W E A LT H M A N A G E M E N T

BASICS
Dr. JAIDEEP SHARMA
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CONTENTS
o Meaning Of Wealth Management

o Need Of Wealth Management And Financial Planning

o Wealth Management Process

o Developing Personal Financial Goals

o Financial Planning Lifecycle

o Application Of Concepts Of Time Value Of Money In Financial Planning

And Decision Making
 INTRODUCTION
Wealth management is a comprehensive and specialized financial service that
focuses on helping individuals, families, and organizations manage their wealth,
assets, and investments to achieve their financial goals and objectives. It
encompasses a wide range of services and strategies designed to optimize and
grow one's financial resources while minimizing risks. Wealth management
typically goes beyond basic financial planning and includes a more personalized
and holistic approach to wealth preservation and growth.
 MEANING
Wealth management is a part of financial services that assists you in
managing your money and provides you with advisory services. Wealth provides
you with money that can be used to realize your financial and personal goals. It
aids you to sustain life and remain in good stead even when you are no longer
employed. Wealth can get eroded, i.e., reduce in value, over time, if parked on the
wrong avenues. Proper wealth management can help plan your money better so
that it continues to grow.
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C O M P O N E N T S O F W E A LT H
MANAGEMENT
Financial
Planning
Family
Investment
Governance
Management
and Education

Retirement Risk
Planning Management

Estate Planning Tax Planning

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N E E D O F W E A LT H M A N A G E M E N T
AND FINANCIAL PLANNING
• Wealth management and financial planning are essential for individuals,
families, and organizations for several important reasons:

 Goal Achievement  Debt Management

 Risk Mitigation  Charitable Giving
 Wealth Growth  Next-Generation Education
 Tax Optimization  Business Succession
 Financial Security  Peace of Mind
 Retirement Planning
 Estate Planning
 Education Funding
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 Goal Achievement: Wealth management and financial planning help individuals and families
define their financial goals, whether it's retirement, homeownership, education, or charitable
giving. These services create a roadmap for achieving those objectives by outlining a clear plan
of action.
 Risk Mitigation: Through risk analysis and appropriate strategies, wealth management and
financial planning can help mitigate various financial risks, including market volatility,
unexpected medical expenses, disability, and unexpected loss of income.
 Wealth Growth: Effective wealth management involves investment strategies that seek to grow
assets over time. By selecting the right investment vehicles and regularly monitoring
performance, individuals can optimize their returns and achieve their financial goals more
quickly.
 Tax Optimization: Professionals in these fields are well-versed in tax laws and can help clients
reduce their tax liabilities, potentially increasing their after-tax returns. This can include tax-
efficient investing, retirement account contributions, and estate tax planning.
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 Financial Security: Financial planning and wealth management can provide peace of mind by
ensuring that individuals have a safety net in place. Whether it's an emergency fund for
unexpected expenses or an insurance strategy to protect against unforeseen events, these
services help safeguard financial security.
 Retirement Planning: With the aging population and the shift away from traditional pension
plans, retirement planning has become critical. Wealth management and financial planning
help individuals set and achieve retirement goals, so they can maintain their desired lifestyle
during their retirement years.
 Estate Planning: Ensuring that assets are transferred efficiently to heirs or beneficiaries and
minimizing estate taxes is a crucial aspect of financial planning. This can help preserve family
wealth for future generations.
 Education Funding: Planning for educational expenses, such as college tuition, is a priority
for many families. Financial planners can help clients save and invest for these goals,
potentially reducing the burden of student loans.
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 Debt Management: Effective wealth management and financial planning can help individuals
manage and reduce their debt, saving them interest costs and improving their overall financial
health.
 Charitable Giving: Wealth management and financial planning also include strategies for
philanthropy. These services help clients give back to causes they care about while maximizing the
tax benefits of charitable donations.
 Next-Generation Education: Wealth management often involves educating the next generation
about financial responsibility, wealth preservation, and family values associated with money.
 Business Succession: For business owners, planning for the transition of a business is crucial.
Wealth management can help create a strategy for the smooth transfer or sale of the business,
ensuring the owner's financial security.
 Peace of Mind: Ultimately, having a comprehensive financial plan and access to wealth
management services provides individuals and families with peace of mind. Knowing that they
have a plan in place to achieve their financial goals and a team of professionals to guide them can
reduce financial stress and anxiety.
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W E A LT H M A N A G E M E N T
PROCESS

The wealth management process is iterative and adapts to the evolving financial
circumstances and goals of the client. It emphasizes a holistic and client- centred
approach, considering not only investment management but also comprehensive
financial planning and the pursuit of financial well-being. Wealth managers and
financial advisors play a crucial role in guiding clients through this process to
help them achieve their financial objectives while mitigating risks and
maximizing opportunities.
• The wealth management process is a structured approach that financial professionals use to help
individuals, families, and organizations manage their financial resources effectively. This process
typically consists of several key steps:

FINANCIAL DEVELOPING A INVESTMENT

CLIENT DISCOVERY
ASSESSMENT FINANCIAL PLAN STRATEGY

TAX PLANNING ONGOING

REPORTING AND
AND MONITORING AND IMPLEMENTATION
COMMUNICATION
OPTIMIZATION: ADJUSTMENTS

ADJUSTING THE
PLAN
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 Client Discovery:
 Initial Meeting: The wealth management process begins with an introductory meeting
between the client and the financial advisor or wealth manager. During this meeting, the
advisor seeks to understand the client's financial situation, objectives, risk tolerance, and
any unique circumstances.
 Establishing Goals: The advisor works with the client to define specific financial goals, such
as retirement planning, wealth preservation, education funding, and estate planning.
 Financial Assessment:
 Comprehensive Financial Review: The advisor conducts a thorough evaluation of the client's
current financial situation, including assets, liabilities, income, and expenses.
 Risk Assessment: A risk assessment helps determine the client's risk tolerance and
investment preferences. This is crucial in designing an investment strategy that aligns with
the client's comfort level.
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 Developing a Financial Plan:

 Goal Setting: The advisor collaborates with the client to prioritize financial goals and establish
realistic timelines for achievement.
 Creating a Financial Plan: Based on the client's goals and risk profile, the advisor develops a
customized financial plan that includes investment strategies, retirement planning, tax
optimization, and other relevant elements.
 Investment Strategy:
 Asset Allocation: The advisor creates an investment portfolio by allocating assets across various
classes, such as stocks, bonds, real estate, and alternative investments, based on the client's
risk tolerance and objectives.
 Investment Selection: Specific investment products and vehicles are chosen to implement the
asset allocation strategy. This may include mutual funds, exchange-traded funds (ETFs),
individual stocks, and more.
 Diversification: Diversification is employed to spread risk and enhance the potential for returns.
The advisor selects a mix of investments to balance risk and reward.
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 Implementation:
 Execution of the Plan: The client and advisor work together to put the financial plan into action.
This may involve opening investment accounts, transferring assets, and initiating various financial
transactions.
 Ongoing Monitoring and Adjustments:
 Regular Review: Wealth managers continuously monitor the performance of the client's
investment portfolio, economic conditions, and any changes in the client's financial situation.
 Portfolio Rebalancing: If necessary, the advisor may recommend adjusting the asset allocation to
maintain the desired risk level or take advantage of investment opportunities.
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 Tax Planning and Optimization:

 Ongoing Tax Management: Wealth managers help clients optimize their tax strategies by reviewing
tax-efficient investment strategies and identifying potential tax-saving opportunities.
 Estate Tax Planning: Estate planning is an ongoing process to ensure that the client's assets are
transferred efficiently to heirs while minimizing estate taxes.
 Reporting and Communication:
 Regular Updates: Advisors keep clients informed about their financial progress with periodic reports
and meetings.
 Communication: Clients can contact their advisors at any time for guidance, questions, or adjustments
to their financial plan.
 Adjusting the Plan:
 Life Changes: When significant life events occur, such as marriage, divorce, the birth of a child, or
changes in employment, the financial plan may need to be adjusted to reflect these changes.
 DEVELOPING
PERSONAL FINANCIAL
GOALS
Developing personal financial goals is a crucial step in achieving financial
stability, security, and success. Setting clear and meaningful financial goals can
provide direction and motivation for your financial decisions and actions.
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• How To Develop Personal Financial Goals:

1. Self-Assessment
2. Define Your Values and Priorities
3. Short-Term and Long-Term Goals
4. Make Your Goals SMART
5. Prioritize Your Goals
6. Create a Financial Plan
7. Break Down Your Goals
8. Review and Adjust
9. Monitor Your Progress
10. Seek Professional Guidance
11. Stay Motivated
12. Stay Committed
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 Self-Assessment:
 Start by taking a close look at your current financial situation. Gather information about your
income, expenses, savings, debts, assets, and liabilities. Understanding your financial baseline is
essential for setting realistic goals.
 Define Your Values and Priorities:
 Consider your values, lifestyle, and long-term aspirations. Think about what is most important to
you, both in the short term and over the course of your life. These values and priorities will guide
your financial goals.
 Short-Term and Long-Term Goals:
 Distinguish between short-term and long-term goals. Short-term goals are typically achievable
within a year, while long-term goals may take several years or even decades to reach. Examples
of short-term goals include building an emergency fund or paying off credit card debt, while
long-term goals might include retirement planning or buying a home.
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 Make Your Goals SMART:

