bhardwaj

Age: 50 years

Marital Status: single father

Educational Background: 10th

standard

Occupation: retail outlet owner

Spending Habits: donations, eating, reading novels

Financial Knowledge: very low

Family Details

Brother: 2 brothers and 3 sisters all settled

Child: A 16 year old son studying in a good school

Financial Details

Income: Rs. 3 lakh per annum plus 60 k (from rent but not sure income) total 3.6 lakh per

annum

Liabilities: Nil

Investments: Gold and property


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Investment details:

Name of the

investment

Duration Total

Gold( 250 gm ) Long term 7,50,000

Property( 1

commercial shop ,

1 450 sq ft flat and

1 2 storey 450 sq

ft house)

Long term 2,00,00,000

Financial Information/expenses (cash outflow) ( average Rs per month)

Food 6000

Travel( child school van) 1000

School fees and tution fee and other school expenses 6000

Utilities 2000

Telephone 500

Medical Expenses 1000

Recreation & Entertainment 1000

Electricity bill 1000

Water bill 500

Clothing and other 1000

There for depending upon net inflows and outflows the surplus is 1.2 lakh per annum


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Balance sheet in the book of Mr. Narander Bhardwaj as on 31 Nov, 2014

Assets Rs. Rs.

Liquid Assets

Cash at hand 100,000

Total liquid assets 1,00,000 1,00,000

Real Estate

Current market value of property 2,00,00,000

Personal possessions

Market value of scooty 15,000

Furniture and Appliances 25,000

Stereo and Video equipment and others 10,000

Jewellery 7,50,000

Total Household assets 2,08,00,000 2,08,00,000

Investment assets 00

Total Investment Assets 00 00

Total assets 2,09,00,000

Liabilities

Current liabilities Nil

Total liabilities (no long term liabilities) 00

Net Worth (assets minus liabilities) 2,09,00,000


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Chapter-2 Goal Setting

Financial Goals in smart form

Goals( specific) Objectives (measureable) Key Dates( time

bound)

Buy a computer for child Save Rs 40,000 2014

Buy a bike Save 70,000 2016

Trip Spend Rs. 50,000 2016

Buy a car Save Rs 10 lakh 2018

Child education including higher

studies

Save at least 20 lakh 2022

Marriage of son Save up to 25 lakh 2024

Retirement Planning Corpus of Rs. 50 lakh 2027

What is missing here is the attainable and realistic part that will depend upon the surplus that is1.2 lakh per annum savings.

Ignoring the inflation factor as the income will also be growing in the same proportion so the

inflation impact on goals will either be nil or marginal to consider (assumption).


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Chapter 3 Ratio Analysis

Basic solvency ratio

This ratio indicates your ability to meet monthly expenses in case of any emergency or

catastrophe. It is calculated by dividing the near-term cash you have with your monthlyexpenses.

Basic solvency ratio = Cash / Monthly expenses (this ratio is not mentioned in percentage)

You can also call it as emergency or contingency planning ratio. This ratio helps you prepare for

unforeseen problems.

In given case:

Cash= 1, 00,000

Monthly expenses= 20000

Therefore Basic solvency ratio= 10000/20000

5 times

What is adequate ratio= at least 3 months. In the given case at the person is at 50 age, single

father, unstable income souse 3 times is not adequate. It has to be much at least close to 10

times at no medical cover is there nether possible at 50 age.

Liquid Ratio:

Liquidity ratio = Liquid assets / Net worth

In the given case:

Liquid assets are only cash i.e. 1, 00,000 and net worth is 2.09 crore

Which means its like .5 % and At least 15% is the ideal ratio.

The liquidity is a huge matter of concern.

Savings Ratio:

Savings ratio = Savings / Gross income, where

In given case:

Savings are 1.2 lakh per annum against the gross income of 3.6 lakh


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Which means ratio is 33% that is good.

Debt to asset ratio:

It is the percentage of total assets of an individual that goes towards payment of debt. This

ratio is calculated by dividing your total liabilities by total assets

Debt to asset ratio = Total liabilities / Total assets

In given case:

Liability is zero. So debt to asset ratio is in good shape.

Depending on the analysis of these core financial ratios we can see that the matter of concern

liquidity and the savings which is not sufficient to fulfil the kinds of financial goals Mr Vipin

has.


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Chapter-4 Investor profile

The following is the summary of the answers given by Mr Vipin Bhardwaj which will help in

understanding the nature of risk appetite, their objectives, etc. In doing the further financial

planning for him in the succeeding chapter:

Investor Mr. Vipin Bhardwaj

Age 50

Type Of Investor Conservative

Occupation Business

No. Of Dependents 1 son

Liability Zero

Risk Appetite Very low

Return Required High (depending upon goals)

Knowledge Low

Absorbing Power Medium

Money attitude Money dependent

Liquidity Very low

Major plan dominating goals Child education, child marriage, and his

retirement


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As Mr Bhardwaj is 55 years of age the possible investment in equity at this stage for a normal

profile is 100-age i.e. 45 % but given the fact his risk tolerance level is low plus he is single

father this % could be well low to 20 % ( and is because along with capital preservation capital

appreciation is also required given near term retirement and child related expenses) rest 80 %

will be divide between fixed income and mutual funds in the ratio of 50% and 30 % so thatregular flow and retirement plan will be fulfilled with fixed income investments and capital

appreciation will be done by mutual funds and equity investments.

