Wealth Manageent and Asset Management

7/29/2019 Wealth Manageent and Asset Management

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Executive SummaryWealth Management provides various investment opportunities to its clients in the

way of Asset Allocation into

- Commodity

- Equity

- Debt

- Insurance Property

The Project also shows the Report Analysis on Wealth Management across theGlobe by The BCG (Boston Consulting Group). Which highlights on various

Wealth Management activities and its effects on the World Economy


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Wealth ManagementWealth management is an investment advisory discipline that

incorporates financial planning, investment portfolio

management and a number of aggregated financial services.

High Net worth Individuals (HNWIs), small business owners

and families who desire the assistance of a credentialed financial

advisory specialist call upon wealth managers to coordinate

retail banking, estate planning, legal resources, tax professionals

and investment management. Wealth managers can be anindependent Certified Financial Planner, MBAs, Chartered

Strategic Wealth Professional, CFA Charter holders or any

credentialed professional money manager who works to enhance

the income, growth and tax favored treatment of long-term

investors. Wealth management is often referred to as a high-

level form of private banking for the especially affluent. One

must already have accumulated a significant amount of wealthfor wealth management strategies to be effective


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Portfolio

The term portfolio refers to any collection of financial assets

such as stocks, bonds, and cash. Portfolios may be held by

individual investors and/or managed by financial professionals,

hedge funds, banks and other financial institutions. It is a

generally accepted principle that a portfolio is designed

according to the investor's risk tolerance, time frame and

investment objectives. The monetary value of each asset may

influence the risk/reward ratio of the portfolio and is referred

to as the asset allocation of the portfolio. When determining a

proper asset allocation one aims at maximizing the expected

return and minimizing the risk. This is an example of a multi-

objective optimization problem: more "efficient solutions" are

available and the preferred solution must be selected by

considering a tradeoff between risk and return. In particular, a

portfolio A is dominated by another portfolio A' if A' has a

greater expected gain and a lesser risk than A. If no portfolio

dominates A, A is a Pareto-optimal portfolio. The set of Pareto-

optimal returns and risks is called the Pareto Efficient Frontier

for the Markowitz Portfolio selection problem.


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What is Portfolio Construction?

Custom Portfolio Construction is selection of assets andproducts based on client needs and circumstances.

This involvesClient Risk AssessmentClient Need analysisAsset Allocation (Depending on Economic &

Sectoral outlook)

Product Selection (Based on Qualitative andQuantitative performance analysis)


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Portfolio Construction Methodology

Risk Profile of the client would be based on a set ofquestions & a automated scoring model

Asset Allocation will be determined atStrategic level (using Qualitative information &

Efficient frontier)

Tactical Allocation will be done for futureexpectations of TCL research view. This would

be an adjustment to strategic asset allocation

(Frequency for adjustment would be min 3

months)

On the discretion of client, end to end financialplanning will be done & the same would be

adjusted in asset allocation.


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Portfolio Construction - Methodology

Client Portfolio

Personalized

Asset Allocation

Client Level Understanding of

1. Risk Tolerance Levels

2. Specific Needs & Client

Circumstances

3. Likes & Dislikes

Products

Recommendation

Strategic Asset Allocation based on

Client profile and Quantitative data

analysis

Tactical Asset allocation based on

research expectation

Risk Profiling Asset Allocation

Supported by

Financial Planning

Risk Profiling

Quantitative Data Analysis

Macro Economic Research

Asset Class Research

Sector Research

Research on wide range on products selected

from each asset class

Product Suitability analysis based on ClientProfile

Asset/product level exposure limits

Stock Research

MF Research

Alternative Investments research


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What is Asset Allocation?

Asset allocation is an investment strategy that attemptsto balance risk versus reward by adjusting the

percentage of each asset in an investment portfolio

according to the investors risk tolerance, goals and

investment time frame


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Asset Allocation Model Asset Classes

Identified on the basis of differences in Risk ReturnCharacteristic.

Allocation will be done on the basis of Risk Tolerance Sub-Asset Class Allocation Based on Number of Sub Asset within the main Asset

Class

Allocation to be based on Standard Deviation/ Downside deviation & Risk

Tolerance Levels

Liquidity Needs (For the entire portfolio as wellas for the asset class)

Diversification or Concentration (Sub Asset)requirements.

