Wealth managers should have soft and hard skills to deliver their responsibilities proficiently. Soft skills help them communicate with clients to collect necessary inputs and present their views and ideas to counsel. On the other hand, hard skills are their knowledge and experience about taxation, investment instruments and regulations.
What Is Wealth Management?
Individuals with a high net worth may face challenges in accounting, knowing the potential risk and its mitigation, taxation and other associated obligations related to their assets. However, they can leverage wealth management services to address all these complexities efficiently. It can help them handle all their liabilities, protect assets, and grow their wealth simultaneously.
Here is all you need to know about what wealth management is and how it can benefit you.
What Is Meant By Wealth Management?
Wealth management refers to services that deal with financial planning and advisory for high-net-worth individuals. These services include the management of the investment portfolio of clients, overseeing their taxation, making financial and estate planning and providing the required financial advice.
The main objective of this wealth management is to reduce liabilities, protect vast assets and properties from legal or financial challenges, and grow investable capital. To accomplish all these goals, the concerned individuals may need to seek the advice of expert wealth managers. These professionals carefully assess the existing liquid assets, investments, immovable properties, estates, etc., to give the required advice to clients.
What Are the Wealth Management Services?
Since various financial technicalities are involved in wealth management, you may find it challenging to meet the specific requirements yourself. Generally, individuals with a high net worth contact firms to get the necessary advice. They undergo all the sensitive financial information about their clients' assets during the course of action.
Following are the different services included under wealth management provided by the consultant firms:
- Accounting services
- Charitable contribution planning
- Estate planning
- Investment advice
- Insurance advice
- Portfolio rebalancing
- Risk mitigation
- Retirement planning
- Educational planning of children
Now, after knowing what wealth management is and the services included under it, you should also learn how it works.
How Does Wealth Management Work?
1. Contacting the Wealth ManagerIn the first stage, you will have to contact a wealth management firm. It will inquire about your family income, investments, etc., and schedule a meeting to collect details about your assets.
2. Conveying the Financial ObjectivesYou will have to inform them about your current financial situation, goals and pain points. All these details help those wealth management firms make necessary decisions to safeguard and grow your wealth.
3. Analysing Risk ToleranceAt this stage, you will have to answer several questions from the wealth manager regarding your financial habits and practices. Based on your answer, they will create your risk portfolio. In the investment journey, the risk is directly proportional to the reward or returns in the investment journey. If your risk capacity is higher, the wealth manager will allocate your assets to particular funds that can generate quicker returns on your investment.
4. Allocating AssetsThe wealth manager segregates your investible funds into different categories of investment instruments, including company shares, mutual funds, debts, bonds, debentures, securities, gold, etc. Then, they allocate the money in those funds in a predetermined proportion. They decide what percentage of your money should be allocated to debts, bonds, etc., considering your risk appetite.
5. Planning SuccessionSuccession planning is necessary to establish how your property will be distributed after your death. The wealth manager can guide you about making your will stating how you intend to share your estates with your spouse and children. You can also make your will about your business takeover.
6. Auditing PortfolioWealth managers will keep track of the ups and downs of your investment portfolio. They make changes in the portfolio allocation according to the current market situation. If they observe a downward trend in the stock market, they will withdraw money from there and invest that amount in less volatile but steadily growing instruments or vice versa.
What Are the Advantages of Wealth Management?
Following are some advantages you can obtain through effective wealth management:
Preparation for Emergencies
Emergencies can occur at any moment in life and make financial management quite difficult. However, with an effective wealth management plan, you can easily cope with the immediate challenges caused due to unprepared circumstances. The wealth manager ensures that you have sufficient contingency funds besides your investments. This fund allows you to tackle financial requirements during emergencies.
One of the significant pieces of advice that wealth managers advocate is the necessity of health and life insurance coverage. They will also help you understand how much the sum insured and life cover you will require considering your requirements and responsibilities.
Adequate sum insured value of a health insurance plan will ensure that you do not need to pay any amount out of your pocket in case of illness and subsequent hospitalisation. On the other hand, life insurance coverage lets your family get a predetermined amount in case of your premature demise.
refers to making strategies so that you do not need to encounter financial challenges to meet basic lifestyle expenses after retirement. For this, your wealth manager will help you build and grow funds that will mature approximately around and after your retirement age.
Financial Strategies for Upcoming Expenses
Effective wealth management lets you stay prepared for upcoming large-scale expenses. For this, the wealth manager first carefully measures how much money you will require to fulfil the financial goal. After this, they create dedicated funds tailored to those goals. According to your wealth manager's advice, you must keep investing in them.
Let’s assume you will have to pay a lump sum for your child’s higher education within the next five years. Your wealth manager will approximate the fund you will need and how much you have to save towards it every month to raise that amount.
Wealth management helps you avoid market fluctuation risks and subsequent losses. As a result, you can take necessary measures on time, like making changes in your investment portfolio. Your advisors will also guide you on whether you overestimate or underestimate your investment capacity. Further, they also oversee any legal challenges that can lead to penalties. This way, your wealth stays risk-free under their supervision.
Effective Tax Planning
You can also reduce your tax obligations with the help of wealth managers. They will oversee all other financial aspects, including health and life insurance premiums, home loan EMIs, investments, charitable donations, etc., that come with tax benefits. As a result, you will be able to reduce your taxable income while fulfilling your obligations to the revenue department of India.
Now that you know what wealth management is and what aspects this service involves, you can understand its benefits. Nevertheless, it will be essential to have a high net worth of wealth in the form of real estate, investments, businesses, etc. A wealth manager can advise you to stay financially secure, grow your wealth and manage your liabilities efficiently.
FAQs About Wealth Management:
You should choose a wealth manager considering their qualification and expertise. In addition, they need to have a positive record of service and an active license. Besides this, you should also be aware of their investment philosophy and code of ethics besides the range of services they offer.
Broadly, assets refer to any items that you can liquidate if required. It includes real estate, investments, cash, personal properties, etc. On the other hand, wealth encompasses all your assets and liabilities. Wealth refers to your comprehensive financial picture.
Wealth management refers to the process of overseeing the financial position of individuals. It is especially for those who have a high net worth. It includes aspects like increasing profits, taxation, succession, etc. However, financial planning is limited to strategic management of everyday financial requirements, like budgeting, savings, cash flow management, etc.
Other Important Guides About Wealth Management
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.