 Use the SMART criteria to ensure your goals are Specific, Measurable, Achievable, Relevant,
and Time-bound.
• Specific: Clearly define what you want to achieve.
• Measurable: Set specific numbers or indicators to track your progress.
• Achievable: Ensure that your goals are realistic and attainable given your current
financial situation.
• Relevant: Make sure your goals align with your values and priorities.
• Time-bound: Set a target date for achieving each goal.
 Prioritize Your Goals:
 Not all goals are equal in importance. Rank your goals by priority, considering which ones you
want to achieve first and which can wait.
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 Create a Financial Plan:

 Develop a comprehensive financial plan that outlines the steps you need to take to reach
your goals. This plan should include strategies for income, savings, investments, debt
management, and budgeting.
 Break Down Your Goals:
 Divide your long-term goals into smaller, more manageable milestones. For example, if your
long-term goal is to save $1 million for retirement, set yearly or quarterly savings targets.
 Review and Adjust:
 Periodically review your goals and financial plan. Life circumstances and financial priorities
can change, so be prepared to adjust your goals and strategies accordingly.
 Monitor Your Progress:
 Regularly track your progress toward your goals. This can involve reviewing your budget,
investment portfolio, and debt reduction plan. Make adjustments if you're falling behind or
if your financial situation changes.
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 Seek Professional Guidance:

 Consider consulting with a financial advisor or planner who can provide expertise and
guidance in developing and managing your financial goals.
 Stay Motivated:
 Maintain motivation by reminding yourself of the reasons behind your goals and the
benefits they will bring. Celebrate your achievements along the way to keep yourself
motivated.
 Stay Committed:
 Achieving financial goals may require discipline and sacrifices at times. Stay committed to
your plan and adjust your spending and saving habits as needed to meet your objectives.
 FINANCIAL PLANNING
LIFECYCLE
Financial planning is a lifelong process that involves setting and achieving
various financial goals and objectives throughout different stages of life. the
financial planning lifecycle, individuals and families need to adapt and adjust
their financial plans to accommodate changing circumstances, needs, and goals.
Regular reviews with a financial advisor can help ensure that the plan remains on
track and aligned with evolving objectives. Additionally, seeking professional
advice at each stage can provide valuable guidance for making informed financial
decisions and addressing complex financial matters.
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• The Financial Planning Lifecycle Can Be Broken

Down Into Several Key Stages:
ESTABLISHING
FINANCIAL
FOUNDATIONS
(EARLY
ADULTHOOD):

LATER LIFE CAREER AND

(AGING AND INCOME
HEALTH GROWTH (MID-
CONCERNS): ADULTHOOD):

FAMILY AND
LEGACY AND HOUSEHOLD
END-OF-LIFE PLANNING
PLANNING: (STARTING A
FAMILY):

PRE-
RETIREMENT
RETIREMENT
(POST-
(APPROACHING
RETIREMENT):
RETIREMENT):
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 Establishing Financial Foundations (Early Adulthood):

• At this stage, individuals are typically just starting their careers and may be focused on achieving
financial stability.
• Key goals may include setting up a budget, building an emergency fund, paying off student loans,
and establishing good financial habits.
• Establishing a basic financial plan and understanding the importance of saving for the future is
crucial.
 Career and Income Growth (Mid-Adulthood):
• As individuals progress in their careers, they often experience an increase in income and financial
responsibilities.
• Key goals may include saving for major life events (e.g., marriage, buying a home), investing for
retirement, and managing debt.
• Developing a diversified investment portfolio and optimizing tax strategies become important.
 Family and Household Planning (Starting a Family):
• During this stage, many individuals and couples may start families and have additional financial
obligations.
• Key goals may include setting up college savings accounts for children, increasing life and health
insurance coverage, and creating or updating wills and estate plans.
• Balancing short-term needs with long-term objectives is crucial.
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 Pre-Retirement (Approaching Retirement):

• As individuals near retirement age, they often focus on ensuring they have sufficient savings and
investments to support their post-work years.
• Key goals may include maximizing retirement savings, evaluating Social Security and pension
options, and estimating retirement expenses.
• Creating a retirement income plan and assessing healthcare and long-term care needs are essential.
 Retirement (Post-Retirement):
• In retirement, the focus shifts to maintaining financial security and enjoying a comfortable lifestyle.
• Key goals include managing retirement income, making withdrawals from retirement accounts, and
adjusting investment strategies.
• Healthcare planning, estate distribution, and exploring potential sources of additional income are
important considerations.
 Legacy and End-of-Life Planning:
• As individuals age, they may consider their legacy and end-of-life planning.
• Key goals may include ensuring their assets are distributed as per their wishes, reducing estate
taxes, and exploring charitable giving or philanthropic efforts.
• Reviewing and updating estate plans, trusts, and beneficiaries are critical.
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 Later Life (Aging and Health Concerns):

