Introduction to Wealth Management Course Presentation.pdf

Introduction to
Wealth Management

Corporate Finance Institute®
Instructors
Tim Vipond Mary Jeanne (MJ) Lee

Describe the 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

What Is 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

What Is 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

Wealth Management 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

Careers in Wealth Management?
Advice &
Relationships
Discretionary
Investment
Management
Investment
Advisor
Portfolio
Manager
Investment
Counselor
Financial
Planner
Private
Banker
Financial
Advisor
Wealth

Wealth vs. 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

Large and growing market
Trends in Wealth Management
Very attractive business for banks
Increasing competition from all sides Increased need to differentiate offering and service

Client Segments 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

Total Liabilities
Total Assets
Net Worth
Net Worth vs. Investible Assets

• 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

What’s the 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

What’s the 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

Robo Advisor
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

Financial Advisor
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

Private Banker
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

The Financial 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:

Know Your 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?

What It 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

Skills Needed 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

Sales Skills
Client Management
Risk Management
Client needs
discovery
process
Delivering
solutions to
clients
Sustaining
strong client
relationships
Handling
objections

Sales Skills
Client Management
Risk Management
Product
knowledge
Assessing
risk/return
Behavioral
finance
Building a
portfolio for a
client

Sales Skills
Client Management
Risk Management
Professional
ethics
Risk
management
practices
Compliance
practices
Monitoring
client portfolios

Wealth & Estate Planning Services

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

Financial Planning – 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?

Life Stages
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

Life Stages
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
40-60

Life Stages
Stage 3
STAGE 3: RETIREMENT AND DISTRIBUTION OF WEALTH (Age: > 60)
Age
>60
Retired /
Nearly retired
Managing expenses / budgeting
(health and lifestyle, retirement needs)
60+

Estate Planning 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

Trusts
Setting Up 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

Trusts
Setting Up a Trust
Why do people set up
trusts?
Control over distribution
Avoid probate
Tax efficiency
Avoid compulsory succession

Trusts
Setting Up a Trust
Assets held in a trust
Financial Assets
Shares of Private Companies
Properties

Life Insurance
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
• Accumulates cash value
• Coverage for whole life
• Flexible premiums
• Accumulates cash value

Team of 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:

Charitable Giving / 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

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

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

Family Governance
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

Family Office
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

Investment Banking
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

Investment Process
Investment Management Process
Providing good service is the key to being a successful financial advisor
Understanding
Clients’ Needs
Advising Implementing Reviewing

Discretionary or 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

Investing
When investing, 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

Before making 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

Expected Return 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

Investment Management 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

Investment Management 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

Traditional Asset Classes: Fixed Income / Bonds
Fixed Income / Bonds
Loans owed by the issuer to the
investor
Issuer
Pays periodic
interest…
…and principal to
investor
OR

Traditional Asset 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

Traditional Asset 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

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

Company risks Economic cycle risks
Equities are usually considered medium or high-risk investments

Traditional Asset 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)

Traditional Asset Classes: Foreign Exchange (FX)
Domestic/Local Currency Foreign Currency
Diversification Hedging Speculation

Traditional/Alternative Asset Classes: Commodities
Commodities are raw materials
used to create products
Why invest in
commodities?
Diversification
Inflation
Speculation

Traditional Asset Classes: Commodities
Precious Metals Industrial Metals
Soft Commodities Energy
Gold & silver
Platinum, palladium,
copper, etc.
Agriculture related
products
Oil & gas

Traditional Asset 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

Alternative Asset 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

Alternative Asset 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)

Capital Call: Private equity fund draws funds from investors as needed
Private Equity
Higher ROI HNW or Institutional
Investors
Diversification Control

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

Accredited Investor
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

Alternative Asset 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

How to 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

Alternative Asset 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

Introduction to Wealth Management Course Presentation.pdf

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