Min. or Max exposure to a security. Specific exclusion of assets by the client


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Asset Allocation Output Asset Allocations

Mean Return Expected on Model portfolio V/sCurrent Returns on Assets

Portfolio Risk Standard Deviation, DownsideDeviation

Monti Carlo Simulation of Portfolio Values

Worse Case Scenario Financial Goals Probability of Achievement (If

Goals are not Specified, various portfolio values with

probabilities)

Asset Allocation Reshuffling of Current Allocation Criteria Transaction Cost & Tax on sale V/s Relative expected

gain

Future cash flow investment Liquidity needs V/s Implied Liquidity Acceptable Downside Risk V/s Implied Portfolio Risk


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Strategic Asset Allocation Asset Class

Product Type Asset Class Classification

Equity Equity

MF - Equity Equity

Private Equity Equity

Int. Equity Int. Equity

MF - Debt Debt

GOI Bonds Debt

REC/ Other Bonds Debt

Capital Guaranteed Products Debt

Gold Bullion

Silver Bullion

REITs Real Estate

Real Estate MFs Real Estate

Real Estate Real Estate

Crude Commodities

Agricultural Commodities Commodities

Metals Commodities

Art Alternative Investments

Hedge Funds Alternative Investments


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Case StudyEdelweiss Financial Services

A prospective client approached Wealth Management Group seeking investment advisory for

self and family; the assets he offered as security were multipart in nature.

The Situation - Assets holding were manifold

difficult to consolidate

Beneath the inherent requirement of InvestmentAdvisory on diverse asset classes, our

interactions revealed the need for consolidation

of Family and Office wealth. Since business

was family run many assets were held undervarious companies.

Our Advice - Regularize holdings and assign

orth

Our first advice was to regularize all the

holdings and assign them as per needs and

requirements. Since there were businesspartners from same family we recommended de-

linking and de-risking personal and business

investments. Once this was established a needfor creation and securitization of wealth for longterm goals was advised in addition to just a pure

investment advisory.

What Changed - Establishing a new

relationship

Impressed at the financial understanding we had

demonstrated and appreciative of the holisticmeasure taken to restructure the entire family

office investment with a proposal for

securitization of long term goals, the prospectdecided to accept our recommendation and

became a client.


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ConclusionWealth managers are beginning to investigate innovative segmentation

methods to manage the changing client profile. Over the next 20 years wealthmanagers will hone their segmentation methods. Wealth managers will

develop segmentation as aserviceeff iciency ini t i at ive. Seg mentat ion models wil l apply holi s t

ic cr i ter ia to Wmanagement. The most important segments globally will beentrepreneurs and SMES/CEOs. Financial advisers will become an important

separate client segment for wealth managers The organizat ion of direct client

ownership will also changeAvailabilitya n d f l e x i b i l i t y w i l l b e c o m e v i t a l c o m p o n e n t s o f t

h e b u s i n e s s m o d e l I n t e r n a l r es tr uc tu ri ng wi ll ai mto in tegrate c l ient services . The r i se of the mass af f luent

represents an opportunity for wealth managers in the medium termWealth managers will capture the higher value mass affluent market by

offering a scaled down wealth mana ge men t se rvi ce. The mas saffluent proposition will run along the lines of the current wealth

management service. Liability management is currently not part of the

wealth management agenda but has proven potential. Clients in developed markets

are seeking more holistic wealth management services Liabilitymanagement is clearly a profitable area with a proven existing client

base. The incorporation of lending into wealth management will shift thefocus of the service. Specialist forms of lending will also become common

additions to the offerings of many wealth managers. Some

willf a i l d u e t o a p e r s i s t e n c e o f t h e a s s e t f o c u s e d s e rv i c e m o d e l a n d a l a c k o f commitment. There are significant benefits

in the area of liability management forthew e a l t h y , a n d t h a t t h e i m p o r t a n c e o f l i a b i l i t y m a n a g e

m e n t a s p a r t o f w e a l t h ma na ge me nt w il l i ne vi ta bl y g ro w o ve r

the next 20 years , unt i l i t becomes a

keys e r v i c e a r e a . R i s i n g i n c o m e a n d w e a l t h i n e q u a li t i e s , i f n o t m a t c h e d b y a corresponding rise of incomesacross the nation, can lead to social unrest. An area of great concern is

the level of ostentatious expenditure on weddings and other familyevents. Such vulgarity insults the poverty of the less privileged, it issocially wasteful and it plants the seeds of resentment in the minds of the have-

nots.


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BibliographyThe data of the project were taken from the following sources

- HSBC Bank

- http://en.wikipedia.org/wiki/Wealth_management

- http://en.wikipedia.org/wiki/Portfolio_management

- http://en.wikipedia.org/wiki/Asset_allocation
http://en.wikipedia.org/wiki/Wealth_managementhttp://en.wikipedia.org/wiki/Wealth_managementhttp://en.wikipedia.org/wiki/Portfolio_managementhttp://en.wikipedia.org/wiki/Portfolio_managementhttp://en.wikipedia.org/wiki/Asset_allocationhttp://en.wikipedia.org/wiki/Asset_allocationhttp://en.wikipedia.org/wiki/Asset_allocationhttp://en.wikipedia.org/wiki/Portfolio_managementhttp://en.wikipedia.org/wiki/Wealth_management

Wealth Manageent and Asset Management

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