So even in equity the investment should be made in:

1. high growth shares

2. income

3. balanced

4. momentum

Now after equity investment in fixed income securities are required that will reduce risk and

provide other benefits such as tax benefit and regular flow of income etc.

50

25

15

10

Growth

Income

Balanced

Momentum


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Now mutual funds investment:

Apart from investing this 40 lakh the surplus of 60 thousand after eliminating rented income

should also go in creation of emergency fund every yr.

30

20

10

40 FD

NSC

Bonds

Savings Bank/flexi deposit

40

30

20

10

Sales

Growth

Fixed Income

Balanced

Money Market related


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Now based on the following investment of 40 lakh in the given proportion the following tax

planning can also be done:

Medical insurance:A deduction of up to Rs 15,000 pa under section 80D is applicable

under this.

Donations:Tax advantages under Section 80G entitle the donations to particular

funds/institutions.

1 Make full use of the entire Section 80C deduction -The maximum reduction available

in Section 80C is Rs 100,000

Following investments/contributions meet the criteria for Section 80C reduction:

Public Provident Fund

Accrued interest on National Saving Certificate

Life Insurance Premium

National Saving Certificate

Tuition fees paid for children's education (maximum 2 children)

5-Year fixed deposits with banks and Post Office

Equity Linked Savings Schemes (ELSS)


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New restructured financial statement will be:

Proposed investment detail

Name of the investment Duration Total

Gold( 250 gm ) Long term 7,50,000

Property( 1 commercial shop and

1 2 storey 450 sq ft house)

Long term 1,60,00,000

Equity investment Medium to long term 8,00,000

Fixed income investments Short to long term 20,00,000

Mutual funds Medium to long term 12,00,000

Proposed Financial Information/expenses (cash outflow) ( average Rs per

month)

Food 6000

Travel( child school van) 1000

School fees and tuition fee and other school expenses 6000

Utilities 2000

Telephone 500

Medical Expenses 1000

Recreation & Entertainment 1000

Electricity bill 1000

Water bill 500

Clothing and other 1000

Health and life insurance premium 1500

Investment in some of the fixed income in mutual funds 5000


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Projected Balance sheet in the book of Mr. Vipin Bhardwaj as on 31 March,

2014

Assets Rs. Rs.

Liquid Assets

Cash at hand 160,000

Total liquid assets 1,60,000 1,60,000

Real Estate

Current market value of property 1,60,00,000

Personal possessions

Market value of scooty 15,000

Furniture and Appliances 25,000

Stereo and Video equipment and others 10,000

Jewellery 7,50,000

Total Household assets 1,68,00,000 1,68,00,000

Investment assets

Equity 8,00,000

Fixed income investments 20,00,000

Mutual funds 12,00,000

Total Investment Assets 40,00,000

Total assets 2,09,00,000

Liabilities

Current liabilities Nil

Total liabilities (no long term liabilities) 00

Net Worth (assets minus liabilities) 2,09,00,000

Such a portfolio will not only provide the liquidity plus help in corpus building for financial

goals he have.


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References:

Contemporary Management Research, Vol. 6, No. 2, June 2010, 111-124

William W. Jennings, CFA andWilliam Reichenstein, CFA,Research FoundationLiterature Reviews,December 2006, 1-29.

Wealth management(2013), dun and Bradstreet

www.cfainstitute.org/learning/topics/pages/privatewealth

PRIVATEBANKING_guide_SEPT10.pdf

Asset-Management.pdf, Vinod Shah, June 2012

Economic times article Top 10 financial steps to take in your lifetime published onOct 16, 2014

Economic times article Invest in mutual funds for better retirement planning

published on Aug 13, 2014

Economic times article Ensure your dependents get insurance policy benefits, not

creditors published on 5 Oct, 2014

The Literature of Private Wealth Management, William W. Jennings & William

Reichenstein,Nov,2006

Personal Wealth Review,Wiiliam J. Jennings, 2010
http://www.cfapubs.org/action/doSearch?ContribStored=Jennings%2C+W+Whttp://www.cfapubs.org/action/doSearch?ContribStored=Reichenstein%2C+Whttp://www.cfapubs.org/loi/rflrhttp://www.cfapubs.org/loi/rflrhttp://www.cfapubs.org/loi/rflrhttp://www.cfapubs.org/loi/rflrhttp://www.cfapubs.org/action/doSearch?ContribStored=Reichenstein%2C+Whttp://www.cfapubs.org/action/doSearch?ContribStored=Jennings%2C+W+W


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Questionnaires

Questionnaire-1

Money Attitude:

Statements : Options

I need more money than I can use Yes No

It bothers me when I discover I could have gotten the same

thing for less somewhere else.

