The document provides a comprehensive overview of wealth management, highlighting its evolution from a service for the wealthy to an accessible option for a broader audience. It emphasizes the importance of diversification, strategic planning, and personalized advice in managing wealth while navigating a complex financial landscape. The report also outlines the key characteristics and competencies necessary for successful wealth management, including relationship building, integrated information, and client-centered service.

1. Wealth Management: An Overview
Pankaj M Madhani
Asst. Professor, ICFAI Business School (IBS), Ahmedabad, India
Introduction
Traditionally wealth management services were the preserve of the very rich who needed
help to manage substantial sums of money. However, the World Wide Web has opened
up the world of financial management to a much wider audience and you don’t have to be
a millionaire to take advantage of these sort of services. If you are looking to make better
use of your money you can take advantage of wealth management services. As well as
managing a stocks and shares portfolio, wealth manager can also help you pick and
choose between different collective funds in which you might be interested in - such as
wealth management and unit trusts. They will help you select a range of wealth
managements tailored to your specific criteria.
You may choose to invest purely for the purpose of increasing your long-term capital, or
you may wish to take a more balanced position between long-term gains and immediate
income. In addition to advising you on managing your portfolio, a wealth manager may
offer independent financial advice about a range of personal finance products. They could
also help with tax planning - including minimising potential liabilities such as capital
gains tax or inheritance tax. A wealth manager should be able to help you unlock money
in your current assets, continually monitor the markets and so be quicker off the mark
making adjustments to your portfolio. Some wealth managers also provide online
research tools and calculators and access to wealth management reports.
Wealth management is all about managing wealth management returns and risk for well-
endowed clients, both individual and institutions with investible funds. It requires the
wealth manager to have both breadth and depth about the financial markets, the
instruments, the players as well as the environment.
Wealth Management: A Renewed Focus in Current Economy
Global wealth is increasing continuously at a rate of over 6% annually, with Asia,
especially India and China seeing the most vigorous growth globally; the needs of clients
are becoming forever more sophisticated, requiring new exciting service offerings
extending far beyond the old stock picking approach. And the internationalization of
clients both with respect to their domicile and their wealth management outlook,
combined with new technical possibilities, has made the wealth management industry one
of the most global industries in the world. Opportunities to increase revenue are scarce in
the current economic environment, leading many financial institutions to contemplate
forays into wealth management as a way to generate new top-line growth.
________________________________________________________________________
Madhani, P. M. (2009), “Wealth Management: Gaining Momentum”, chapter in Nalini
Tripathi (Ed.), Wealth Management, pp 12-20, Mahamaya Publishing House, New Delhi,
2009.

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A substantial amount of old and new wealth needs managing. Investors today face
bewildering choices about what to do with their money. As market conditions change and
new financial products appear and disappear, making sense of information and innuendo
about effective ways to manage wealth can be extraordinarily difficult. Factors like
increased volatility and uncertainty, the growing number and complexity of financial
products available, and increased personal responsibility for retirement planning have
made many previously confident investors realize that they do, in fact, need advice.
Wealth Management Strategy: Diversify but Keep Focused
Diversified but focused strategies are also integral to the pursuit of wealth management,
and they "enliven the pursuit of the game." Diversification and focus combine the best of
both worlds. With diversification you achieve risk mitigation, and with focus comes the
laser intensity that most people need to succeed in life. Diversifying your wealth
managements is fundamental to prudent risk control. Wealth is created most quickly and
most often through success in a single business. However, wealth is also most quickly
lost by concentrating it on only one or a few wealth managements. So, in order to protect
your wealth, it's best to diversify it.
In the India and increasingly around the world, capital markets are becoming more and
more competitive. Achieving competitive advantage in the deployment of capital -- a
critical component to growing diversified wealth -- is very difficult to achieve. Without
the focus to develop wealth management skills that are superior to most professionals,
you won't add value to your wealth management portfolio. The principle of
diversification applies in other ways as well. Most individuals have both taxable and tax-
deferred (retirement and deferred compensation plans) wealth management portfolios.
Some have life insurance savings plans that are tax exempt to the beneficiary. A few
people also control corporations. Each of these entity types receives different tax
treatment. Because tax rates don't all rise and fall at the same time, it makes sense to
diversify the tax treatment of your assets.
Asset allocation and diversification are the cornerstones of modern portfolio theory,
which is based on the notion that investors want to maximize returns and minimize risk in
their portfolios. The essential idea is that holding assets that are correlated to one another
(that is, assets that tend to move in the same direction at the same time) increases the risk
associated with a portfolio, while holding assets that are less correlated to one another
decreases the risk associated with a portfolio. Risk and return are two sides of the same
coin, and investors must determine how much risk they are willing to assume to generate
the kind of returns they hope to achieve.
Wealth Management Strategic Plan
Wealth management strategic plan provides a framework within which to work. With a
plan we can map out where we are and see where we can expect to end up. A good battle
plan also takes into account the enemy. In the case of wealth management plan, there are
three enemies: inflation, taxes, and procrastination.

