Wealth Management Today 2

CONTENT AREAS

Wealth Management

Wealth Management Services in India

Key Trends Shaping the Future of Wealth Management

Regulatory Environment

Competencies of Successful Wealth Advisors

The Wealth Management Process

Building Your Team of Specialists

Describe the role and responsibilities of a Portfolio Manager in India

Types of Portfolio Manager in India and their Registration Requirements

SEBI Requirements on Performance Disclosure

LEARNING OBJECTIVES
By the end of this lesson, you should be able to:

1 | Define the wealth management industry.

2 | Explain how the wealth management industry is shaped by wealthy clients and their needs.

3 | Describe the different wealth management channels business models.

4 | Discuss the key trends that are influencing the wealth management industry.

5 | Identify the key regulatory initiatives affecting the wealth management industry.

6 | Identify the competencies and desired attributes of a successful wealth advisor.

7 | Describe the wealth management process.

8 | Explain how wealth advisors can work effectively with a team of specialists.

9 | Describe the roles and responsibilities and different types of PMs in India.

10 | Explain the SEBI requirements for performance disclosure.

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KEY TERMS

Key terms appear in bold text in the chapter.

Association of Mutual Funds in India full-service brokerages

competition between channels portfolio manager

competition in the mass market private wealth management

competitive pricing Reserve Bank of India

cryptocurrency robo-advisor

fintech Securities and Exchange Board of India

Foreign Account Tax Compliance Act

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INTRODUCTION
In today’s competitive investment advisory landscape, you must have a clear business strategy to succeed as a
wealth manager. With the ever-increasing availability of new and better technologies, clients have access to a great
deal more information and services than they did only a few years ago. Clients expect more from their advisors than
the mere ability to recommend and execute trades. The services they look for are holistic wealth management and
access to specialists. As the wealth management industry evolves to meet the more complex needs of India’s broad
population, your knowledge must also evolve.
This lesson provides an introduction to wealth management as a distinct practice in today’s financial services
environment. You will learn about the key trends in the industry and the skills and traits you need to be a
successful wealth advisor. We also explain how changes in the regulatory environment are likely to affect advisors
in the wealth management industry. Furthermore, we provide a process with which you can create a financial
plan and manage the diverse wealth management needs of your clients. Finally, we explain the importance of
assembling a team of specialists you can rely on to help provide holistic wealth management services to your
clients.
Before you begin, read the scenario below, which raises some of the questions you may have as you begin your
advisory practice. Think about these questions, but don’t worry if the answers don’t come easily. At the end of this
lesson, we will revisit the scenario and provide answers that summarize what you have learned.

BREAKING INTO THE BUSINESS

You are a new advisor presently establishing yourself in your community. As you consider your strategy to lay
the foundation and grow your practice over time, you know you must decide which kinds of clients would be
best to target. Drawing on your experiences, you understand that the key to growing your business is to identify
those clients who can best benefit from your broad background and financial planning expertise. How you
engage these clients and use your personal attributes to attract additional clients will be crucial to your success.
Consider the following questions:
• How would you describe your role as an advisor in today’s wealth management industry?
• Who are your potential clients and what do they expect from you as their wealth advisor?
• What is the impact of the key demographic, industry, and technology changes on the role of today’s wealth
advisor?
• What are the traditional and emerging attributes that you need to have or need to develop to fulfill the needs of
today’s wealth management client?

WEALTH MANAGEMENT
The term wealth management is widely used by various financial institutions to describe an approach to
managing the financial affairs of clients holding significant assets. The approach consolidates the broad range
of financial services that these institutions offer to high net worth (HNW) clients. The Reserve Bank of India
defines this term in its Draft Guidelines on Wealth Management/Marketing/Distribution Services Offered by Banks
as follows:1

1
Reserve Bank of India, Guidelines on Wealth Management /Marketing/Distribution Services offered by Banks—Draft Guidelines, [Link]/
scripts/bs_viewcontent.aspx?Id=2691, accessed February 28, 2019.

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The term Wealth Management comprises a number of aggregated financial services. The following categories
of services offered by banks in India to their customers are generally included in the term “Wealth Management
Services” (WMS):
i. Referral Services;
ii. Investment Advisory Services (IAS); and
iii. Portfolio Management Services (PMS).

In addition to the above services, banks also market and distribute third party financial products, which, though not
part of WMS, is an allied activity.
India’s prominent life insurance company HDFC Life also provides a definition for the term wealth management, as
follows:2
Simply put, wealth management is about offering a solution to the client that helps him make the most of his money.
The wealth manager (either individually or through his team) has the resources to deliver a full range of financial
services and products to the client in an advisory capacity.
In theory, a wealth manager can provide almost every single financial product. In practice however, it is common to see
wealth managers specialize in services and products. For instance, one wealth manager may specialize in recommending
portfolio management services (PMS), while another may concentrate on offering life insurance solutions or different
investment types.
Since wealth management is meant to be client-centric, a competent and honest wealth manager begins with the
client’s needs. He analyzes what the client aims to achieve and why, the wealth at his disposal and the financial
products or services that can best help him achieve those goals. Good wealth management is purely advisory; it
does not compel the client to take a particular decision.

THE WEALTH MANAGEMENT CLIENT

The most common (but not universal) measure of HNW is the value of assets available for investment. An HNW
client is an individual or family that owns at least Rs, 2 crores of investable assets. The term investable assets
describes liquid assets only; it does not include real estate or equity in a private company. Nor does it consider
short- or long-term liabilities that, in determining net worth, would be offset against the client’s total assets.
In recent years, there has been tremendous growth in the number of HNW clients in India and a corresponding
growth in opportunity for financial institutions. Consequently, those institutions are creating more effective and
profitable approaches to integrate the various channels that cater to this client base. This effort is most apparent
within the large firms.
For example, private banking now largely operates with or under private wealth management (PWM) divisions
that offer integrated services to HNW clients. Furthermore, full-service brokerages (FSB), particularly those owned
by banks, increasingly target HNW clients. They are now being structured to offer a full range of products and
services that cater to this segment. In some cases, these wares include credit and treasury products offered through
referral programs with the commercial banks. Finally, even investment advisor firms are adding increased expertise
in trust services and advanced financial planning to serve the HNW market.
The major occupational groups that make up the HNW client segment are entrepreneurs, professional service providers,
senior business executives, and professionals in the media, entertainment, and sports industries. Included in this
segment are wealth inheritors and wealthy retirees. Individuals from each of these groups bring particular challenges and
problems that you should know how to address as a wealth advisor. In fact, it is generally accepted that the two fastest-
growing groups within the segment are entrepreneurs and senior business executives, two sub-segments with dissimilar

2
“What is Wealth Management?” HDFC Life, [Link]/insurance-knowledge-centre/investment-for-future-planning/what-is-wealth-
management, accessed February 28, 2019.

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financial goals. There is also a growing trend among wealth management firms operating in India to cater to the lucrative
segment of the non-resident Indian (NRI) clientele by offering them tailored products and services. The total number of
NRI and people of Indian origin is estimated at 29 million globally, with a combined wealth estimated at US$1 trillion.
As Figure 2.1 shows, India’s list of millionaires has more than doubled in the last 10 years and the numbers are only
projected to grow at an accelerated pace in the next decade or so. Research conducted by the Johannesburg-based
market research group New World Wealth found that India will have 950,000 HNW individuals by 2027, up
almost 190% from 330,000 in 2017. In 2007, there were 124,000 HNW individuals in India. In 2017, these HNW clients
held $3.9 billion, or 48% of India’s estimated $8.2 billion wealth, according to the report by New World Wealth.

Figure 2.1 | Number of Millionaires In India 2007 to 2027

1.0 million high-net-worth individuals

0.8

0.6

0.4

0.2

0
2007 2017 2027*
Data: New World Wealth, *forecast

CLIENT-DRIVEN CHANGES IN THE WEALTH MANAGEMENT INDUSTRY

The changing nature of the HNW demographic has helped to shape the wealth management industry’s offerings.
These changes have resulted in a broader market for wealth management, a wider range of services available, and
deeper advisory relationships with clients.

BROADER MARKET FOR WEALTH MANAGMENT

Wealth management service providers do not focus solely on HNW clients. They also target market segments that have
the potential to quickly grow their investable assets and become HNW clients. Two client groups in particular have this
potential: mass affluent families growing their wealth and selected individuals such as recently graduated professionals.
In India, the mass affluent segment is increasing at a rapid rate. These clients are looking for new investment
opportunities, as their attention shifts from basic subsistence to stabilizing and growing income. Wealth managers are
also targeting those HNW clients with the potential to become highly favoured ultra-high net worth investors.

WIDER RANGE OF WEALTH MANAGEMENT SERVICE OFFERINGS

Wealth management today encompasses much more than the provision of investment management solutions to
wealthy clients. In 2004, the IDA Wealth Watch3 defined wealth management as something that “integrates the
provision of financial instruments and advisory services in assisting clients in the accumulation, preservation and
transfer of wealth throughout the life cycle.” Much of this definition still has relevance today.

3
The IDA Wealth Watch is a publication of the Investment Dealers Association of Canada, one of the predecessor organizations that joined
together to become the Investment Industry Regulatory Organization of Canada (IIROC).

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To provide a full range of services, wealth advisors call on specialists in related fields, including risk management,
investment management, tax planning, and estate planning. Wealth advisors integrate the recommendations of
these experts into a coherent wealth plan tailored to meet their clients’ needs. Many large financial institutions have
created in-house teams of specialists to support their advisors.

