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Introduction to Wealth Management Course Presentation.pdf
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- 2. Corporate Finance Institute® Instructors TimVipond Mary Jeanne (MJ) Lee
- 3. Corporate Finance Institute® Describethe various services that make up wealth management Learning Objectives Outline the various career paths within wealth management Understand how wealth management is segmented by client type Explain the skills needed for success in wealth management Build a simple retirement planning model in Excel Outline the various asset classes available to wealth management clients
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- 5. Corporate Finance Institute® WhatIs Wealth Management? Wealth Management Service provided to individuals and families with the goal of multiplying and safeguarding wealth to be distributed in fulfillment of their wishes. Plan Invest Grow Protect Distribute
- 6. Corporate Finance Institute® WhatIs Wealth Management? Wealth Management Services Estate & Tax Planning Strategic Asset Planning Family Philanthropy Cash Management Diversified Investment Management & Analysis Family Education & Reporting Coordinate With Advisors Annual Management Review
- 7. Corporate Finance Institute® WealthManagement on the Client Side vs. Advisor Side Client Side Advisor Side Life Event Research Options Select & Engage Advisor Share Information Provide Updates Acquire & Understand Client Initial Engagement, Strategy & Planning Execution & Management Optimization & Tuning Broadening the Relationship
- 8. Corporate Finance Institute® Careersin Wealth Management? Advice & Relationships Discretionary Investment Management Investment Advisor Portfolio Manager Investment Counselor Financial Planner Private Banker Financial Advisor Wealth
- 9. Corporate Finance Institute® Wealthvs. Asset/Investment Management? • Retail clients • Mass affluent clients • Super affluent clients • High-net-worth (HNW) clients • Ultra-high-net-worth (UHNW) clients • Pension funds • Sovereign wealth funds • Insurance companies Personal / Family Wealth Management Institutional Investment/Asset Management
- 10. Corporate Finance Institute® Largeand growing market Trends in Wealth Management Very attractive business for banks Increasing competition from all sides Increased need to differentiate offering and service
- 11. Corporate Finance Institute® ClientSegments Based on Investible Assets Client Segment Investible Assets (USD) Ultra High Net Worth > 25,000,000 High Net Worth 5,000,000 – 25,000,000 Super Affluent 1,000,000 – 5,000,000 Mass Affluent 100,000 – 1,000,000 Retail < 100,000
- 12. Corporate Finance Institute® TotalLiabilities Total Assets Net Worth Net Worth vs. Investible Assets
- 13. Corporate Finance Institute® •Includes liabilities associated with investible assets • Excludes liabilities associated with excluded personal assets • Assets are liquid or can be easily converted to cash • Only includes real estate that generates income • Excludes personal assets that do not generate income or are difficult to convert to cash Net Worth vs. Investible Assets Investible Assets Assets Liabilities
- 14. Corporate Finance Institute® What’sthe Difference Between Financial Planning and Wealth Management? Financial Planning Wealth Management Creating a step-by-step guide or approach to achieving one’s financial goals Financial planning services such as retirement planning, estate planning, succession planning, and charitable giving Managing income, expenses, savings, and investments depending on client’s stage of life
- 15. Corporate Finance Institute® What’sthe Difference Between Financial Planning and Wealth Management? Financial Planning Wealth Management Advising and managing the financial or investment assets of clients Building a portfolio that will achieve a client’s personal planning objectives
- 16. Corporate Finance Institute® RoboAdvisor No touch, wholly automated client service model with algorithms managing clients Very standardized investment universe. Most commonly ETFs Lack subjectivity and do not offer any fully- personalized services Provide financial planning through online questionnaires about clients’ risk-aversion, financial status, and desired return Retail and Mass Affluent Focus • Retail clients (Investible assets: less than USD 100K) • Mass affluent clients (Investible assets: USD 100K – USD 1M) RA
- 17. Corporate Finance Institute® FinancialAdvisor Low touch, standardized client service model with a financial advisor managing 100 or more clients Smaller and more standardized investment universe Some limited, standardized tax mitigation strategies, insurance advice, and estate planning Provide financial planning around personal budgeting, cash flow planning, and saving for retirement Retail and Mass / Super Affluent Focus • Retail clients (Investible assets: less than USD 100K) • Mass affluent clients (Investible assets: USD 100K – USD 1M) • Super affluent clients (Investible assets: USD 1M – USD 5M) FA
- 18. Corporate Finance Institute® PrivateBanker High/Ultra High Net Worth Focus • High net worth clients (HNW) (Investible assets: USD5M - 25M) • Ultra high net worth clients (UHNW) (Investible assets: >USD25M) PB Highly sophisticated tax mitigation strategies, estate planning, bespoke banking solutions, and philanthropy advice A team-based approach providing highly tailored and customized financial planning and wealth advice typically led by a private banker Much larger investment universe High touch, personalized client service model with around 50 clients
- 19. Corporate Finance Institute® TheFinancial Advisor/Private Banker Client Journey 01. Identify and acquire clients through networking, prospecting, and segmentation 02. Onboard clients with the proper considerations for risk, legal, and compliance 03. Understand clients’ needs and risk appetites in order to provide appropriate advice 04. Advise clients on financial planning, estate planning, succession planning, and investment solutions. 05. Implement the investment strategy or services agreed upon by the client 06. Maintain and manage strong client relationships through periodic reviews Steps to be successful as a financial advisor or private banker:
- 20. Corporate Finance Institute® KnowYour Client (KYC) Starting A Relationship Risk, Legal, and Compliance Large focus on anti-money laundering and financial crime • Why are they opening a certain type of account? • Who are the account holders? • What is the purpose of the account? • Where are the funds coming from?