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Wealth management is, about investment strategy. And, with so many wealth
management instruments available on the market, it is also about sound advice. Before
recommending an wealth management strategy, wealth management advisor should
considers clients’:
(1) Goals, return objectives and risk tolerance
(2) Availability of opportunities in country of residence
(3) Wealth management time horizon
(4) Present and future need for liquidity
(5) Current lifestyle requirements
(6) Exclusive needs and circumstances
(7) Unique position to factor in the effects of inflation as well as income taxes
In today’s competitive market, wealth management advisors are finding it increasingly
difficult to differentiate themselves and become the trusted, primary advisor for their
clients. Clients themselves have become far more discerning, demanding increased
sophistication in the services their advisors offer them. Competitive global markets have
forced many wealth service providers to be more client-oriented. Clients of a wealth
manager have more choices today than ever before. To meet the needs of an increasingly
sophisticated client base, many financial services firms have had to innovate, creating
new financial instruments and asset types. Clients are able to allocate their wealth to a
variety of asset classes: cash, fixed income, equities, derivatives, private equity, venture
capital, mutual funds as well as hedge funds.
Wealth management advisor should adhere to a following five-step process.
Step 1 – Understanding the Client
It is mainly focused on learning about client. What is important to client is first and
foremost important task. Wealth management process begins with an understanding of
your current goals and future objectives. Wealth management advisor should be able to
translate these goals into rupee objectives and to take inventory of what you have. This
step determines where you are now in order to guide you towards where you want to be
in the future.
Step 2 – The Blue Print
The Wealth management Policy Statement – the blue print or conceptual framework
designed to build and protect your wealth. It’s based on detailed analysis of customer's
financial position and goals. By having a thorough understanding of your situation and
where you want to be the wealth management policy statement will be the guiding
principles for your wealth management strategy.
Step 3 – Implementing Investment Plan and Recommending Portfolio
The next step is to put your plan into action – building your portfolio. Using your Wealth
management policy statement as a roadmap, wealth management advisor will then
recommend the most appropriate wealth managements for your portfolio.