DEEPER CLIENT-ADVISOR RELATIONSHIPS

To meet the needs of clients, several service channels and business models have emerged, each with its own
approach to wealth management. What they have in common is the range of services they provide. Each service
channel strives to enhance and deepen relationships with HNW clients by offering a wide array of integrated
services.

WEALTH MANAGEMENT SERVICES IN INDIA

Service providers to HNW clients recognize that those client relationships tend to be more lasting and profitable
(in an absolute sense) than relationships with mass- and mid-market households. The relationships tend to be a
combination of fee-based and commission-based practices.

WEALTH MANAGEMENT CHANNELS

The three main channels dedicated to the HNW segment are briefly described in Table 2.1.

Table 2.1 | High Net Worth Segment Main Delivery Channels

Private wealth management The PWM channel consists of wealth management divisions of large banks and
wealth management specialist firms. It is one of the fastest-growing channels
in terms of clients and account balances.

Full-service brokerage The FSB channel is dominated by the large broking houses, often owned by
large private sector banks, which increasingly focus their product and service
offering on the HNW segment.

Investment advisors Most investment advisors offer only investment management. Others have
broadened their offering to include financial planning, along with tax planning
and estate services.

Among the three delivery channels, there is no single channel in India that dominates the HNW segment. However,
the majority of the wealth management business is with institutional firms.

WEALTH MANAGEMENT BUSINESS MODELS

Wealth management business in India is still evolving, with new entrants coming in the market on a regular basis.
The business models followed by both existing and new players in the wealth management segment are discussed
in detail below.

UNIVERSAL BANKS
Most foreign banks, as well as Indian private banks, have dedicated wealth management teams that cater to the
needs of their clients. Some even have a private banking division to service the ultra-high net worth customers and
provide tailored wealth management solutions. Most of these banks rely on commission income embedded in the
products, rather than charging advisory fees directly from the clients.

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The advantage that these banks enjoy is that they have a ready pool of a huge customer base whom the wealth
management team can cater to; hence, these wealth managers have less focus on acquiring new customers. These banks
also enjoy better brand visibility because of their presence through retail bank branches and media publicity. The wealth
management team generally consists of dedicated relationship managers who are backed by a dedicated service team.
The following products and services are offered by the banks through their wealth management and private banking
channels:
• Mutual funds
• Insurance
• Portfolio management services
• Alternative investments such as residential and commercial real estate services, real estate funds, and private
equity
• Deposits that are often offered at higher rates than normal

Some major foreign banks with a strong presence in the wealth management business are HSBC, Citibank, and
Standard Chartered. Some prominent Indian players are ICICI Bank, HDFC Bank, and Axis Bank.

WEALTH MANAGEMENT SPECIALIST FIRMS

These are large firms that focus on advisory service and offer managed or structured products to HNW clients.
Generally, these firms have high entry barriers, requiring clients to invest a threshold amount to avail their services.
These firms earn their revenues mainly from advisory services, although they may earn commission for distributing
other financial products such as mutual funds and exchange traded funds.
The following products are offered by wealth management specialist firms:
• Mutual funds
• Equity broking services
• Currency derivatives
• Portfolio management services
• Value-added real estate and property services

Some major wealth management specialist firms operating in India are BNP Paribus Wealth Management, Kotak
Wealth Management, IIFL Wealth & Asset Management, and Edelweiss Wealth Management.

GLOBAL INVESTMENT BANKS

Investment banking is a specialized service offered exclusively to corporate clients and ultra-high het worth
individuals. In the wealth management segment, they offer specialized services such as executing stock and bond
trading on behalf of clients, managing private equity funds, estate planning, succession planning, and advising on
taxation for complex deals.
Some major investment banks operating in India are Barclays Capital, JP Morgan, and DSP Merrill Lynch.

BROKERS AND DEALERS (ONLINE AND RETAIL)

These firms are primarily focused on brokerage services. They provide clients a platform to trade in direct equities.
However, most broking firms also distribute, and provide advice on, a variety of other financial products. They earn
their revenues through brokerage fees, as well as through advisory fees and commissions for distributing other
financial products. The following products are offered by brokers and dealers:
• Direct equity
• Mutual funds

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• Portfolio management schemes

• Derivatives
• Fixed income bonds
• Alternative investments such as real estate and structured investments in commodities and unlisted
debentures, and preference shares
• Private equity and venture capital

Major brokers in India include ICICI Securities, HDFC Securities, Motilal Oswal Securities Ltd, Angel Broking, and
Karvy Stock Broking Ltd.

PORTFOLIO MANAGEMENT
Apart from the legal and regulatory definition, which we will discuss later in this chapter, what is meant by the
term “portfolio manager”? Simply put, a portfolio manager is an individual, or a team of individuals, who advises
clients, which can be individuals or different types of institutional investors, on investments that are appropriate to
a client’s individual circumstances and investment objectives. A portfolio manager may make recommendations on
broad asset allocation decisions, such as the appropriate allocation to equities, bonds and cash, or they may make
specific recommendations on particular stocks or bonds, or do both.
A portfolio manager generally has the authority to make discretionary trades in securities on behalf of clients.
For anyone currently registered with the various securities commissions to act in a sales capacity for securities
or mutual funds, this authority is recognized as a special status. Securities regulators require a specific set of
qualifications in order for an individual to be registered as a portfolio manager.

FAMILY OFFICE
A family office manages wealth for super rich individuals and their families, and provides advisory services to these
clients. Its attention is focused toward preserving and increasing the wealth of super rich clients, which may include
properties, yachts, paintings, and other valuables. A family office also advises on non- financial matters, such as
philanthropy and education for the family’s younger generation.
There are single family offices (SFO) and multiple family offices (MFO). An SFO manages the wealth of a single
family and is generally headed by one of the family members, with support from a team of professionals; although,
it is becoming more common to hire a qualified professional as chief executive officer of an SFOs. An MFO manages
the wealth of more than one wealthy family and is fully managed by qualified professionals.
Some SFOs operating in India include PremjiInvest (Azim Premji), RNT Associates (Ratan Tata), Catamaran Ventures
(NR Narayana Murthy), and Ajay Piramal SFO. Some MFOs operating in India include Waterfield Advisors, Alpha
Capital, and Client Associates.

OTHERS
In India, a considerable amount of wealth management is conducted by independent financial advisors (IFA), who
have a loyal set of customers. IFAs provide customized services to their clientele and deal in products such as
mutual funds, bonds, insurance, and direct equity advisory. IFAs are normally commission-driven, and generally do
not charge their clients for their advisory services. However, IFAs are often limited by the depth of their knowledge
about the latest market trends and technology. As a result, more and more HNW clients are moving their business
to other established channels for management of their wealth portfolios.

SUMMARY OF HNW ADVISORY BUSINESS CHANNELS

Increasingly, HNW advisory business models feature common characteristics. As the market matures, successful
firms have to offer comprehensive wealth planning and discretionary investment management. Firms serving the
Indian HNW market recognize that their clients want service from experts. Those clients typically expect more

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than one individual to meet their needs in distinct, but related, areas. However, they will require their primary
relationship manager, in whichever channel they choose, to focus the relationship and provide access to experts
who are qualified to handle all aspects of their financial lives.
Given these expectations, and regardless of the channel, wealth advisors need both broad and specialized
competencies to serve the demands of the HNW segment. The depth of specialization may differ depending on the
channel, but you should have a standard base of knowledge to provide the complete range of services to the HNW
client.

KEY TRENDS SHAPING THE FUTURE OF WEALTH MANAGEMENT

The wealth management industry is currently characterized by several key demographic and technological trends.
The combined effects of a young demography joining the workforce and changing technology are having an impact
on all areas of society. This competitive environment has prompted firms to introduce new business models that are
changing the way wealth management is delivered to all generations.

THE CHANGING DEMOGRAPHICS OF INVESTORS

India has one of the youngest population in the world. By 2020, the median age of the population will be only 28.
The age structure of the Indian population can be broken into five age segments:
• 0–14 years: 27.34%
• 15–24 years: 17.9%
• 25–54 years: 41.08%
• 55–64 years: 7.45%
• 65 years and over: 6.24%

It is estimated that in each of the next five years, almost 15 million young people will enter the workforce. The total
investible wealth is estimated to be 100 lakh crore (US$1.5 trillion) in July 2018, which is expected to double in the
next five years.
Another significant change in the demographic profile of the Indian investor is the shift from rural to urban
population. India has been primarily an agrarian society, with the majority of the country’s people living in rural
areas. However, a rapid urbanization rate has resulted in almost 34% of the total population currently living in
cities, and that figure is expected to rise to 40% by 2030.
According to a 2017 report by the Tarun Ramadorai Committee on Household Finance, an average of 84% Indian
household investments are in physical assets such as gold and real estate. However, investors are shifting from
physical assets to financial assets.
With these changes in the demographic profile of the Indian population, new trends in wealth management are
emerging:
• With greater amounts of surplus wealth in the hands of a younger population, and with an increasing life
expectancy, complexity in demand from clients is increasing daily.
• With rapid urbanization, new cities and new pockets of wealth in old cities are being developed.
• Financial products are becoming increasingly sophisticated.

These demographic conditions provide opportunities for a wealth advisor. You should be able to establish
relationships that will flourish over the long term, provided that you look for ways to meet the needs of your
younger clients.

