Top Wealth Management Strategies for Long-Term Success

Let us start with the basics by understanding what is wealth management.

What is Wealth Management?

Wealth management is the process of managing an individual’s personal finances or financial well-being. It involves sorting out the individual’s cashflows, allocating some of them towards financial goals, choosing financial products based on investment time horizon, and reviewing the progress regularly till the goals are achieved.

While this may seem similar to financial planning, wealth management is usually for affluent individuals or high-networth individuals (HNIs). Wealth management is for individuals who have already amassed some wealth and further want to either grow it, manage it, or both. Financial institutions set their minimum wealth criteria for wealth management clients.

As every individual’s financial needs are different, the wealth manager has to make a customised plan to suit their needs. Apart from making a goal plan and reviewing the progress regularly, the wealth manager helps the investor navigate market volatility by keeping greed and fear emotions aside. Thus, wealth management can also be called personal wealth management as it involves customisation as per individual needs.

Wealth Management vs Wealth Creation

Wealth creation is akin to starting from scratch. For example, Kartik has just started earning and wants to reach a net worth of Rs. 1 crore in 10 years. So, wealth creation is like going from 0 to 1. Wealth management is for an individual who has already accumulated some wealth. For example, Kartik has accumulated Rs. 1 crore. He now wants to preserve it, grow it, or both. So, wealth management can be like going from 1 to 1.5.

Wealth creation and wealth management both focus on increasing an individual’s wealth. However, the magnitude of growth is usually higher in wealth creation than in wealth management. Wealth management also has an element of preserving the wealth already created along with growing it. While wealth creation makes one wealthy, wealth management makes one wealthier. The clientele for wealth creation is individuals who are getting started with their investment journey. The clientele for wealth management is affluent individuals and HNIs. As wealth management solutions are for a specific clientele, it may also be called an exclusive service.

Wealth Management Investment: How It Works 

The wealth management investment process begins with the search for a wealth manager. Once you have selected a wealth manager, the process works as follows.

1. The wealth manager will list your financial goals, the timelines to achieve them, and their categorisation into short, medium, and long-term financial goals.
2. They will make a goal plan for each financial goal. It will involve the financial products to invest, the asset allocation, the investment amount, the expected rate of return, tax efficiency, etc.
3. The wealth manager will sit with you regularly to review the performance of each goal. If a particular financial product is underperforming consistently, they will suggest an appropriate replacement.
4. As the assets accumulate, the wealth manager will help you make a will. During the regular review, if there is a sizeable difference in the assets due to new assets compared to the earlier will, they will advise you on making a new one. Estate planning will help an individual to pass on their assets smoothly to their intended beneficiaries after their demise. Thus, estate planning is an important part of financial wealth management.
5. During times of stock market volatility, the greed and fear emotions run high. At such times, the wealth manager can help you keep calm and focus on achieving your financial goals.
6. The wealth manager will handhold you till the financial goals are achieved.

Best Wealth Management Strategies

Some of the best wealth management strategies include the following.

1) Asset allocation

You should diversify your investment portfolio across various asset classes. Each asset class has a distinct role to play. Equity is for growth; fixed income is for stability and regular income; gold is a hedge against inflation and a haven during times of uncertainty. Apart from these, real estate (a house) is for living, and insurance is for protection.

Different asset classes take turns to outperform each other year after year. Hence, having appropriate asset allocation helps you earn better risk-adjusted returns.

2) Diversification

Diversification helps you reduce the overall portfolio risk. In the earlier section, we saw how asset allocation helps you diversify across asset classes. You should further diversify within each asset class. For example, within equity, you can diversify across large, mid, small, and flexi-cap schemes. When you choose these schemes, each scheme has a portfolio of 30 to 70 stocks, giving you further diversification in terms of number of stocks and sectors.

3) Portfolio rebalancing

You should review your investment portfolio regularly, every six months to one year. During the portfolio review, if some asset class has significantly outperformed or underperformed other asset classes, the asset allocation will change. During such cases, you need to redeem/sell some portion of the asset class that has outperformed and invest the redemption/sale proceeds in the other asset classes to revert to the base asset allocation.

Factors to Consider When Selecting a Wealth Manager

When selecting a wealth manager, some factors that you should consider include the following.

1) Qualification and experience

Check whether the wealth manager has the requisite qualification in terms of a college degree. SEBI may require some certification(s) as per regulatory guidelines. Check whether the wealth manager has that certification(s). Any additional qualifications over and above these are good to have.

Check the past work experience of the wealth manager. Check the number of years worked, the financial institutions they worked with, the departments they worked in, how their career progressed, etc.

2) Investment Philosophy

Talk to the wealth manager to understand their investment philosophy and whether it matches your requirements.

3) Range of services offered

Wealth managers offer a wide range of services, while some specialize in specific areas. Check with the wealth manager about the range of services offered and whether they match your requirements.

4) Wealth manager and firm past track record

Check the past track record of the wealth manager and the firm they work with. Ask them about the number of clients they have handled and their feedback.

5) Fees charged

The fees charged by the wealth manager are an important criterion. Check whether the fees being charged are worth the services being offered.

6) Feedback from clients

Ask for the contact details of a couple of clients. Call the clients and ask for their feedback about the wealth manager.

Wealth management can be your stepping stone to achieving financial goals

You have taken the first step to fulfilling your financial goals by creating wealth. The next step is to work with a wealth manager for your wealth management. A good wealth manager can help you preserve and grow your wealth and help you achieve your financial goals. They can help you create wealth in a tax-efficient manner and pass on the wealth as a legacy. Thus, wealth management can be your stepping stone to achieving financial goals.

FAQ

How Does Wealth Management Differ from Financial Planning?

Financial planning is for all, including people who are just getting started with their investment journey. Wealth management is for people who have already accumulated some wealth. It is for affluent individuals or HNIs.

What Are Some of the Things Covered Under Wealth Management?

Wealth management involves important aspects of personal finance:

1. Risk management
2. Goal-planning along with preservation and growth of capital
3. Investing in tax-efficient financial products
4. Life and health insurance protection
5. Passing the assets smoothly to the intended beneficiaries on the owner’s demise, etc.