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Step 4 – Monitoring the Performance of Your Portfolio
Wealth management advisor should continuously monitor your portfolio to ensure that it
stays on track with your stated objectives and personal situation. Wealth management
advisor should have a process to review your progress on an ongoing basis.
Step 5 – The Result
A custom tailored portfolio designed to achieve your specified objectives and maximize
your return based on your risk level.
Wealth Management at Micro Level: Take Charge and Do It Early
You must educate yourself about your family finances, existing assets, spending patterns,
expected rates of return, and current estate plans. And you must decide how to structure
long-term family and financial goals so they become integrated and can positively
reinforce one another. Managing wealth effectively requires that you take charge of the
process early. Doing so even before you have many financial assets like stocks, bonds,
and excess cash is highly advisable. And, if you have had financial assets for some time,
there's no time like the present to start. You probably sense the costs of not engaging
earlier. There are insidious forces such as taxes, fees, and inflation that can accelerate
wealth erosion and eat away at your net worth even in upward moving markets. For that
reason, wealthy individuals and families need to exercise disciplined leadership of the
wealth building process, particularly at certain critical points in time and around key
decisions that can have implications for multiple generations.
Wealth Management at Macro Level: Need for Expert Help
If price were no object, everyone would welcome wealth management advisor. In reality,
however, the cost to provide comprehensive financial planning and the expected level of
customer service that accompanies it is high. Firms must balance the customer value
proposition with profitability, delivering the right offering to the right client segment at
the right price. Before embarking on an ambitious and expensive wealth management
effort, firms should carefully consider the needs of the customer segment they are trying
to target. Designing an offering that matches the competencies that attractive segments
value to the firm’s capabilities is the key to successful wealth management.
A small minority of those with wealth to protect might have the expertise to oversee
their own wealth managements, but for the vast bulk of investors guidance through the
maze of possibilities is not so much desirable as utterly essential. This, however, does not
stop people – many of whom would regard themselves as sophisticates in the worlds of
business and money – from jumping into the complex world of financial planning
without adequate preparation in the belief that they are quite capable of handling their
own affairs.
Even the sophisticated can fail to appreciate that fully fledged wealth management entails
not only a coherent set of wealth management strategies but also skilful risk management.
For the majority of those whose expertise will fall far short of levels of acumen and
experience demonstrated by wealth management and financial planning professionals,
advice is a must. In advance of determining the sort of wealth managements suitable for

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an individual, wealth management adviser will establish that person’s risk preferences.
He or she will also assess whether those declared preferences are a good match for the
client’s circumstances as viewed from an objective rather than the subjective viewpoint.
In the case of high net worth individuals, this personalized approach is developed to the
highest levels, with wealth management professionals spending large amounts of, it must
be said, expensive time and effort in the pursuit of the best returns for their clients.
That said good wealth management advice is not available solely to the super-rich.
Those with only modest sums to invest can receive valuable guidance from their banks’
specialists and from the many independent wealth management advisers. However, in
spite of the availability of expert financial counseling, it makes sense for even modest
investors to educate themselves in the complexities of financial products. The aim should
not be to supplant professional advice, but to augment that advice with some level of
understanding.
Effective wealth management should be broad – in the sense that it takes into account all
aspects of a client’s financial life – and deep – through an awareness of a client’s values
and priorities. The wealth manager’s focus is his client . . . While the money manager
may not even know if his client is male or female, single or married, a professor, doctor
or builder, the wealth manager will know all of this, as well as the client’s dreams, goals
and fears . . .’
Wealth Management Criteria: Saving and Spending Decisions
Making decisions about wealth management and portfolios is no easy task. Indeed, the
need to save and invest money for the future is one of life's certainties, along with death
and taxes (and not unrelated to them). Individuals are bombarded with a dizzying array of
wealth management options. Information abounds, advice comes from all quarters,
recommendations often contradict one another, and new products and asset classes are
invented at breakneck speed. How should investors make sense of the chaos of
information and innuendo that exists about wealth management? How should they create
a portfolio of wealth managements that will provide sufficient money to see them through
life and help them achieve their goals?
While these questions may seem daunting, they are necessary. With very rare exceptions,
such questions cannot be answered definitively with a single number. However, skilled
wealth management advisors should be able to provide estimates of the chances that an
outcome will exceed some predetermined amount. When the strategy is aggressive, the
chances of exceeding a high goal are higher (good), but the chance of exceeding a low
goal is lower (bad). Summaries such as this can help investors make the difficult choices
that lie at the heart of wealth management decision-making.
Wealth Management: A Balance of Risk and Expected Return
The higher the level of saving or the lower the level of spending, the better will be the
chances of exceeding future goals. Projections can also help an investor determine the
most appropriate level of saving (while accumulating) or spending from accumulated
wealth. A skilled wealth management advisor can use projections to help a client make

