Wealth Management has a wider range of scope and has long-term wealth creation as its essential motive. By the definition, it can be defined as a process of wealth creation where a team of professionals examines the financial needs of the client and suggest him/her financial products which are appropriate and connected to their financial goals. Such a process would consist of protection of wealth (risk management), the buildup of wealth (growing asset base), placing your wealth to work (creation of income from such asset base), and later distribution of wealth (post-retirement and succession planning).
What Constitutes Wealth Management?
Identification and analysis of financial goals and values:This step consists of various other sub-steps as mentioned below:
- Asking suitable questions which will yield what exactly the client expects in the long-term and also financial goals of the client.
- Examining and acknowledging the risk appetite of the client.
- Understanding the need for liquidity at periodic intervals or at a particular point in time.
- Understanding values and issues of family.
- Lifestyle improvement and maintenance concerns.
- Transfer and succession plans for wealth.
- Suggestion and devising plan of action:
Based upon step A, where the needs and goals of the client are analyzed and recognized, the manager will devise and suggest the plan of action. Such a plan will attract a suitable mix of assets, which will be suggested for bringing out an income as well as for long-term wealth creation.
The manager also analyses the client’s current position of investments and assets. The manager would then fix any tax or liquidity concerns, as well as analyze whether there seems to be any discrepancy in what the client and the manager previously addressed. And, if the client agrees, then the manager can proceed to the next phase. Different managers will use different techniques, and models to develop and implement a plan of action, such as an after-tax profit model, a discount cash flow model, etc.
Executing the wealth management plan:
When the plan is approved by the client, then the manager documents the action plan along with the strategy of investment and asset allocation strategy. This manual also describes the income generation pattern and long-term strategy of wealth creation. It will also bring light to succession plans and the transfer of wealth and assets. Executing the management plan will require a little while. Although, this plan is reevaluated several times by the manager to balance the plan in real-time with activities in the economy and financial markets.
Continuous evaluation and steady communication with client:
The efficient manager will evaluate the way the plan reacts to the current market scenario and will try to correct it to remain updated and gain benefits from the current scenario. It may require rebalancing the portfolio and verify changes to the tax framework and its impact on wealth creation. This step would assure steady or uninterrupted communication and consistent support to the client, which will help build rapport and trust.
Now let us look into some Wealth management mistakes which you should be aware of and should avoid:
- Selection of proper Wealth Manager: Where the manager is allocated portfolio management and not the whole management, then he would be responsible or answerable for only that part. While you select/choose the manager, keep in mind to select the one who has the capability and willingness to answer the questions asked by you.
- Reanalyzing the Wealth Management plan: Once executed, your management plan requires to be modified and reanalyzed periodically. This will contain asset allocation patterns, restructuring decisions, and liquidity analyses on the basis of the current economy and financial market status.
- Communication gap: Inquiring questions and finding out the position of your assets at any point in time would be your duty. This will allow you to detect and evaluate asset allocation and growth. The manager has to ensure that he is delivering updated information about the client’s assests by maintaining confidentiality.
- Planning of retirement or succession: This is a mild issue that involves a lot of family trouble, because the property and quarrels over assets may turn bitter once the client is gone or passed away. Therefore, it is important to pay attention to succession planning and retirement planning.
Now you must have got a crystal-clear idea as to what Wealth Management all about. It associates both financial planning and specialized financial services, including investment planning, estate planning, legal and tax advice, and investment management services.
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