Wealth Management

K K JINDAL Global Management Services New Delhi Email: kamaljindal@hotmail.com

--wealth management
Defined as----Client- centric Consultative approach to Delivering financial services Across life cycles

The Goals
Creation
Accumulation Protection Distribution
Build wealth Earn over and above inflation & interest rates Requires high risk approach Retain the principle, with reasonable growth Earn atleast at par with inflation & interest rates Average to low risk approach Ensure accumulated earnings are secure Ability to pay for living expenses No risk approach

Share accumulated wealth with inheritors/society

Wealth Management Dynamics

Life Cycle
Risk Appetite Disposable Income Sources of Income
Phase of Life Evolving Priorities over life

Life Cycle Personal Priorities Family Income Partner Income Priorities Sex Case of Uniqueness of India Role of Ancestral Income White Income

Wealth Management Matrix

Creation protection

Risk Appetite

Lifecycle

Disposable Income

Sources of Income

Accumulation

Distribution

Wealth Management Dynamics Lifecycle

No Income, Focus is on Spending, Not TG

Places to save money

Would you save your money in any of these places? Why?Why not? Can you think other place to save money? Bed & Mattress Cookie Jar Pillow Wallet Money belt But Remember if you save your money here you will not generate any returns out of it Small house safe
7

1. In The Past
For decades prior to 1991, the Indian Middle Class had an ideological bias against having too much wealth. Money was always considered, as a means for meeting only basic needs. Moreover, needs and aspirations were simple and limited. Avenues to invest excess wealth were also limited and most of the investments at that time were into Real Estate. Concepts such as wealth creation and financial planning remained alien to a large proportion of the populace unlike the Westerns who were much more focused and since the late 1960s wealthy families had started entrusting their personal balance sheets to Professional Private Wealth Managers to achieve their long range goals for wealth creation.

2. In the Transition Phase

Post 1991, the mindset of the Indian consumer underwent a sea change. Liberalization made the Indian consumer a king and there was a much larger basket of goods and services he could choose from. It was first the value for money brands which succeeded in the Indian market and now with the increased wealth creation even highly priced lifestyle products and services have found a place in the Indian psyche. The same Middle Class family which saved for buying a television, air conditioner and fridge can now afford all in the same month due to ease of credit and flexibility of EMIs. To sum up, discerning social economic trends leading to a change in the mindset of the Indian consumer have led to: Increased wealth creation Higher aspiration lifestyle goals Market linked avenues for investment such as equity markets Uncertainty of investment returns due to inherent volatility in the asset class Much lesser time to manage the above

3. In the Present Phase

Hence, wealth management has become a critical need for every individual and the sooner one starts to plan his finances the larger the probability to achieve his lifetime goals. The growing importance of wealth management demands a great deal of importance in understanding the psyche of the Indian investor and how to meet their expectations. To understand the same, it is better to outline certain discerning changes in the mindset of the Indian investor over the last few years where we have seen a continuous bull run to the current day where the markets are continuously correcting and moving within a bandwidth:

 Objective Financial Advice - clients expect advice which is pertinent to them and without any conflict of interest. Clients would expect wealth managers to structure the best possible solution which are relevant to their financial situation. Creative solutions to financial problems - wealth managers are expected by clients to be knowledgeable individuals who can address the client concerns by stepping into their shoes. They must portray a broad array of sophisticated strategies to ensure best financial solutions which may come out by a mix and match of various asset classviz equity, debt, gold, real estate, art etc. Concepts must be explained to the client, before even recommending financial products. Advice on the complete individual balance sheet - wealth managers need to take a look at the overall balance sheet of any individual rather than focus on deploying the current available corpus. Decisions taken on the overall balance sheet of any individual will be more in line with the risk appetite of the client and help them meet their life term goals.

4. Trends in consumer attitudes and preference

Trends contd
Consistent delivery of services - a client would expect his wealth managers to be available for meetings and discussions on market movements and require a periodic review of his progress. This will help a client to track his progress and take effective decisions at the appropriate time interval. This requires a certain amount of hand holding on the part of the wealth manager and create conviction on his advice to the client. Long term view of relationship building - a wealth manager must also aim at managing the clients' wealth for generations to come and that can only happen if there is a deep understanding of the entire situation of the client and his attitude towards risk and return. Relationship building approach helps to create a greater level of comfort for the client and helps the wealth manager to attain the position of a trusted financial advisor for the family as a whole. Just like a family doctor, family lawyer there must be a family wealth manager managing the family finances and acting as a Chief Financial Officer (CFO) to the client family.