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saving and spending decisions as well. Methods for finding efficient strategies and
projecting their results come from the field of financial economics known as portfolio
theory. Such theory prescribes methods to be used once an wealth management advisor
has good estimates of security risks, returns and correlations. But how are such estimates
to be obtained, and what should be their characteristics? The field known as capital
market theory focuses on these questions. Wealth management is about risk and expected
return. No one likes risk and the higher a wealth management’s expected return, the
better. Textbook descriptions of the wealth management process use these observations to
divide wealth management strategies into two types. Inefficient strategies incur risk that
is not rewarded sufficiently with higher expected return. Efficient strategies provide the
highest possible expected return for a given level of risk.
A key job for the wealth management advisor is to avoid inefficient strategies. This is not
a trivial pursuit. It requires estimates of risks and expected returns for individual
securities, asset classes, industries, countries and currencies. It also requires estimates of
correlations, which indicate the extent to which such wealth managements are likely to
move together or separately. Expected return and risk are typically measured using short
horizons. But most investors are concerned with longer-term outcomes. To make a
meaningful choice among sensible wealth management strategies an investor needs to see
the implications of each one for his or her needs and desires.
Wealth Management Services: How to Build Sustainable Competitive Advantages
Many financial institutions currently view wealth management as an integrated set of
products: cash management, asset management, protection, credit, retirement and estate
planning, and tax planning. While a product-centric approach to wealth management is
sensible in some respects (because products drive profit), this approach fails to address a
large portion of clients’ needs. Given that most wealth management products are roughly
equivalent regardless of who offers them; clients are less interested in product specifics—
assuming they meet certain basic requirements—than in the elements of service that
surround the products.
Indeed, while firms target customers with a range of products as solutions to individual
wealth management needs, customers see their personal wealth management strategy as a
lifelong endeavor that influences every financial and practical decision they will make
from the immediate to distant future. Even customers who fail to grasp their bigger
financial picture are driven by the need to plan for specific monetary events that will
impact their lives. In both of these contexts, superior customer service, sound advice and
an advisory relationship are valued features not easily copied by competitors.
The following five competencies address customer needs that enable firms to create
sustainable competitive advantages.
Advisory relationship
The core of any successful wealth management offering is the relationship developed
between the advisor and the client. Successful advisors develop a relationship with clients

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by demonstrating that the clients’ interests are the advisor’s paramount concern. In the
context of an advisory relationship, the wealth management firm can work with the client
to develop, implement and monitor a comprehensive wealth management strategy.
Integrated information
Very few clients maintain all of their accounts with a single provider; an integrated view
of their overall financial picture is critical if clients are to be able to make informed
decisions. Wealth advisors, too, should be able to access and analyze customer data
efficiently. When information is automatically integrated across accounts and across
institutions, Wealth advisors can concentrate on helping customers make fact-based and
insightful wealth management decisions, rather than focusing on more mundane tasks
like assembling statements from multiple sources.
Multi channel access
Customers want the ability to access their account information when they want, how they
want and where they want. The combination of integrated information and multi channel
access empowers clients by enabling them to access constantly updated, accurate
information, whether in person, over the telephone or online.
Perception
To win new customers and retain existing ones, wealth management firms must be
perceived as competent, dependable and empathetic. Clients must also perceive that they
are paying a justified price for the value that they are receiving. Client opinion is formed
through a combination of personal experience, word of mouth and marketing. To
compete effectively, the firm must have a brand that is firmly associated with the
qualities demanded of a wealth management institution.
Personal touch
A major component of successful wealth management offerings is human touch. Clients
respond to charismatic guidance and a high level of attention; they feel valued when their
queries are addressed promptly and personally. Firms that go above and beyond expected
levels of service will reap substantial rewards. The key consideration as firms extend
wealth management offerings to customer segments with fewer assets is balancing the
cost to serve with the revenue opportunities associated with a particular client.
Conclusion
Wealth management is both an art and science. It involves understanding the client very
well. In recent years, the proliferation of wealth management products and innovative
financial services has contributed to the steady growth of wealth management as an
attractive and lucrative service sector within the financial industry around the world. The
constant forward march of technology is opening new markets in wealth management.
The automation of business intelligence, an increasingly connected distribution network
and advances in CRM are reducing the cost to offer clients comprehensive wealth
management services. At the same time, rapid product development and changing needs
of the clients and globalization of businesses are posing new challenges for professionals
in wealth management.