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EXAMPLE
Meghna, a 38 year old investment advisor, has built a successful practice at one of the large, full-service
brokerage houses. An analysis of her current book of business shows that her clients, on average, are almost
five years older than the firm’s average client. Meghna has had great success prospecting medical and dental
professionals in her first several years in the business. However, over the past few years, she has not done as
much networking, and so her book has grown at a much slower pace. As a consequence, the demographic
distribution shows a high concentration of clients between the ages of 60 and 75, but very few clients under
age 45.
To help address this gap, Meghna’s manager suggests that she host an evening seminar to encourage her clients
to bring in their children and grandchildren. Her manager explains that some of the support materials created
by head office apply equally across all generations. By hosting such an event, she can meet her clients’ family
members and demonstrate that she is aware of their concerns and can provide solutions. Over the next two
months, Meghna hosts two seminars on the following topics:
• Helping your adult child buy a first home without affecting your retirement
• Passing your professional practice to the next generation

THE DEMOGRAPHICS OF INVESTMENT ADVISORS

Wealth management is a fairly new concept in India, with the market evolving at a rapid rate. With a gross domestic
product growth of approximately 9%, India is poised to become the third-largest global economy by 2030.
Although India has fewer HNW individuals compared to developed markets, wealth accumulation by Indian people
across the globe has been increasing steadily. New firms entering the wealth management business at a regular
pace include large multinational companies.
Because of the nascent stage of wealth management business in India, the average age of wealth managers is
also relatively low. Most investment advisors are under age 30. With a young group of advisors catering to a fairly
young clientele, the wealth management business in India is susceptible to global changes in the technological and
financial environment.

DID YOU KNOW?

One of your goals as a wealth advisor should be to establish long-lasting relationships with the children
of your elderly clients. By doing so, you have a greater likelihood of retaining investment assets over
the long term. This goal is especially important given that adult children frequently receive support or
inheritances from their parents, which reduces the parents’ assets. In many cases, adult children may
also have influence over their parents’ financial decisions, especially as their parents continue to age.
Establish a strong relationship with your clients’ children can be challenging. Younger age groups may
already have an existing advisory relationship. However, your attempts to establish such a relationship
since may sway them to choose an advisor of similar age and with similar interests.

COMPETITIVE PRESSURES
In addition to the pressure to attract new HNW individuals, the wealth management landscape is characterized by
several competitive factors: competition between channels, competition in the mass market, and competitive
pricing.

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COMPETITION BETWEEN CHANNELS

In response to demographic trends, competition between channels has increased, and financial advisors have
fundamentally changed the way they deliver services to their clients. The practice will continue to evolve in
anticipation of future trends. For example, many organizations offering wealth management services now pursue
strategies that involve greater integration between their business units to serve HNW clients.
The largest companies have representation across both PWM business lines—wealth management specialist
firms and FSB firms. Although both channels aim to attract HNW clients, they are differentiated by the range of
services and investment options they provide. Through PWM, clients have greater access to products such as credit
solutions, whereas full service brokerage offers a wider range of investment and insurance solutions.

COMPETITION IN THE MASS MARKET

Competition in the mass market is also increasing. Although the major banks are establishing leading positions in
the wealth management industry to cater to these mass affluent investors, a considerable small- and medium-size
IFA segment also operates in India. This segment mainly serves the mass-market customer base. Given this focus on
the mass market group, average assets managed per client are much lower than comparable amounts for PWM and
FSB businesses.

DID YOU KNOW?

The demographic characteristics of HNW clients that integrated and mass-market channels attract are
similar. However, growth in the size of the market means that both models have a growing client base
they can pursue. According to the Boston Consulting Group, the size of India’s consumer market will
reach US$4 trillion by 2025.

COMPETITIVE PRICING
Concern over fees and total expense ratios (TER) associated with mutual funds has encouraged some clients to shift
their business to direct mutual fund schemes and, to a lesser extent, exchange-traded funds. However, in Sept 2018,
the capital market regulator Securities and Exchange Board of India (SEBI) announced lower TER fees for mutual
funds operating in India. Lower TER fees resulting from competitive pricing will likely lead, over time, to reduced
compensation for wealth advisors.

TECHNOLOGICAL CHANGES
Another form of competition in the wealth management landscape is created by changes in technology. Of particular
concern is the online, automated, algorithm-based investment management service known as a robo-advisor.
Other changes include the increasing ease of access to information, which allows new service models to flourish, and
the increasing technical literacy of wealth management clients. Finally, the relatively new digital assets known as
cryptocurrencies are rising in popularity and are likely to have a major effect on the industry.

ROBO-ADVISORS
The rise of robo-advisors in the investment industry has been made possible by constant improvements in online
technology and the work of numerous so-called fintech companies. These services help online investors create their
own customized portfolios to save for specific goals. Robo-advisors provide their recommendations on the basis
of algorithms built into the system. The technology appeals mainly to younger, fee-conscious investors who have
smaller amounts to invest, are comfortable with online technology, and prefer a self-service model.

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There are some advantages to robo-advisors:

• They are less costly in comparison to charges by human advisors.
• They tend to eliminate human error in calculations.
• They are accessible 24 hours a day—anytime, anywhere.
• They don’t show any bias toward any particular product.

However, robo-advisors are still considered inferior to human advisors because of various reasons:
• There is lack of personal touch in the recommendations.
• If a mistake occurs in the built-in algorithm, the recommendations will be wrong without the investor’s
knowledge.
• They cannot predict emergency situations or an impending financial crisis.

CRYPTOCURRENCIES
A cryptocurrency is a digital form of currency that is encrypted for secure electronic transactions and transfer of
assets. Digital currencies also use cryptography to control the “mining” process by which new units are created. The
introduction of cryptocurrencies, and their merging with derivative products, have forced financial institutions to
evaluate the competitive risk associated with this virtual form of money.
Cryptocurrencies can be difficult for banks to monitor for signs of money laundering. Banks must also keep money
secure and transaction records safe without slowing down the verification process. The anonymous nature of
cryptocurrency transactions creates challenges for banks in this regard.
Financial institutions and securities markets around the world are grappling with new concerns regarding volatility,
transparency, valuation, custody, and liquidity. More information on cryptocurrencies and digital assets in general is
found in Lesson later in this course.

INFORMATION AVAILABILITY
In the past, investment advisors were the primary source of up-to-date investment information. However, in recent
years, the amount of investment and wealth management information available over the Internet has increased
substantially. For some clients, access to so much information has enabled them to make informed decisions and
choose self-directed investment options.
Many HNW clients, however, are overwhelmed by the vast amounts of information. Rather than seeing their wealth
advisor as a source of investment and wealth management information, many investors now look to them to help
make sense of the abundance of information available. Wealth advisors must also be able to apply and customize
the available information to the specific situations and needs of their clients.
Innovations in the technology used to manage investment and wealth management functions have also led to
increased efficiency for wealth management teams. Information required to efficiently manage client relationships
and portfolios, and to provide reporting, is now cheaper and easier to use. Therefore, many wealth management
businesses can do more with fewer people. This convenience allows for a greater focus on client relationship
management, even as investments under management have continued to grow.
In short, the most successful advisors are those who are most willing to embrace new technology as a means to
communicate effectively with their clients.

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EXAMPLE
Meghna and her team were happy with the seminar she delivered to her clients and their family members. More
than 80 guests were present at each seminar, of which almost half were younger clients accompanying their
parents and grandparents.
Because the perspective of the younger group differed substantially from that of her existing clients, Meghna
knew that she needed a separate communication strategy to engage the younger guests. With the older
generations, she communicated through planned phone calls and mailings of the firm’s latest portfolio
suggestions. Rather than relying on the same techniques, Meghna decided to reach out through social media to
inform and engage her potential new clients.
She planned an ongoing series of messages to be delivered over appropriate social media channels. The content
of the messages was either developed or approved for use by the firm and was tailored to address the needs
and concerns of the younger demographic. The firm’s engagement in the communication strategy ensured
compliance with its policies in regard to social media and retention of client communications.
The strategy proved to be a success, based on the potential new clients that agreed to meet with Meghna. Most
wanted to discuss not only issues that they shared with their parents, but also their own personal financial
situations and concerns.

TECHNICAL LITERACY
As the pace of technological innovation increases, wealth advisors must become proficient with technology and
use these new skills to communicate effectively with clients. This proficiency is especially important with younger
clients, who often initially prefer to use electronic means of communication rather than face-to-face contact.
As you adapt to communication through the newer technologies, you will benefit by having more efficient and
frequent communications with clients. Furthermore, you may be able to earn the loyalty of your clients’ children,
rather than being viewed by them as their “mom and dad’s advisor”.

REGULATORY ENVIRONMENT
As the wealth management industry moves toward greater convergence, financial institutions are functioning more
and more as one-stop financial shopping centres. Nevertheless, regulation is still segmented by product, service
line, and geography. In future years, however, regulation will likely become more integrated as, in typical fashion, it
reacts to market forces.

CURRENT REGULATORY ENVIRONMENT

In this section, we discuss the current regulatory environment under which the various financial institutions operate.