5. In the Future Phase

Future evolution pattern of Wealth Management Industry would result into emergence of different structure of wealth management firms. Based on the changes in the psyche of the Indian investor, the following is the structure for the industry, which could be envisaged, with increasing complexity and demand for more integrated and specialized services with each level. From a generic level of Financial Planning to the overall family model firms which would bring to the client's table a boutique of tailor-made personalized concept: Structure 1 Financial Planning Firms that would be engaged in budget and cash flow forecasting, generic investment diversification and event driven financial planning etc Structure 2 Investment Advisory Firms which would be engaged in strategy and policy development, risk return assessment and tracking etc Structure 3 Wealth Advisory Firms which would focus on tax planning, estate planning, trust creations, execution of wills etc Structure 4 Family Wealth Management Firms which would be incorporating all the above structures plus provide special personalized focus on integrated financial planning in the overall financial context of the family, lifestyle management and goal orientation, trusteeship, risk management, strategic social investment (philanthropy), inter-generation wealth transfer and family continuity etc

Outlook of an Indian Investor

As Indians are creating wealth like never before and are becoming increasingly integrated with the global economy, an individual based on the complexity of his wealth and life time goals would approach a relevant firm from the above category, to bring a whole lot of efficiency and a fresh outlook to personal investments and money matters and to manage their wealth better. No doubt, professional wealth management firms complying certain self outlined benchmarks and run on well designed process with sophisticated service level commitments to their clients will be of great demand from now on by the aspiring Indian wealth creators.

Wealth Management in India

Trends, Analysis and Forecast (2010-2015) by MarketsandMarkets
Key findings from the report: HNWIs consist of 8% of the total wealthy households but constitute around 45% of the total wealth. Among the total HNWIs in India, only 20% of the HNWI take advice from the financial advisors. Advisory asset management and Tax planning is the most demanding among HNWIs followed by Financial Planning Investment in Fixed income products accounts for maximum percentage of HNWI investment in various investment products. Business income contributes the maximum (39%) wealth for HNWIs in India and requires solutions which can help to protect wealth and risk mitigation The majority (69%) of the HNWI population lies in the age group of 30-55 and they prefer wealth accumulation, and risk mitigation and require sophisticated products which can offer high returns in a short period of time. Indias HNWIs wealth will grow by a CAGR of 12% and it will reach close to $949 billion by 2015. Wealth manager now started focusing on Tier II and Tier III cities. Top players in India wealth management Industry includes ICICI, HDFC, and Kotak

Instruments
Equity Linked Investments Structured Savings Products Structured Investment Products and Derivatives Foreign Exchange Mutual Funds Alternative Investments like private equity, arts, and precious metals

Instruments....
Bank - Savings Bank, Recurring Deposits, Fixed Deposits, PPF Post Office - Savings Bank, Recurring Deposit, Fixed Deposits, MIS, PPF Stock Market Primary Market IPO and FPO Secondary Market NSE / BSE / Private Purchases / Gold Bees Equity and Debt Insurance - LIC Mutual Funds - One time, SIP, Gold ETFs Office Provident Fund (Statutory, Voluntary), Gratuity, Super Annuation Employees Welfare Society Advances and Loans

Private - Chit Funds, Gold Schemes, Hire Purchase

Stamps and Coins Commodities Gold and Silver, Pulses and Cereals

Major Players
Axis Bank Citi Bank HDFC

ICICI
Kotak Mahindra Bank State Bank of India Union Bank of Switzerland Religare Future Capital Holdings (FCH) Reliance Money

Wealth Management
the term originated in USA in 1990s Advanced form of financial planning providing individuals and families with services such as Private banking Estate planning Asset management Taxation advice Portfolio management

Wealth Management Services Broad Spectrum

Portfolio Management and Portfolio Rebalancing Investment Management Trust and Estate Management Private Banking and Financing Tax Advice Asset management Client advisory services Distribution of financial products

Financial Planning and Wealth Management

In financial planning, individual service provider known as Financial Planner looks in to the financial needs and advises on asset accumulation [investment products] In wealth management, a team of professionals co ordinate a clients investment, tax and Estate plans in to a comprehensive plan of distribution based products Web to achieve the personal goals ofDefinition clients

Wealth Management
Managing investors funds Aims at optimizing returns to suit the risk appetite of the investor Non-Fund Business Commission based revenue for banks One to one relationship clients handled by the Relationship Manager (RM)

Evolving over time

10 years ago wealth management rolling out the red carpet was the issue Today core subject is much more concerned with delivering profits and substance However Risk-Reward correlation gains over simply achieving greatest possible capital gain

Wm- drivers
Emerging wealth due to economic growth Better employment terms Disposable surplus Knowledge gaps Time factor Ageing population Technology platform Industry regulations

ULTR HIGH NET WORTH

VH NET WORTH

$5mn
HIGH NET WORTH $ 1mn+ AFFLUENT $100,000 INTERNATIONAL WEALTH PYRAMID

ULTR HIGH NET WORTH $1mn+ VH NET WORTH $400,000-$1MN HIGH NET WORTH $100,000-$400,000 AFFLUENT< $100,000 INDIAN WEALTH PYRAMID

Elements of Wealth Management

ACCUMULATION CONSERVATION DISTRIBUTION PROTECTION

Options for HNIs in India

Mutual Funds Bank FDRs Equity Insurance Real Estate Bullion Post Office Savings Public Provident Fund RBI Bonds

