Investment Strategy: Repair and maintenance

Wealth management is not only investment planning but also wealth preservation and legacy sustenance

When we need to do banking, we go to a bank. When we need to do trading, our destination is a stock broker. But when we need a specialised investment manager or an exclusive wealth advisor, India is still at a very nascent stage. It is necessary to separate the proverbial wheat from the chaff to understand what a wealth manager really does. Anyone can help you buy a couple of mutual funds and invest in a number of stocks and call themselves wealth managers. But the stark reality is that these people are in it either for their commission or fee. While there is nothing wrong in paying a credible wealth manager for his services, there is need to understand the scope of wealth management to get the real deal.

Wealth management is a far wider area than just investment management. A wealth manager helps high networth individuals (HNIs), families, small business owners and others to maximise their earning potential by not only guiding them with investments but also financial and estate planning and other allied financial services. Usually, wealth managers are certified financial planners.

A lot of work that a wealth manager undertakes is advisory. Wealth preservation and legacy management are normal fields of operations for a wealth manager. This means that often wealth managers are expected to give sound advice on continuing the legacy as intended by the individual or family. A wealth manager is responsible for creating a financial roadmap for his client based on his age, wealth profile and other criteria. Investment planning can then be done in tandem with the client's wishes after a financial plan has been created. Some clients may even want advise on real estate issues or may want to invest in real estate funds. Many wealth managers have either the expertise in the insurance industry or have members capable of giving advice on insurance related issues. In keeping with the well known notion that a penny saved is a penny earned, many wealth managers are expected to give advice on tax
related issues.

Accountability and objectivity are very important. Giving the client a perspective of reality, thus, is one of the most important jobs of a wealth manager. "I see huge potential for wealth and investment management business in India in the days to come. The indian market is now on its way to accepting the fact of hiring professional help for managing and growing its investments," say Tienie Van Der Mescht, CEO, Sanlam, a joint partner of SMC Global, a wealth management firm.

What are the traits to look for while selecting a wealth manager? Do keep an eye out for people who are often confused with wealth managers but in reality are salespeople. Every financial instrument that you buy generates some revenue for the person or institution that is selling it. The insurance-agent-cum-wealth manager or the stockbroker generally means well but can offer little in the way of wealth management because his approach is not all-inclusive. The clients may benefit if they just need one product as these intermediaries are likely to cater to only one particular area of the investment world.

You are also likely to encounter 'the fee agent.' There are now certain types of 'wealth managers' that will claim to sell products that are completely commission-less but, in return for their advice, you will have to pay them a fixed fee. The trouble in investing in only commission-less products is that a whole lot of investment opportunities are skipped. These people may have great advice but their horizons are severely limited. These fee-based agents may regularly keep in touch with their clients and keep them updated on their investments. But they are likely to have little to offer beyond their 'selected' investment products.

Last, but not the least, there are the 'generalists.' This is a whole class of investment gurus that like to spread clients' wealth in multiple instruments while pitching diversification and making clients pay hefty commissions on all of these investments. You could very well spare yourself the agony by just spreading your money around and pocketing the commissions. Although a generalist may very well resemble a wealth manager, his focus usually is on the creation of investment opportunities He seldom fails to address tax minimisation, estate planning or managing the client's financial universe as a whole.

How much money is required to be able to qualify for a wealth management account varies from one financial institution to another. There may even be a distinction between wealth management clients based on their net worth and the range of services that are provided to them. Some multinational banks are providing foreign exchange services and ease of access to their services abroad to their HNI clients who belong to the NRI category. "Our core product entails advising clients on their entire net worth to preserve and enhance their wealth for future generations. This is done through a combination of scientifically proven mathematical models providing for personal aspirations, a systematic transfer of wealth for future generations. Our private clients use our services to consolidate the family's private wealth under a professional umbrella," says Amit Jeffrey, a wealth management specialist at Capital Associates. The minimum balance required for a wealth management account with Capital Associates is US$ 1 million.

There is no such thing as free lunch. If you are going to hire a professional to manage your money you should certainly expect to pay a price for it. Most wealth management companies are likely to charge commissions over and above what is charged by the financial products that they invest in. Investing in mutual funds through a wealth manager may end up costing around 1%-4% more because of their advisory charges. Some other companies may charge a flat-out fee based on various wealth management products and services that they may offer.

Though most wealth management companies go the extra mile to take care of their customers, there are situations in which you may not be able to sustain your relationship with the wealth manager. In most cases, there are no charges for termination of your relationship with the wealth manager. But there is a penalty for withdrawal of funds from the investments made through the wealth manager. This is especially true for unit-linked insurance plans as well as other insurance-based investments. There may be penalties for withdrawing from bank-based deposits and some other investments. Tax benefits may not be applicable for premature withdrawals from some investments like mutual funds.

For dissatisfied customers, there are a number of options available for grievance redressal. In case of dealings with banks, approach the nodal officer appointed by the bank. If still not satisfied, write to the banking ombudsman appointed by the Reserve Bank of India. For insurance products, tap the insurance ombudsman appointed by the Insurance Regulatory and Development Authority (Irda). There is a list of these ombudsmen available on the websites of both the RBI and the Irda.

Creation of wealth takes substantial amount of skills and resources. Preserving wealth is, however, more difficult than even creating it. The problem arises because people are often too pre-occupied with their daily lives to be able to dedicate the amount of time that is needed for financial management. Even if they can allocate some resources and time to manage their assets, they cannot cope with the changes in their own lives and external factors, which often rapidly take a toll on their asset base. A professional wealth manager can come as a breather.

If the aim is continuation of legacy, there is no reason why your wealth cannot do it. Some of the most notable legacies that continue to grow and fund the goals that they were designed for include the Nobel prizes and the Rhodes scholarships. If you want to leave an impression on the future with the resources you have now, some excellent wealth management is all you need.

Does everyone need a wealth manager? Perhaps not. Is everyone out there who claims to be wealth manager a serious wealth manager? Indeed not! HNI or family, a small or medium business owner or anyone who has substantial resources at hand may benefit from the services of a wealth manager. However, keep in mind that what you are being offered by way of services has to be inclusive of all parameters of the financial universe. The terms and conditions as well as the entire fee that you will be charged for any or all services should be made clear to you well in advance. Only when you are certain of getting a transparent and an effective service should you opt for a wealth manager.