BANKS
The banking industry in India is governed by the Banking Regulation Act, 1949. The Reserve Bank of India frames
various rules and regulations based on this Act. Several other Acts also influence the banking industry, directly or
indirectly:
• Prevention of Money Laundering Act, 2002
• Negotiable Instruments Act, 1881
• Indian Contract Act, 1872
• DRT Act, 1993

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• Law of Limitation, 1963

• Bankers’ Book Evidence Act, 1891
• SARFAESI Act, 2002
• Right to Information Act, 2005
• The Insolvency and Bankruptcy Code, 2016

Bankers are required to understand the basic provisions of these Acts so that they can provide service to clients
effectively, while staying within the confines of the laws.

INSURANCE COMPANIES
The Insurance Regulatory and Development Authority (IRDA) was constituted in 1999 to regulate and govern the
Insurance industry in India. IRDA has its headquarters in Hyderabad, Telengana, and has several responsibilities:
• Issue to the applicant a certificate of registration, and renew, modify, withdraw, suspend, or cancel such
registration.
• Protect the interests of policy holders in matters concerning assigning policy, nomination by policy holders,
insurable interest, settlement of insurance claims, surrender value of policy, and other terms and conditions of
contracts of insurance.
• Specify requisite qualifications, code of conduct, and practical training for intermediary or insurance
intermediaries and agents.
• Specify the code of conduct for surveyors and loss assessors.
• Promote efficiency in the conduct of insurance business.
• Promote and regulate professional organizations connected with the insurance and re-insurance business.
• Call for information, undertake inspections, and conduct enquiries and investigations, including audits of the
insurers, intermediaries, insurance intermediaries, and other organizations related to the insurance business.
• Control and regulate rates, advantages, terms, and conditions that may be offered by insurers in respect to life
and general insurance business.
• Specify the form and manner in which books of account shall be maintained and statement of accounts shall be
rendered by insurers and other insurance intermediaries.
• Regulate investment of funds by insurance companies.
• Adjudicate disputes between insurers and intermediaries or insurance intermediaries.
• Specify the percentage of life insurance business and general insurance business to be undertaken by the insurer
in the rural or social sector.

PENSION FUNDS
In 2013, the government of India passed the Pension Fund Regulatory & Development Authority Act (PFRDA) as the
sole authority to regulate the pension system in India. The preamble of the Act describes the basic functions of
PFRDA: “To promote old age income security by establishing, developing and regulating pension funds, to protect
the interests of subscribers to schemes of pension funds and for matters connected therewith or incidental thereto.”
There are several basic functions to PFRDA:
• Issue notifications, circulars, and guidelines or directions from time to time to pension funds appointed by
PFRDA instructing how the funds can be managed in accordance with the Act’s provisions.
• Ask for periodical reports from pension funds, as required under the provisions of the Act, as well as rules,
regulations, and other guidelines issued by PFRDA.

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• Issue guidelines for the valuation of the schemes done by pension funds.
• Appoint various intermediaries in the system such as the Central Record Keeping Agency, pension funds,
custodians, points of presence, aggregators, trustee banks, annuity service providers, and National Pension
System trusts.
• Monitor the performance of the various intermediaries.
• Regulate the way subscriber contributions are invested by pension funds.
• Ensure that all stakeholders comply with the guidelines and regulations periodically issued by PFRDA.

MUTUAL FUND COMPANIES AND FINANCIAL INTERMEDIARIES

SEBI is the regulatory body for all capital market participants and financial intermediaries operating in India. All the
mutual funds and financial intermediaries must become registered with SEBI. The objectives of SEBI are threefold:
• To protect the interest of investors in securities
• To promote the development of securities market
• To regulate the securities market

In addition to SEBI, the Association of Mutual Funds in India (AMFI) is dedicated to developing the Indian mutual
fund industry on professional, healthy, and ethical lines. It is also responsible for enhancing and maintaining
standards in all areas with a view to protecting and promoting the interests of mutual funds and their unit holders.
AMFI is therefore an association of all SEBI-registered mutual funds in India. The entity was incorporated on
August 22, 1995 as a non-profit organization. By 2019, all 44 asset management companies registered with SEBI
were AMFI members.
AMFI has eight principal objectives:
1. Define and maintain high professional and ethical standards in all areas of operation of mutual fund industry.
2. Recommend and promote best business practices and code of conduct to be followed by members and others
engaged in the activities of mutual fund and asset management, including agencies connected or involved in
the field of capital markets and financial services.
3. Interact with SEBI and represent to SEBI on all matters concerning the mutual fund industry.
4. Represent to the Government of India, the Reserve Bank of India, and other bodies on all matters relating to
the mutual fund industry.
5. Undertake a nationwide investor awareness program to promote proper understanding of the concept and
working of mutual funds.
6. Disseminate information on the mutual fund industry and undertake studies and research, directly or in
association with other bodies.
7. Regulate the conduct of distributors, including taking disciplinary actions for code of conduct violations.
8. Protect the interest of investors and unit holders.

KEY REGULATORY INITIATIVES

Several important regulatory initiatives have been put in place over the years, or are in the process of being
implemented. These key regulatory initiatives will have significant impact on the wealth management industry.
Some of the more important initiatives relate to concerns over income reporting, privacy, anti-money laundering,
conflicts of interest, transparency of fees charged, and investment performance reporting. These concerns are
discussed below.

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FOREIGN ACCOUNT TAX COMPLIANCE ACT

The Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 by the United States in an effort to reduce
tax evasion by U.S. taxpayers who hold financial accounts outside the country. The objective is to have all income
earned by U.S. taxpayers reported to the Internal Revenue Service (IRS) so that appropriate federal taxes may be
collected. This initiative affects all foreign financial institutions across the globally.
Under FATCA, Indian financial institutions have to provide necessary information to Indian tax authorities, which
will then be transmitted to the United States. In India, affected institutions include banks, mutual fund companies,
brokerages, private equity funds, and insurance companies.
Investors and account holders have to provide self-certification of tax residency to their respective financial
institutions, for compliance with FATCA. Failing to do so could lead to blocking of the investor’s account.

INDIA-U.S. INTERGOVERNMENTAL AGREEMENT

In August 2015, the governments of India and the United States signed an agreement that provides an alternative
way of meeting U.S. objectives to increase tax compliance under its domestic legislation. Rather than requiring
Indian financial institutions to provide information about their U.S. clients directly to U.S. authorities, the
intergovernmental agreement allows those institutions to provide the required details to the Indian taxation
authorities. The Indian Income Tax Department then transfers the required information to the IRS. Through this
co-operation with the United States, the Indian tax authorities benefit from the reciprocal sharing of similar
information about Indian individuals holding financial accounts in the United States, thus addressing the Indian
government’s concern with black money—financial transactions conducted by Indian taxpayers in foreign countries.

KNOW YOUR CLIENT

The Know Your Client (KYC) rule refers to the client identification requirement for all financial entities, as a part
of the account opening process. The KYC rule establishes an investor’s identity and address through relevant
supporting documents, such as prescribed photo identification, proof of address, and in-person verification (IPV).
KYC compliance is mandatory under the 2002 Prevention of Money Laundering Act rules, together with the SEBI
Master Circular on Anti-Money Laundering Standards, Combating the Financing of Terrorism, and Obligations of
Securities Market Intermediaries.
A standard account opening form is generally divided into two parts:
• Part I contains the basic and uniform KYC details of the investor, as prescribed by the central KYC registry
(Uniform KYC) to be used by all registered financial intermediaries.
• Part II contains additional KYC information, as may be sought separately by financial intermediaries such as
mutual funds, stockbrokers, or depository participants opening the investor’s account.

DIVE DEEPER

The central KYC registry is a repository of KYC records of clients in the financial sector, through an entity
substantially owned and controlled by central government. The registry receives, stores, and safeguards
the KYC records of clients in digital form. This process ensures uniform KYC norms and inter- usability of
the KYC records across entities in the financial sector. The objective is to reduce the burden of producing
and verifying KYC records every time a client starts a new relationship with a financial organization.
The Government of India has authorized the Central Registry of Securitisation Asset Reconstruction and
Security Interest of India to act as, and to perform the functions of, the Central KYC Registry.

SEBI has mandated that an investors must be KYC registered through any of SEBI approved KYC registration
agencies, before any investments are made by the client. IPV is also required, which means that registered

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intermediaries must physically verify the identity of the investor, rather than using only a submission of identity and
proof of address.
All intermediaries in the securities industry are authorized to conduct IPV. In the mutual funds industry, IPV must
be done by asset management companies and distributors who comply with the certification process of either the
National Institute of Securities Market or the AMFI, and who have completed the Know Your Distributor process.
If any applications are received directly from the investor (i.e., without being routed through a distributor), the
mutual fund may rely on the IPV on the account application form’s KYC information, which is performed by
scheduled commercial banks or authorized asset management company employees.
Currently, IPV can be carried out by any of the following intermediaries:
• KYC registration agencies
• Stock brokers through stock exchanges
• Depository participants through depositories
• Mutual funds
• Portfolio managers
• Venture capital funds
• Collective investment schemes
• Certified distributors through the National Institute of Securities Market or AMFI who have completed the Know
Your Distributor process
• Scheduled commercial banks

MUTUAL FUND POINT-OF-SALE DISCLOSURE

Any advertisement on mutual funds should include the warning statement, “Mutual fund investments are subject to
market risks. Please read the offer document carefully before investing.”
The offer document is filed by the mutual fund with SEBI. It is not mandatory for the fund house to distribute the
offer document with each application form. However, if the investor asks for it, the fund house must provide it.
Each offer document has two parts: the scheme information document and statement of additional information.
Both of these documents must be prepared and submitted to SEBI in the prescribed format. However, mutual funds
are permitted to include any other information that they consider material for the investor to make an informed
decision.
SEBI regulation stipulates that all offer documents are readily available to investors. They can be accessed on the
SEBI website or the individual mutual fund’s website. The scheme information document includes important details
such as investment objective, asset allocation pattern, investment strategies followed by the fund manager, the risk
involved , the benchmark indices for the respective scheme, details about the fund manager, fees, and expenses of
the scheme.
The key information memorandum (KIM), which is an abridged form of the scheme information document, serves
investors by noting the key sections of the offer document. SEBI has prescribed a standard format for disclosures
in this document to serve the interests of investors. Most of the relevant information in an offer document also
appears in the KIM. Information that should be disclosed in the KIM includes main features of the scheme; risk
factors; recurring expenses to be charged to the scheme; loads; the sponsor’s track record; educational qualifications
and work experience of key personnel, including fund managers; performance of other schemes launched by the
mutual fund in the past; pending litigations; and penalties imposed. As per SEBI regulations, every application form
needs to be accompanied by the KIM, which must be updated at least once per year.