Indian Art & Art Auction Market

Indian Art: Increasing Returns

Source: ArtsIndia.Com

Auction Theory & Review of some work on Price formulation & Indices
Four Auction Types Revenue Equivalence Theorem Law of One Price Masterpiece Effect Lifecycle of an artist Hedonic & repeat-sale price indices

Key Factors impacting art prices

Four critical factors related to art auctions that determine and/or impact the the art market:
Competition/collusion between art auction houses Role of Estimates & Experts Burning Effect and Reserve Price and Upper and Lower price in an auction

Key Factors impacting art prices

Four critical factors related to art auctions that determine and/or impact the the art market:
Competition/collusion between art auction houses Role of Estimates & Experts Burning Effect and Reserve Price and Upper and Lower price in an auction

Case Study : Saffronart

Entered art auction market at the cusp of aggressive growth period of Indian art
People were rushing to horde investment-grade artwork and work of famous artists Emerged as #1 player in Indian Art Auction market First to introduce mini-auctions

Optimally balanced on-line and physical balance

Superior sourcing of art-work Brought in perceived professionalism in Indian art

trade and significant price transparency in the

art

market

Buying Behavior of Indian Art Buyers

Buying Behavior (Contd.)

Buying Behavior (Contd.)

Buying Behavior Survey: Summary

Art Buyers today are coming from all demographics

People buying art with investment as primary motive form about one-third of overall buyers and there is an overwhelming agreement that returns on Indian art have been excellent

High demand for Investment-grade art-work esp of known names with signature styles etc
Numerous art-funds have come up (ABN-AMRO-Osian, Sakshi etc)

Nevertheless, more that half the people surveyed bought art for aesthetics and viewing pleasure only
No correlation between buyers income and motivation to buy

Indian art market is still in its nascent stage

Classic auction lots i.e. unique, rare (typically auctionable) pieces are only a fraction of what is being put under the hammer today, skewing the data Art auction mechanism in India is yet to mature the sophistication for price formulation in the auction market is missing Lot of small, unorganized players today as entry barriers have been very low thus far

Albeit, is fast maturing

Post market maturity, we believe that the art auctions would then move into their pure classic form

 As markets mature,
Volume of art sales through non-auction means (physical/online dealer/galleries, curated exhibitions etc) would be significantly higher than growth in art sales through auctions
The unprecedented returns Indian Art has given in the past 5-7 years would see stabilization Overall art eco-system in India (from colleges to galleries to exhibitions to experts to professional researchers to buyers to re-sellers to auctions etc) would develop significantly Competition would be fiercer, but with the current growth in number of players, there would be high probability of consolidation and collusion

Customer decision-making
Mid-way Cases High Interventi on Low Interventio n
Decision by client but strong advice from the Banks RM

Extreme Solutions
Discretionary portfolio management all decisions by bank

All decisions made by client but bank executes

Both Investment decision and trading by client & bank acts as the advisor.

Banks

Advantages of Wealth Management

Professional Management Diversification Convenient Administration Return Potential Low Costs - Brokerage Liquidity FDRs vs Real Estate Transparency Flexibility ease of switching

Disadvantages
Inadequate Investment Performance Risk of changes in portfolio which do not correspond to the investors preferred profile Experienced customers taking over the banks advisory function Too much switching of Portfolio contents to generate fees

Case Study: ICICI Bank

Investment monetary limit of 5 lacs
RBI Bonds Insurance Gold Nabard bonds, Infrastructure Bonds Mutual Funds

Asset Management 5 - 50 lacs Wealth Management above 50 lacs

Investments @ ICICI Bank

ICICI bank Bonds GOI bonds IPOs Mutual Funds ICICI Bank Pure Gold Equity trading Through
ICICIDirect

Asset allocation
Process of determining optimal allocations for the broad categories of assets that suit the investment time horizon and risk tolerance Dividing investments among different kinds of assets, such as stocks, bonds, real estate and cash Optimize the risk/reward tradeoff The younger you are, the more risk you can afford to take. As you get older and closer to retirement, you'll probably be less interested in the growth of your portfolio and more interested in capital preservation

One rule of thumb that many Financial Advisors use Subtract your age from 100 to determine the percentage of investments to invest in stocks. If you're 45, then you might put together a portfolio that's 55 percent stocks (risky avenues) and 45 percent bonds and cash (risk averse avenues) The Annual Income and their financial commitments in the near future are considered before suggesting any schemes for the Investor.

10% 0% 0% 0% 10%

Aggresive

Mutual Funds Equity 35% Insurance Bank FDR's Real Estate

20%

Bullion Post Office Savings 25% RBI Bonds

Balanced

20%

Mutual Funds 25% Equity Insurance Bank FDR's Real Estate Bullion 20% 10% Post Office Savings RBI Bonds

10% 0% 0% 15%

Conservative

20%

5% 5%

Mutual Funds Equity 20% Insurance Bank FDR's Real Estate Bullion Post Office Savings RBI Bonds

10% 0% 20% 20%

<AGILITY <INNOVATION <KNOWLEDGE AND <SUPERIOR CUSTOMER CARE

Will separate leaders from followers

Thank You