• In later life, individuals may face health-related challenges and potentially require long-
term care.
• Key goals include addressing healthcare costs, ensuring adequate care, and possibly
transferring assets to heirs.
• Long-term care insurance, Medicaid planning, and addressing potential cognitive decline
are important aspects.
T I M E VA L U E O F M O N E Y
“Time value of money” means that the value of a unit of money is different in
different time periods. The value of a sum of money received today is more than
its value received after some time. Conversely, the sum of money received in
future is less valuable than it is today. In other words, the present worth of a rupee
received after some time will be less than a rupee received today. The time value
of money can also be referred to as time preference for money.
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• The Time Value of Money (TVM) is a fundamental financial concept that plays a crucial
role in financial planning and decision-making. TVM recognizes that the value of money
changes over time due to factors such as inflation, interest, and the opportunity cost of
using funds. Here are some key applications of TVM in financial planning and decision-
making:
1. Investment Planning
2. Retirement Planning
3. Loan and Mortgage Decisions
4. Budgeting and Savings
5. Cash Flow Management
6. Capital Budgeting
7. Inflation Considerations
8. Debt Management
9. Estimating Future Expenses
10. Lease vs. Buy Decisions
11. Estate Planning
12. Risk Management
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Time Value
of Money

Compounding or Discounting or
Future Value Present Value

(A) Compounding or Future Value Concept :– Under this method of compounding,

the future values of all cash inflows at the end of the time horizon at a particular
rate of interest are found. Interest is compounded when the amount earned on an
initial deposit becomes part of the principal at the end of the first compounding
period.
Example :– If Mr. A invests Rs. 1,000 in a bank which offers him 10% interest
compounded annually, he as Rs. 1,100 in his account at the end of the first
year. The total of the interest and principal Rs. 1,100 constitutes the principal for
the next year. He thus earns Rs, 1,210 for the second year. This becomes the
principal for the third year and so on.
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3
n

(B)Discounting or Present Value Concept :– As per this concept, rupee one of

today is more valuable than rupee one a year later. The reason for more value of
rupee today than a rupee of future is interest. Discounting is the process of
determining present values of a series of future cash flows.
Example :– If Mr. X, depositor expects to get Rs. 100 after one year at the
rate of 10%, the amount he will have to forgo at present is Rs. 90.90 at present.
Thus, it is present value of Rs. 100.
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W H AT I S T H E T I M E VA L U E O F
MONEY?
Time Value of Money (TVM) is considered to be a core principle in financial management. TVM is a
concept that states that a specific amount of cash is worth more in the present than it will be in the
future. It is because of the money’s potential earning capacity. In other words, if the money is invested
today, it can grow in the future to be a higher value. TVM can be used to identify the future amount or
to identify the present value of the future amount. Therefore, TVM plays a crucial role in not just
investment decisions but also financial decisions.
For example, assume that an individual has the opportunity to receive $1,000 today or a year later. By
choosing to receive the $1,000 today and depositing it in a savings account for a year at a 5% interest
rate, the value becomes $1,050 a year later. Therefore, by choosing to accept the money today, the
individual earns an excess of $50. By choosing to receive $1,000 a year later, the individual loses the
opportunity to earn $50. The excess amount lost by choosing to receive the same sum in the future is
called the opportunity cost.
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CHARACTERISTICS
Some of the characteristics are
 Present Value of Annuity (PVA)
 Future value (FV)
 Time Value of Money (TVM)

The present value of annuity refers to either the current amount held or the discounted value of the future
amount. On the other hand, future value refers to the amount earned by investing the present value for a
specific period. In the above example, $1,000 is the PVA while $1,050 is the FV. Both characteristics are
extremely important in understanding the time value of money.

 Interest or discount rate and TVM

• Interest rate is used to calculate the excess amount earned by investing the amount available today. The
interest rate on investment could be either simple interest or compound interest. On the other hand, the
discount rate refers to the amount used to discount the future value to identify the present value of funds.
Both interest rate and discount rate are ideally the same however the term ‘interest rate’ is used to calculate
the FV while the term ‘discount rate’ is used to calculate the PV.
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 Compounding periods and TVM

• To identify the accurate future value of money, it is necessary to know not just the present value and
interest rate but also how the interest is compounded. Interest could be compounded monthly,
quarterly, semi-annually, or annually. The future value of the investment will be high if the number of
compounding periods is more. The interest rate must be adjusted in the formula as per the number of
compounding periods. The compounding period also refers to the number of interest installments paid
or received in the investment. It is generally referred to as PMT as it is used in calculating the
periodical interest payments.

 Time period and TVM

• The number of years the investment is made is called the time period. In simple terms, the amount of
time it takes for the present value to become a future value is called the time period. It should not be
confused with compounding periods. While the time period indicates the lifetime of the investment
whereas the compounding periods refer to the number of times interest is paid each year.
THANK YOU