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COMPETENCIES OF SUCCESSFUL WEALTH ADVISORS

To be successful in your role as a wealth advisor, you must fulfil nine major competencies. you must also exhibit a
set of traditional attributes that are commonly known as “soft skills”. Further emerging attributes may be necessary
for success, in the ever-changing wealth management environment.

THE NINE COMPETENCIES OF A WEALTH ADVISOR

Of the nine required competencies of a successful wealth advisor, five are technical and four are professional
practice responsibilities. Table 2.2 lists these two sets of competencies (in the left column) and the required
expertise specific to each competency (in the right column).

Table 2.1 | Technical and Professional Practice Competencies of a Wealth Advisor

Technical Competencies Areas Requiring Specific Expertise

1. Assist clients in growing, protecting, and • Lending
monetizing a closely held business. • Treasury management (including cash management,
trade finance, foreign exchange, and risk
management)
• Pros and cons of different business structures
• Insurance
• Taxation and corporate finance services (valuation
and sale of a business)

2. Establish and facilitate tax- efficient wealth • Asset allocation

accumulation and management strategies • Investment analysis
that may include sophisticated and complex
approaches to achieve life goals. • Portfolio construction using both traditional and
alternative investments
• Use of leverage
• International investing
• Performance evaluation, attribution, and
rebalancing
• Managing portfolio risk

3. Use advanced risk management techniques to • Insurance in the areas of asset and earnings
create an optimal personalized and integrated protection
wealth preservation plan. • Use of trusts
• Tax minimization pertaining to executive
compensation, including stock options and
concentrated stock positions
• International taxation principles and strategies

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Table 2.1 | Technical and Professional Practice Competencies of a Wealth Advisor

Technical Competencies Areas Requiring Specific Expertise

4. Collaborate with clients to optimize the conversion • Pre-retirement planning
of assets into income that will meet lifelong • Tax-efficient executive retirement plans
lifestyle expectations.
• Features and benefits of different conversion
strategies
• Managing longevity and health-related financial
risks

5. Develop and implement a wealth transfer plan that • Tax-efficient options for transferring wealth before
reflects the wishes of the client and the needs of death
the family. • Charitable giving strategies, including endowments
and foundations
• Multi-generational estate planning

Professional Practice Competencies Areas Requiring Specific Expertise

1. Build and manage client relationships that result in • Duty of care through professional, ethical, legal, and
successful partnerships. moral conduct
• Sensitivity to family dynamics
• Interview skills; communication styles related to
age, gender, and ethnicity; verbal and non-verbal
communication; and managing difficult client
conversations

2. Evaluate client needs, goals, and behavioural • Client’s relationship to money, including emotional
biases and link them to recommendations, leading and cognitive biases
to the creation and implementation of an optimal • Investor personality types
comprehensive wealth management plan.
• Issues and opportunities related to family dynamics

3. Coordinate and engage a trusted and respected • External and internal professional relationships
team of experts to provide a fully integrated, well- offering will and estate expertise
rounded wealth management service. • Comprehensive financial plans
• Philanthropic services
• Trust services
• Other specialized wealth management capabilities

4. Use custom business marketing techniques to build • Creating a unique value proposition
a wealth management practice. • Managing a practice efficiently and profitably
• Earning the right to ask for referrals

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DID YOU KNOW?

You do not have to be an expert in every one of the nine wealth management competencies. In areas
where you lack expertise, you should expect to either work with an expert or refer your clients to an
expert who can best serve the client’s needs. The experts you rely on may be available in-house, or they
may be external experts with whom you have developed a professional relationship.

TRADITIONAL ATTRIBUTES
The traditional attributes of successful wealth advisors relate to their character and their ability to build good
relationships with their clients. Many of these soft skills were defined in consultation with successful wealth
advisors. Their input provided a valuable perspective on how to build lasting client relationships.

CLIENT TRUST
Trust is the cornerstone of the financial services business. As a wealth advisor, you can foster and maintain trust with
clients by providing excellent service. Clients are more willing to do business with advisors they trust, and will often
move assets from another firm once trust is gained. Trust is also the basis for earning client referrals.

EXAMPLE
Wealth advisor Mohan considers his client Sushma a success story. Sushma initially opened an account with only
a small percentage of her total assets for Mohan to manage. As she grew to trust Mohan’s advice and judgement,
she transferred increasing amounts of her assets, until all her investments were under his management. When
Sushma’s sister received a lump sum bonus from her company, and was looking for investment advice, Sushma
did not hesitate to recommend Mohan.
Mohan says, “You have to be trustworthy in this business. Once you’ve earned a client’s trust, it opens many
doors. Trust comes from referrals, longevity in the business, and not being overly aggressive.”

HONESTY, INTEGRITY, AND ETHICAL BEHAVIOUR

Honesty, integrity, and ethical behaviour are essential characteristics of a wealth advisor. Those who do not
demonstrate these values typically do not survive in the business.
Clients should be able to rely on you for straightforward and truthful answers to their questions. If an investment
decision turns out to be wrong, it’s important that you accept responsibility where appropriate and take steps to
remedy the situation quickly and efficiently. In time, this attitude should help to build trust, and your clients will be
confident that their affairs are being looked after satisfactorily.

GOOD COMMUNICATION SKILLS

Good communication skills are often cited as a key to success; these skills are directly linked to the ability to gain
client trust. Successful advisors keep their clients well informed on emerging issues and events, often through the
use of newer technology options. Even when the news isn’t positive, they find ways to provide their clients with
alternatives. They make sure that recommendations are clearly worded, and they regularly review the financial and
investment plans with their clients.

KNOWLEDGE, EDUCATION, AND INTELLIGENCE

Successful advisors recognize the importance of the client relationship, but they also know that it is their knowledge
that makes them attractive to clients. The ability to collect, analyze, interpret, and apply information is a task
of ongoing importance. Good advisors do not hesitate to call on people in their extensive internal and external
networks for advice in a specific area. Successful advisors are also committed to continuing education. There is a

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competitive advantage in being as knowledgeable as possible and using that knowledge for the benefit of your
clients.

COMMITMENT AND EMPATHY

Successful advisors understand the importance of respecting the emotional relationship clients have with their
money and investments. They must also be committed to an evolving relationship with clients and to dealing with
changes in their demands at different stages of life. Empathy is an essential aspect of ability to build trust.
It is important to develop friendly relationships with your clients because things don’t always work perfectly
in the market. If your clients don’t like and trust you, they may leave when things are not going as well as they
would like.

ENTREPRENEURIAL NATURE
Most successful advisors develop innovative and entrepreneurial ways of building a client base. Initiatives include
radio and television features, articles in financial newspapers and journals, university- or college- level teaching, and
seminars.

CONSISTENCY AND CONSERVATISM

Many successful advisors consider themselves low-risk investors. This attitude reflects the typical objectives of their
client base. Clients tend to become more conservative as they get older. They are likely to be uncomfortable with an
aggressive advisor who is only interested in speculating.

CAPACITY FOR HARD WORK

Advisors have to focus on their work, especially when they are establishing a business. Most report having spent
long hours at the office in the early years. However, one characteristic of success appears to be working shorter
but more efficient days. Success should come in the context of a life that is well balanced between the personal
and professional sides. It is difficult to conduct business and be there for your clients if you ruin your health with
overwork and stress.

PROBLEM-SOLVING SKILLS
Effective problem-solving skills are crucial to success. A good support team can minimize the risk of mistakes, and
checks and balances should be put in place to avoid errors. When problems do occur, successful advisors address
them immediately and take responsibility.

GOOD ORGANIZATIONAL SKILLS

Maintaining accurate records, keeping track of transactions, and being in control of office administration are
prerequisites for a successful advisor. Time management cannot be an occasional effort.
Organization is closely related to service quality. Clients expect reliable, timely, and personal service. It is not
always in the best interests of the client to have other members of the team call, especially when clients expect the
advisor’s personal attention, expertise, and time.

MOTIVATION, ENTHUSIASM, AND LOVE FOR THE BUSINESS

There are no overnight or accidental success stories in this business; success takes time and a strong desire to
succeed. Success also means different things to different people. What is success for one person might be only a
stop along the way for another. Truly accomplished advisors aim high. They tend to describe their attitude toward
their work with words like “passionate”, “devoted”, and “driven”. Most successful advisors don’t lose their passion
for the job and want intensely to succeed. They set their goals high, and when they reach them, they set new goals.