- 21. Corporate Finance Institute® WhatIt Takes to Succeed as a Financial Advisor / Private Banker To be a successful financial advisor or private banker, you must have: Good interpersonal skills A broad knowledge of financial products and services Manage multiple client relationships and be available A willingness to ‘hunt’ for new clients Skills to engage in networking
- 22. Corporate Finance Institute® SkillsNeeded to Succeed as a Financial Advisor / Private Banker Sales Skills Client Management Portfolio Management Risk Management Client acquisition Pipeline management Delivering against business plans and targets
- 23. Corporate Finance Institute® SkillsNeeded to Succeed as a Financial Advisor / Private Banker Sales Skills Client Management Portfolio Management Risk Management Client needs discovery process Delivering solutions to clients Sustaining strong client relationships Handling objections
- 24. Corporate Finance Institute® SkillsNeeded to Succeed as a Financial Advisor / Private Banker Sales Skills Client Management Portfolio Management Risk Management Product knowledge Assessing risk/return Behavioral finance Building a portfolio for a client
- 25. Corporate Finance Institute® SkillsNeeded to Succeed as a Financial Advisor / Private Banker Sales Skills Client Management Portfolio Management Risk Management Professional ethics Risk management practices Compliance practices Monitoring client portfolios
- 26. Wealth & EstatePlanning Services
- 27. Corporate Finance Institute® Planning& Other Services Offered Services Retail Mass Affluent Super Affluent HNW UHNW Financial Planning Estate Planning Business Succession Planning Charitable Giving Family Governance & Family Office Lending Solutions Investment Banking Yes Limited Very Limited No
- 28. Corporate Finance Institute® FinancialPlanning – Life Stages Financial planning depends on an individual’s: Time Horizon Life Stage Financial Situation Long-Term Financial Goals • 20s to 40s – Earning and Accumulation • 40s to 60s – Managing and Preservation • +60s – Retirement and Distribution • Income • Expenses • Assets • Liabilities • Retirement • Lifestyle • Legacy • When will the client need to withdraw their money?