Yes No

I behave as if money were the ultimate symbol of success. Yes No

I show signs of nervousness when I dont have enough money.

Yes No

I dream I will one day be fabulously rich. Yes No

I worry that I will not have enough money to live comfortably

when I retire.

Yes No

Money controls the things I do or dont do in my life. Yes No

When I was a child, money seemed to be the most important

thing in my life.

Yes No

I argue or complain about the cost of things. Yes No

This exercise on money attitude is meant to check what value does money have in an

individuals life and how much control does money have in his/her life. Count of yes is more

than the count of no which means that money has more influence over the life of Mr. Vipin

Bhardwaj.


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Questionnaire-2 Financial values Inventory This exercise is meant to decide the priorities

where the individual will put in his/her money if asked to choose between two options.

S.no. Option 1 Option 2

1 Housing (Dream Home) Investments/Retirement Savings

2 Education: Self/Others Vacation/Travel

3 Retirement Savings/Investment Hobbies/Sports

4 Hobbies/Sports Charitable Giving/Religious Activity

5 Vacation/TravelPersonal

Appearance/Grooming/Clothes

6 Charitable Giving/Religious Activity Social Activities/Eating Out

7 Social Activities/Eating Out Car

8 Education: Self/Others Housing (Dream House)

9 Hobbies/Sports Housing (Dream House)

10Personal

Appearance/Grooming/ClothesCar

11 Savings/Investment Retirement Hobbies/Sports

12 Hobbies/Sports Car

13 Retirement Savings/Investments Social Activities/Eating Out

14 Housing ( Dream House) Vacation/Travel

15 Education : Self/Others Car

16 Vacation/TravelCharitable Giving/Religious

Activities

17 Personal Appearance/Grooming/Clothes Education: Self/Others

Number of times circled each item in the pair activity:

Car 3

Charitable Giving 2

Education 4

Hobbies/Sports 0

Housing 1

Retirement 4

Vacation/Travel 3


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We can see that the things that are coming out as most important are retirement, child

education and travel and car for child in future. As housing is not a matter of concern for them,

they are high on real assets.

Questionnaire-3

Emergency Fund

Is your income stable? Not at all More or less Completely

How dependant are you on

interest, dividends and capital

gains on your investments to

cover your regular expenses?

Totally Slightly Not at all

Do you have life, health, auto and

disability insurance?

Little/No cover Some risks

covered

All risk covered

As a multiple of your regular

monthly expenses (including loan

repayments and insurance

premium), how much of your

investments are in liquid options

like savings account, savings cumdeposit accounts and liquid

funds?

15 days Two months Three months

What is the percentage of regular

income generating assets to your

net worth?

0-5% 6-15 % Over 15%

Do you have access to

comparatively cheap credit like

overdraft facilities against assetslike shares and home?

No access Limited access Ample access

Mr Vipin Bhardwaj is having a highly risky lifestyle with no insurance cover at the age of 50 now

he is not even insurable even if premium will be too high. The regular income sources are on


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lower side despite current cash in hand he not even enjoying a bank account facility. In case of

big medical emergency like heart problem or any other thing at 50 age the emergency fund or

liquid assets have to be huge which is not the case here.

Questionnaire 4:-

Are you in a DEBT TRAP?

You are using your savings to pay current

expenses.

Yes No

You dont know how much you owe. Yes No

You make late payment a habit. Yes No

Mr Vipin is completely debt free person, so he is in no Debt trap at all.

Questionnaire 5: What kind of lifestyle do you want?

1. Shelter

At home with parents

Own apartment/ home

Share with friends and colleagues

Rented flat

2. Transportation

New car

Used car

Motor cycle

Public transportation

3. Food

Food at home


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Cosmetics/make up

Laundry

Newspaper

Pets

Gifts

Health club membership

Personal hygiene

Reading/educationof child

Tobacco/alcohol products

Religious contributions/charity

Savings

Questionnaire 6

Even if some things are to be assumed

RISK TAKING ABILITY

1. How do you think of risk in a money context?

a. Danger b. Uncertainty c. Opportunity

2. Your portfolio has

a. Onlycash b. PF, FDs and funds c. Mostly funds and stocks

3. How much fall in your investment makes you panic?

a. Anyfall b. 10% c. 20%

4.

A PSU bank making an IPO is offering a soft loan to subscribe. Will you take it?

a. No. b. Maybe c. Yes

5. Hows your investment knowledge?

a. Bad b. Average c. Good

6. How important is it to make your money inflation-proof?


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4. Your investment suddenly goes down 15 percent one month after you invest. Its

fundamentals still look good. What would you do?

Buy more. If it looked good at the original price, it looks even better now (4 points)

Hold on and wait for it to come back (3 points)

Sell it to avoid losing even more (1 point)

Depending on the answers given we can see that the risk taking ability is marginal or even zero

to some extent.

Personal Wealth Management

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