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EMERGING ATTRIBUTES
Although the traditional attributes of successful advisors are as relevant as ever, the traits described below are
becoming increasingly important, as wealth management evolves as a distinct practice.

STAYING RELEVANT AS DEMOGRAPHICS CHANGE

As discussed earlier, wealth advisors can enhance their practice by becoming transition specialists. In this role, you
can help your clients understand the major issues they will face in their later years and link money discussions to
these issues.
When dealing with your clients’ transition issues, you should consider the needs and expectations of their children
and grandchildren as well. It may be advantageous to expand your team to include people of similar age and
interests. Consider also whether you should improve your technological proficiency so that you can provide the kind
of service your younger clients demand.

DIVE DEEPER

Professor of psychology Abraham Maslow (1908–1970) explained people’s emotional priorities in terms
of his well-known theory, the Hierarchy of Needs pyramid. At the bottom of the pyramid, Maslow put
physiological needs, then came safety, then belonging, together with esteem. Finally, at the top of the
pyramid, he put self-actualization.
Source: Abraham Maslow, “A Theory of Human Motivation”, Psychological Review 5, no. 40 (1943): 430–437.

ORGANIZING AND MANAGING A TEAM OF SPECIALISTS

Clients’ financial lives are becoming increasingly complex, and no one advisor can be expected to have all the
answers. When a higher level of expertise is called for, you should be able to identify and manage the proper
resources. For example, you may wish to refer clients to specialists who can create a trust, write a business
succession plan, or start a private charitable foundation. You should recognize when your clients need specialized
advice and know who can provide it. Building and managing a team of experts may be as challenging as putting
together an overall financial plan, and it is equally important.

THE WEALTH MANAGEMENT PROCESS

In this section, we discuss the four components of the wealth management process:
• Understanding the client
• Formulating the plan (integrating financial planning and investment management)
• Formalizing and implementing the plan
• Reporting, reviewing, and rebalancing

Figure 2.2 illustrates the wealth management process from beginning to end.

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Figure 2.2 | The Wealth Management Process

Understanding the Client

Building the Relationship with the Client
Gathering Quantitative Data
Gathering Qualitative Data
Determining the Client's Needs, Objectives, and Constraints
Educating the Client

Formulating the Wealth Management Plan

Advanced Financial Planning Investment & Portfolio Management

Retirement Planning Determining Risk/Reward Trade-off
Tax Planning Asset Allocation
Insurance Planning Understanding & Choosing Managed Products
Estate Planning

Implementing the Plan

Wealth Plan
Investment Policy Statement
Trade Execution

Reporting, Reviewing, and Rebalancing

UNDERSTANDING THE CLIENT

The wealth management process starts with establishing a strong relationship with the client that is built on trust.
Your primary role may involve providing advice on investments, risk management, tax planning, estate planning,
and other financial matters. However, these elements must always be consistent with the client’s needs, goals, and
constraints. It is especially important that you determine the suitability requirements of the client at the outset. This
step involves going beyond what is recorded on the KYC forms; it requires that you get a true sense of the client’s
most closely-held aspirations and attitudes.
Money brings out emotions of anxiety, security, pride, satisfaction, fear, anger, loss, guilt, joy, hope, greed, lust, and
sorrow in people. These emotions can equally affect the wealthy man who inherited money from his parents and
the self-made woman who has earned every rupee from her hard work, independence, and tolerance for risk. It is
your job to help clients articulate these emotions and build a financial strategy to keep them under control.
You must be competent when it comes to managing wealth by using high-level skills in investment and portfolio
management and in financial planning. However, to be truly successful, such technical knowledge is often
secondary to interpersonal skills.

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FORMULATING THE PLAN

After your clients articulate their needs, objectives, and constraints, you can begin the process of formulating a plan.
The plan should set out the steps that will take your clients from where they are financially at the moment to where
they want to be.
The plan will draw on your knowledge and experience in portfolio management and financial planning. These are
not separate steps in the wealth management process; investment decisions affect the financial plan, and financial
planning objectives influence the investment plan.

EXAMPLE
Your client Ankita wants to maximize the after-tax income she receives in retirement and make certain there is
no additional tax payable when she dies. Your job is to implement a portfolio with an asset allocation mix that
minimizes the risk for the particular level of return she needs. With your guidance, Ankita must consider various
personal tax-planning strategies and decide where best to place her investments. You must also help her plan the
timing of her withdrawals from her mutual funds investments. While she is still saving for retirement, you should
help her put a plan in place to ensure that an unforeseen disability or serious illness would not adversely affect
her retirement plans.

FORMALIZING AND IMPLEMENTING THE PLAN

After you put together the plan, it must be formalized in a written document. Your client may need two documents:
a wealth or financial plan, and an investment plan or investment policy statement. Alternatively, the investment
plan may be incorporated into the wealth plan. The length of the document or documents will vary with the
complexity of each client’s situation. After the plan is formalized and its recommendations accepted and endorsed
by the client, you can begin to implement it.

REPORTING, REVIEWING, AND REBALANCING THE PLAN

Monitoring a financial plan is an ongoing process. You must evaluate the performance of the plan by analyzing how
closely it meets your client’s objectives. You must also be aware of any changes in the client’s personal situation and
economic conditions that may warrant revision of the plan.
The plan should include a process for closely following the investment policy and monitoring its effectiveness. For
example, some clients may require a monthly portfolio report. The plan may also specify criteria against which each
fund manager or managed product is to be evaluated.
A portfolio should be reviewed at least once a year, so that you can confirm that it is achieving the required
benchmark and the objectives it was created for. The annual review is also an opportunity to rebalance the portfolio,
modify its strategies, or find new business opportunities.

BUILDING YOUR TEAM OF SPECIALISTS

The wealth management process is comprehensive. It requires specialization on your part in many different areas.
However, as we discussed earlier, it is not necessary that you be a specialist in every one of the nine competencies
we described earlier.
It is up to you as a wealth advisor to build and manage an expert team that will complement and enhance all of
the knowledge and skills you bring for your clients. This team of experts may include specialists in the areas of tax
planning and preparation, money management, alternative investments, risk management, trust preparation, legal

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issues, real estate, charitable giving, estate planning, retirement planning, business succession planning, financial
plan delivery, will preparation, and business valuation.
In the future, wealth management will require increasing emphasis on a full-service, comprehensive approach. It
will require more than just developing financial plans for clients. It should also involve a team of specialists to help
clients with their overall wealth management needs.

EXAMPLE
Dr. Rajan, a sociable dentist, has been one of Meghna’s clients for several years. Over the years, Dr. Rajan has
referred friends and colleagues to Meghna. As a wealth advisor, Meghna normally recommends that her clients
meet with her firm’s in-house financial planner to benefit from his services. Meghna has suggested this service
to Dr. Rajan several times, but he has expressed no interest. Meghna is unsure about the reason for Dr. Rajan’s
reaction. She also knows very little about Dr. Rajan’s private life, including whether he has a spouse or any
children.
Meghna knows that Dr. Rajan’s native home is in Bangalore, where he regularly visits, so she suggests that he
meet with Ahmed, her in-house tax planning specialist. Her reasoning is that Ahmed may be able to help Dr.
Rajan with any potential property tax concerns related to his Bangalore home.
Meghna participates in the meeting with Dr. Rajan and Ahmed. When Ahmed asks about potential beneficiaries,
Meghna is surprised to learn that Dr. Rajan has been divorced for many years and that his ex-wife and child are
living in Bangalore. Meghna’s decision to recommend an in-house expert colleague has helped her client, and it
has also provided essential information to Meghna about her client.

WORKING WITH IN-HOUSE SPECIALIST TEAMS

Investment in internal expert teams has grown considerably over the years, especially in the private banks and the
semi-integrated FSB model. Both of these business models are found in large financial institutions that have both
the required funding and the necessary economies of scale.
Most in-house expert teams are made up of accredited financial planners, accountants, and legal professionals. They
typically provide the following types of services:
• Comprehensive financial plan preparation and delivery
• Estate Planning
• Business succession planning
• Tax and legal advisory services

The large financial institutions generally charge no extra fees for these services. These experts are brought in by
the wealth advisor for a single meeting or short series of meetings with the client. They provide the professional
expertise the client requires to answer specific questions or address pressing needs. The final delivery from these
in-house teams is often a customized report written for the client and wealth advisor that examines the client’s
concerns and provides a number of potential recommendations.
In-house teams generally do not actually implement any of the ideas they suggest. Instead, implementation is left
to the wealth advisor. Given that experienced and accredited financial planning, accounting, and legal professionals
largely staff these in-house specialist teams, the cost of providing these value-added services is high. Companies
generally encourage wealth advisors to use these teams with their most important clients or most promising
prospects. Because of the exclusivity of the offer and the high level of customized advice, introducing a client or
prospect to a member of the specialist team often enhances the client relationship.

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WORKING WITH IN-HOUSE PRODUCT SALES TEAMS

Closely aligned with the in-house expert teams are teams that have expertise in specific HNW solutions that can
be used to help meet a client’s wealth management goals. The types of products these specialized teams support
include the following examples:
• Insurance-based solutions
• Real estate solutions
• Asset-based solutions (e.g., personal loans or home equity loans), in the case of banks

The difference between these teams and the in-house specialist teams is the ability of the sales teams to sell these
products and services.