- 29. Corporate Finance Institute® LifeStages Stage 1 STAGE 1: ACCUMULATING AND GROWING WEALTH Age >21 to mid 40s Starting a career Managing expenses / Budgeting (starting a family, education, housing, car, insurance) 21-40 People will have different priorities and investment styles at different life stages
- 30. Corporate Finance Institute® LifeStages Stage 2 STAGE 2: MANAGING AND PRESERVING WEALTH Age > mid 40s to 60 Stable career/ growing assets Managing expenses / budgeting (travel and lifestyle) Planning for retirement People will have different priorities and investment styles at different life stages 40-60
- 31. Corporate Finance Institute® LifeStages Stage 3 STAGE 3: RETIREMENT AND DISTRIBUTION OF WEALTH (Age: > 60) Age >60 Retired / Nearly retired Managing expenses / budgeting (health and lifestyle, retirement needs) People will have different priorities and investment styles at different life stages 60+
- 32. Corporate Finance Institute® EstatePlanning Services Transfer of wealth to the next generation is a long-term process and often involves planning Ways to Transfer Wealth Having a Will Gifting Assets Setting Up a Trust Life Insurance
- 33. Corporate Finance Institute® Trusts SettingUp a Trust A trust is a fiduciary relationship Gives the assets to the trust Holds title to the assets… …for the benefit of the beneficiaries A legal entity is created to hold the assets Trustor Trustee Beneficiaries
- 34. Corporate Finance Institute® Trusts SettingUp a Trust Why do people set up trusts? Control over distribution Avoid probate Tax efficiency Avoid compulsory succession
- 35. Corporate Finance Institute® Trusts SettingUp a Trust Assets held in a trust Financial Assets Shares of Private Companies Properties
- 36. Corporate Finance Institute® LifeInsurance Term Life Insurance Permanent Life Insurance Universal Life Insurance Whole Life Insurance • Coverage for a limited period • Cheaper initially • Tax-free death benefit • No cash value • Coverage for whole life • Stable premiums • Tax-free death benefit • Accumulates cash value • Coverage for whole life • Flexible premiums • Tax-free death benefit • Accumulates cash value
- 37. Corporate Finance Institute® Teamof advisors will suggest custom solutions based on client’s needs and goals Business Succession Planning Preference in terms of ownership transfer Best way to structure transaction Includes planning for:
- 38. Corporate Finance Institute® CharitableGiving / Philanthropy Philanthropy is an act or gift done for humanitarian purposes Client sets up and funds a foundation with the help of the bank Client supports a foundation controlled by the bank by giving funds through the bank
- 39. Corporate Finance Institute® Financing/Lending Solutions Collateralized credit facilities are available to Private Banking clients Leverage Low interest rates Clients use debt… …to purchase assets Liquid assets and assets of higher quality are assigned higher lending value as collateral Liquid assets and assets of higher quality are assigned higher lending value as collateral
- 40. Corporate Finance Institute® Financing/Lending Solutions Collateralized credit facilities are available to Private Banking clients Hedging Losses mitigated by gains in another investment Liquidity Clients avoid having to liquidate any of their investments
- 41. Corporate Finance Institute® FamilyGovernance Family Governance Decisions based on shared values and vision for the family’s future Relationship Managers within a bank are trained to identify this need
- 42. Corporate Finance Institute® FamilyOffice Family Office Private Wealth Management Firm Acts as a treasury department to manage the finances of a family Acts as a treasury department to manage the finances of a family Manages finances and provides services such as education and facilitating communications within a family Manages finances and provides services such as education and facilitating communications within a family
- 43. Corporate Finance Institute® InvestmentBanking Institutional investment banking products and services: • M&A • Direct Investments • Co-investments • Private placements • Capital Markets For large ultra high net worth clients or family offices Bill Gates
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- 45. Corporate Finance Institute® InvestmentProcess Investment Management Process Providing good service is the key to being a successful financial advisor Understanding Clients’ Needs Advising Implementing Reviewing
- 46. Corporate Finance Institute® Discretionaryor Advisory Wealth Management Advisory Discretionary Client decides on every single investment made Relationship manager makes recommendations and executes trades Clients do not have time to manage their own investments Bank manages funds based on risk and return expectations of the client
- 47. Corporate Finance Institute® Investing Wheninvesting, we need to consider: Defining these factors will serve as a guide on how we allocate investments into various asset classes Purpose of Investing Return Expectations Risks Involved Time Horizon
- 48. Corporate Finance Institute® Beforemaking any investment recommendation, it is important to determine the client’s Risk Profile Expected Return and Risk Profile Medium Risk Low Risk High Risk • Capital preservation • Yield enhancement • Cash, fixed income/bonds, and mutual funds • Balance between yield enhancement and capital gains • Willing to take more risks for higher returns • Fixed income, equities, mutual funds/ETFs • More interested in making capital gains • Higher risks and higher returns • Equities, commodities, and/or alternative asset classes