WORKING WITH OUTSIDE PROFESSIONALS

As a wealth advisor, you may often have to interact with some outside professionals at the request of your client.
These outside professionals usually include the client’s chartered accountant, lawyer, or tax advisor.

EXAMPLE
One of Meghna’s longest-tenured clients is a retired doctor named Dr. Sharma. Over the years, Dr. Sharma had
done very well, building a thriving specialty practice with a number of clinics and his nursing home. When he
retired a few years ago, he sold his nursing home. However, he purchased a few apartments so that he could have
an ongoing stream of rental income. After he sold his nursing home, he came into Meghna’s office and deposited
a cheque representing the proceeds of more than Rs.5 crore.
Although Dr. Sharma had all the income he needed to support the lifestyle he enjoyed, he was eager to
reduce the significant amount of income tax he paid every year. Knowing that he was supportive of charities,
Meghna set up a meeting with her in-house legal expert for advice on setting up a private charitable trust.
Dr. Sharma was enthusiastic, but he was unsure how much income he should allocate to the causes he
wanted to support. Meghna suggested that he speak with his accountant, with whom she also shared a
relationship.
After various calculations of Dr. Sharma’s rental income and investment earnings, the accountant suggested
an appropriate donation amount to maximize Dr. Sharma’s tax savings for both the current and following year.
The donation amount, which turned out to be larger than either Meghna or Dr. Sharma had expected, was easily
affordable by Dr. Sharma.

Relationships with these outside professionals are extremely important. Many clients may accept your
recommended products or services only after these outside professionals are convinced. Working with outside
professionals can help your clients meet their wealth management needs in taxation, estate planning, financial
planning, and other areas.
Maintaining a good relationship with outside professionals is also beneficial to your practice. Having established a
positive relationship with outside professionals, you may benefit from their referrals and increase your client base.

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DESCRIBE THE ROLE AND RESPONSIBILITIES OF A PORTFOLIO

MANAGER IN INDIA
Earlier in this lesson we provided a general description of portfolio management. What follows here is a perspective
of portfolio management in an Indian context starting with the rules and regulations governing this activity.
• The discretionary portfolio manager shall individually and independently manage the funds of each client
in accordance with the needs of the client in a manner which does not partake character of a Mutual Fund,
whereas the non-discretionary portfolio manager shall manage the funds in accordance with the directions of
the client.
• The portfolio manager shall not accept from the client, funds or securities worth less than fifty lacs rupees.
• The portfolio manager shall act in a fiduciary capacity with regard to the client’s funds.
• The portfolio manager shall keep the funds of all clients in a separate account to be maintained by it in a
Scheduled Commercial Bank.
• The portfolio manager shall transact in securities within the limitation placed by the client himself with regard
to dealing in securities under the provisions of the Reserve Bank of India Act, 1934 (2 of 1934).
• The portfolio manager shall not derive any direct or indirect benefit out of the client’s funds or securities.
• The portfolio manager shall not borrow funds or securities on behalf of the client.
• The portfolio manager shall not lend securities held on behalf of clients to a third person except as provided
under these regulations.
• The portfolio manager shall ensure proper and timely handling of complaints from his clients and take
appropriate action immediately.
• The money or securities accepted by the portfolio manager shall not be invested or managed by the portfolio
manager except in terms of the agreement between the portfolio manager and the client.
• The portfolio manager shall not while dealing with clients’ funds indulge in speculative transactions that is,
he shall not enter into any transaction for purchase or sale of any security which is periodically or ultimately
settled otherwise than by actual delivery or transfer of security except the transactions in derivatives.
• The portfolio manager shall, ordinarily purchase or sell securities separately for each client. However, in the
event of aggregation of purchases or sales for economy of scale, inter se allocation shall be done on a prorate
basis and at weighted average price of the day’s transactions. The portfolio manager shall not keep any open
position in respect of allocation of sales or purchases effected in a day.
• Any transaction of purchase or sale including that between the portfolio manager’s own accounts and client’s
accounts or between two clients’ accounts shall be at the prevailing market price.
• The portfolio manager shall segregate each clients’ funds and portfolio of securities and keep them separately
from his own funds and securities and be responsible for safekeeping of clients’ funds and securities.
• The portfolio manager may hold the securities belonging to the portfolio account in its own name on behalf
of its clients only if the contract so provides and in such an event the records of the portfolio manager and its
report to the client should clearly indicate that the securities are held by it on behalf of the portfolio account.
• Every Portfolio Manager shall keep and maintain the following books of accounts, records and documents
namely:
a. a copy of balance sheet at the end of each accounting period;
b. a copy of the profit and loss account for each accounting period;
c. a copy of the auditors’ report on the accounts for each accounting period;

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d. a statement of financial position and;

e. records in support of every investment transaction or recommendation which will indicate the data, facts
and opinion leading to that investment decision.

• Every portfolio manager shall intimate to the Board the place where the books of accounts, records and
documents are maintained.
• Without prejudice to sub- regulation (1), every Portfolio Manager shall, after the end of each accounting
period, furnish to the Board copies of the balance sheet, profit and loss account and such other documents as
are mentioned in any of the regulations under this chapter for any other preceding five accounting years when
required by the Board.
• Every portfolio manager shall furnish to the Board half- yearly unaudited financial results when required by the
Board with a view to monitor the capital adequacy of the portfolio manager.
• The portfolio manager shall preserve the books of account and other records and documents mentioned in any
of the regulations mentioned under this chapter for a minimum period of five years.
The portfolio manager shall maintain separate client-wise accounts.
The funds received from the clients, investments or disinvestments and all the credits to the account of the
client like interest, dividend, bonus, or any other beneficial interest received on the investment and debits, for
expenses, if any, shall be properly accounted for and details thereof shall be properly reflected in the client’s
account.
The tax deducted at source as required under the provisions of the Income-Tax Act, 1961, (43 of 1961) shall be
recorded in the portfolio account.
The books of account will be audited yearly by qualified auditor to ensure that the portfolio manager has
followed proper accounting methods and procedures and that the portfolio manager has performed his duties
in accordance with the law. A certificate to this effect shall, if so specified, be submitted to the Board within
six months of close of portfolio manager’s accounting period.
The portfolio accounts of the portfolio manager shall be audited annually by an independent chartered
accountant and a copy of the certificate issued by the chartered accountant shall be given to the client.
The client may appoint a chartered accountant to audit the books and accounts of the portfolio manager
relating to his transactions and the portfolio manager shall co-operate with such chartered accountant in
course of the audit.

• The portfolio manager shall furnish periodically a report to the client, as agreed in the contract, but not
exceeding a period of six months 24 (and as and when required by the client) and such report shall contain the
following details, namely:
a. the composition and the value of the portfolio, description of security, number of securities, value of each
security held in the portfolio, cash balance and aggregate value of the portfolio as on the date of report;
b. transactions undertaken during the period of report including date of transaction and details of purchases
and sales;
c. beneficial interest received during that period in respect of interest, dividend, bonus shares, rights shares and
debentures;
d. expenses incurred in managing the portfolio of the client;
e. Details of risk foreseen by the portfolio manager and the risk relating to the securities recommended by the
portfolio manager for investment or disinvestment.

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• Every Portfolio Manager shall within two months from the date of the auditors’ report take steps to rectify the
deficiencies, made out in the auditors’ report.
• Every portfolio manager shall appoint a compliance officer who shall be responsible for monitoring the
compliance of the Act, rules and regulations, notifications, guidelines, instructions etc., issued by the Board or
the Central Government and for redressal of investors’ grievances.

TYPES OF PORTFOLIO MANAGER IN INDIA AND THEIR REGISTRATION

REQUIREMENTS

TYPES OF PORTFOLIO MANAGEMENT SERVICES IN INDIA

PMS can be classified in different types based on the provider of the services and on the basis of product class.
I. Types of PMS on the basis of the provider of the services:
1. PMS by asset management companies (AMCs)
2. PMS by brokerage houses
3. Independent PMS houses

II. Types of PMS on the basis of product class:

1. Mutual fund PMS
2. Fixed income-based PMS
3. Commodity PMS
4. Multi asset-based PMS
5. Equity based PMS

III. Another way of classification which is mentioned in the SEBI regulation is on the basis of the services provided
by the portfolio managers. They are:
a. Discretionary services – In this type of services, a portfolio manager has complete freedom in deciding
individually and independently as to how a certain fund has to be managed as per the contract with the
investor. This could be based on an existing approach or strategy which the portfolio manager is offering or
can be customized based on client’s requirement.
b. Non-Discretionary services – under this type of services, the portfolio manager doesn’t have any freedom
in managing the funds of the client. The portfolio manager needs to consult its client for every buy and sell
decision and any other transaction. As the execution of trade is done by the portfolio manager, he/ she
needs to provide investment management services with the consent of the client.
c. Advisory services – this type of services is typically used by the institutional clients who manage portfolios
on their own. The portfolio manager in this type of services acts as an advisor and suggests investment
ideas to its clients. However, the final decision is always taken by the investor.

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REGISTRATION REQUIREMENTS FOR PORTFOLIO MANAGERS

The process of registering as a Portfolio Manager is stringent and requires meeting a number of requirements. Some
of the information that needs to be shared are as follows:

Sl. No._Part Details required to be given

1. Particulars of the applicants Name of the Applicant: PAN No. Address of Registered office, Address
for Correspondence. Address - Principal place of business: (Where PMS
activity shall be carried out) If PMS activity is proposed to be carried out
from any branch offices, details of such Branch Offices, including address,
name of contact person, mobile number of contact person, email of
contact person etc.