- 49. Corporate Finance Institute® ExpectedReturn Versus Risk COMMODITIES Higher expected return Lower expected return Low risk High risk CASH FIXED INCOME REAL ESTATE EQUITIES FOREIGN EXCHANGE 1 2 3 5 4 6 HEDGE FUNDS 8 PRIVATE EQUITY 7
- 50. Corporate Finance Institute® InvestmentManagement Solutions Traditional Asset Classes Retail Mass Affluent Super Affluent High Net Worth Ultra High Net Worth Cash/Savings Fixed Income Equities Mutual Funds, ETFs, REITs Foreign Exchange Commodities Yes Limited No
- 51. Corporate Finance Institute® InvestmentManagement Solutions Alternative Asset Classes (Non-traditional) Retail Mass Affluent Super Affluent High Net Worth Ultra High Net Worth Hedge Funds Private Equity Real Estate Art Wine Yes Limited No
- 52. Corporate Finance Institute® TraditionalAsset Classes: Fixed Income / Bonds Fixed Income / Bonds Loans owed by the issuer to the investor Issuer Pays periodic interest… …and principal to investor OR
- 53. Corporate Finance Institute® TraditionalAsset Classes: Fixed Income / Bonds Bonds provide yield and a steady stream of income Credit Risk Interest Rate Risk • Borrower or issuer of the bond goes bankrupt • Investor stands to lose part or all the investment • Investment amount falls in value as interest rates rise
- 54. Corporate Finance Institute® TraditionalAsset Classes: Equities Equities are listed on public stock exchanges all over the world Stocks represent ownership interest in a company Equities are “stocks” or shares of a company
- 55. Corporate Finance Institute® TraditionalAsset Classes: Equities Investors expect to make a gain when the company whose stock they bought makes more revenue/profit/cash flow Dividend stocks provide income to investors Equities are “stocks” or shares of a company
- 56. Corporate Finance Institute® TraditionalAsset Classes: Equities Company risks Economic cycle risks Equities are usually considered medium or high-risk investments
- 57. Corporate Finance Institute® TraditionalAsset Classes: Mutual Funds / ETFs Exchange Traded Funds Mutual Funds • Funds are pooled together then invested in various financial securities • Actively/passive managed • Higher fees • Less liquidity • Funds that track indices, sectors, commodities, or other assets • Listed and traded like stocks • Passive/active managed • Lower fees • More liquidity Generally, less risky than investing in individual bonds or stocks (diversification)
- 58. Corporate Finance Institute® TraditionalAsset Classes: Foreign Exchange (FX) Domestic/Local Currency Foreign Currency Diversification Hedging Speculation
- 59. Corporate Finance Institute® Traditional/AlternativeAsset Classes: Commodities Commodities are raw materials used to create products Why invest in commodities? Diversification Inflation Speculation
- 60. Corporate Finance Institute® TraditionalAsset Classes: Commodities Precious Metals Industrial Metals Soft Commodities Energy Gold & silver Platinum, palladium, copper, etc. Agriculture related products Oil & gas
- 61. Corporate Finance Institute® TraditionalAsset Classes: Commodities Exchange Traded Funds (ETFs) Mutual Funds Equities of commodity producers or traders Direct ownership of the commodity How to invest in commodities • Prices influenced by various economic activities, politics, weather patterns, and man- made / natural disasters • Investing in commodities is considered risky • Prices influenced by various economic activities, politics, weather patterns, and man- made / natural disasters • Investing in commodities is considered risky
- 62. Corporate Finance Institute® AlternativeAsset Classes: Hedge Funds Alternative investments are less liquid and less transparent than traditional investments Hedge Funds Pool money primarily from private investors and only from accredited investors Actively managed, but with limited regulation and transparency Employ various investment strategies Less liquid than mutual funds
- 63. Corporate Finance Institute® AlternativeAsset Classes: Private Equity Privately negotiated… …ownership in a privately held business enterprise Funds for expansion plans, restructuring, research and development, etc. Long-term investment (7-10 years)
- 64. Corporate Finance Institute® AlternativeAsset Classes: Private Equity Capital Call: Private equity fund draws funds from investors as needed Private Equity Higher ROI HNW or Institutional Investors Diversification Control
- 65. Corporate Finance Institute® AlternativeAsset Classes: Private Equity Illiquid investment Long investment horizon Initially negative returns Private equity is only for institutional clients or accredited investors Positive returns in later years Private Equity
- 66. Corporate Finance Institute® AccreditedInvestor An individual/entity that is permitted to purchase investment securities that may not be registered with financial regulators • Income >$200,000 • Net worth >$1,000,000, excluding primary residence • Income • Net worth • Asset size • Professional experience
- 67. Corporate Finance Institute® AlternativeAsset Classes: Real Estate Tangible assets Held long term Highly diversified Predictable cash flows Potential for capital appreciation Real Estate • Direct or co-ownership • Income producing, or value add Illiquid investment ≠ REITs
- 68. Corporate Finance Institute® Howto use art as collateral Estate planning specific to art Where to exhibit How to store and transport art Alternative Asset Classes: Art Specialist teams advise HNW and UHNW investors on: International art market What to buy & acquisition strategy Philanthropic giving Coordinating sale of art with auction houses
- 69. Corporate Finance Institute® AlternativeAsset Classes: Wine Specialist teams advise HNW and UHNW investors on: Investment-grade wines What to buy and acquisition strategy How to store and transport wine Coordinating sale of wine with auction houses