2. Financial Information Capital Structure : Paid-up capital & Free Reserves for Year prior to the
preceding year of current year, Preceding year, Current Year Net worth of
Applicant for Year prior to the preceding year of current year, Preceding
year, Current Year Deployment of Resources in Fixed assets, plant
machinery and office equipment, investments etc., for Year prior to the
preceding year of current year, Preceding year, Current Year Major Sources
of Income for Year prior to the preceding year of current year, Preceding
year, Current Year Net Profit for Year prior to the preceding year of
current year, Preceding year, Current Year Particulars of Principal Banks
Particulars of Auditors.

3. Organization Structure The objectives of the entity seeking registration, (Memorandum and
Articles of Association/ Partnership Deed to be enclosed). (Copy of
Board Resolution to be enclosed) Date and Place of Incorporation: (ROC
Registration No.) Status of the Applicant: (e.g. Limited Company-Private/
Public, LLP etc. If listed, names of the recognized stock exchanges to be
given.) Organization Chart: [separately showing functional responsibilities
(names and designations) of portfolio management activities to be
enclosed] Particulars of all Directors/ Partners, Key Management
Personnel, Particulars of Promoters, Particulars of Compliance Officer,
Particulars of Principal Officer [Name; Address; Qualification; Date of
Appointment; DIN; PAN (Copy of PAN Card); Telephone No.; Mobile;
Email] Area of work, nature of work, experience in years, shareholdings
etc., Information of the total number of employees and number of
employees for Portfolio Management services Name and activities of
associate companies/ entities List of major shareholders/ partners of the
Applicant (holding 5% or more voting rights).

4. Business Information Indicate type of activity carried on/ proposed to be carried on. Indicate
the facilities for making decision on portfolio investment. Details of risk
profiling procedure to be followed by the Portfolio Manager. Details of
grievance redressal and dispute resolution mechanism to be followed
by the Portfolio Manager. Provide list of approved share brokers through
whom orders shall be placed, involved for Portfolio Management activities
and state whether any of them were suspended/had defaulted with any
Stock Exchange authority. Describe Accounting system followed/to be
followed for Portfolio Management Services. Indicate various research and
database facilities provided. Details of activities proposed to be outsourced.

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Sl. No._Part Details required to be given

5. Business Plan (for three years) History, Major events and present activities Proposed business plan and
means of achieving the same. Projected Profitability (Next three years)
(Targets, modus operandi to achieve targets, Resultant Income).

6. Infrastructural Facilities Principal Place of Business and for branch office:

• Office Space Office Equipment
• Furniture and Fixtures Communication Facilities
• Data Processing Capacity
• Computer facility: hardware and software
• Details of Disaster Recovery Set up / Business Continuity Plan

7. Other Information Details of all settled and pending disputes of previous 3 years Indictment
of involvement in any economic offences in the last three years. 276 Any
other information considered relevant to the nature of services rendered
by the company. Details of Membership with the recognized Stock
Exchanges.

8. Experience Experience in financial services rendered: details of activity etc.

9. Additional Information Copy of Draft Agreement with Client to be provided Copy of Draft
Disclosure Document to be provided Details of Custodian: (Name,
Address, SEBI Registration No., Date of Appointment) Details of
Registration with other Regulatory bodies.

10. Declaration Declaration of compliance with Regulation 7 (2) signed by at least Two
Directors or designated partners Declaration for Fit and Proper Person
as specified in SEBI (Intermediaries) Regulations, 2008 Declaration
of Compliance with clause 12 (b) of Schedule III of these Regulations.
Declaration of Compliance with SEBI circular on fees and charges.
Declaration of type and frequency of reports sent/ proposed to be
sent to clients. Declaration of time taken for transfer of securities into
client accounts. Declaration of submission of periodic reports and
Disclosure Document to SEBI. Declaration of compliance with clause
(e) of sub-regulation (1) of Regulation 27 – regarding maintenance of
records for Investment rationale. Declaration of availability of Disclosure
document on website of Portfolio Manager.

SEBI REQUIREMENTS ON PERFORMANCE DISCLOSURE

There are certain requirements of SEBI which need to be met before a portfolio manager can take up any
assignment on behalf of a client which include:
a. Entering into a written agreement with the client specifying the details stated in the SEBI portfolio managers
regulation of 2020.
b. Providing the client with a disclosure document which needs to include inter alia, the quantum and the manner
of payment of fees payable to the client, portfolio risks specific to each investment approach.

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Alongside the above-mentioned points, the document should be available on the website of the portfolio
manager as well as SEBI. The portfolio manager is required to make the disclosure from time to time regarding its
performance and the range of fees charged under various heads, to the SEBI, marketing materials and reports sent
to the clients and on its website.

BREAKING INTO THE BUSINESS

At the beginning of this lesson, we presented a scenario in which you were starting out as a wealth advisor. We
asked about the types of clients you will encounter and what you need to know to serve them well. Now that
you have read the lesson, we’ll revisit those questions and provide some answers:
• How would you describe your role as an advisor in today’s wealth management industry?
The wealth advisor’s role is to serve the needs of HNW clients and those who have the potential to
become HNW clients.
Two client groups in particular have the potential to quickly grow their investable assets to become HNW
clients: mass affluent families growing their wealth and selected individuals such as recently graduated
professionals.
• Who are your potential clients and what do they expect from you as their wealth advisor?
HNW clients and those with HNW potential expect their advisors to provide the following services:
« Consider all their needs as an interconnected whole.
« Take time to fully understand their needs and apply a comprehensive wealth management process to
address those needs.
« Provide appropriate advice and recommend suitable products and services to help your clients meet
their goals.
« Introduce them to a team of specialists who can provide a higher level of wealth management support.

• What is the impact of the key demographic, industry, and technology changes on the role of today’s wealth
advisor?
Today’s client views, or should view, money as a means to an end. As their advisor, you should do the
same. Therefore, you should transition from a wealth builder in the early years to a facilitator who helps
clients achieve their life goals.
Each demographic segment has different needs and goals. You should understand current demographic
trends so you can address the needs of the various population cohorts.
The trend toward holistic wealth management requires the combined knowledge of experts in such areas
as tax advice, estate planning, insurance solutions, and legal matters. You should call on these experts to
provide the specialized knowledge your clients need.
Through the consolidation and integration of financial services firms, you have access to a broader
spectrum of financial solutions. By nurturing reciprocal referral relationships, you can provide convenient
one-stop shopping for clients.
Wealth management, and the financial industry in general, are constantly affected by change from many
sources, including regulatory requirements and product sophistication, which require that you remain
current in the following areas:
« Continuously develop and enhance your skills.
« Have the knowledge required to properly advise clients.
« Increase transparency through better communication and reporting.
« Add value through integrated wealth management planning.

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BREAKING INTO THE BUSINESS

• What are the traditional and emerging attributes that you need to have or need to develop to fulfill the needs of
today’s wealth management client?
Successful wealth advisors generally have the following attributes:
« Ability to develop trust and inspire confidence with clients.
« Ability to deal ethically and honestly in all client settings.
« Ability to communicate effectively and empathetically.
« Willingness to embrace continuous learning and accreditation.
« Entrepreneurial inclination.
« Strong interpersonal skills.
« Ability to adjust your business practices to appeal to a wider demographic.
« Ability to embrace changes to technology and use them to enhance their business and communicate
more effectively with their clients.

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SUMMARY
Now that you have completed this lesson, let’s review your learning objectives:
1. Define the wealth management industry.
• The term wealth management is widely used by various financial institutions to describe an approach to
managing the financial affairs of clients holding significant assets. The approach consolidates the broad
range of financial services that these institutions offer to high net worth (HNW) clients.

2. Explain how the wealth management industry is shaped by wealthy clients and their needs.
• Wealth management has emerged as a distinct practice in recent years. The wealth management approach
consolidates a broad range of financial products and services for the growing number of HNW clients
in India. The changing nature of these clients has resulted in a broader market, a wider range of services
available, and deeper advisory relationships.

3. Describe the different wealth management channels business models.

• The three main channels dedicated to the HNW segment are private wealth management, full- service
brokerage, and private investment advisors.

4. Discuss the key trends that are influencing the wealth management industry.
• The key trends shaping the future of wealth management include changing demographics of the client base,
competitive pressures, and technological changes.

5. Identify the key regulatory initiatives affecting the wealth management industry.
• Key regulatory initiatives that have an impact on the financial industry include the U.S.-enacted FATCA and
the India-U.S. Intergovernmental Agreement. Advisors must consider regulations governing the KYC rule and
anti-money laundering guidelines, among others.

6. Identify the competencies and desired attributes of a successful wealth advisor.

• There are five technical competencies and four professional practice competencies required for success.
Wealth advisors should also have traditional attributes such as integrity, empathy, and an entrepreneurial
nature. Emerging attributes specific to wealth managers include skills in building a team of specialists and
the ability to stay relevant as demographics change.

7. Describe the wealth management process.

• The four components of the wealth management process are: understanding the client, formulating the plan
(integrating financial planning and investment management), formalizing and implementing the plan, and
reporting, reviewing, and rebalancing.

8. Explain how wealth advisors can work effectively with a team of specialists.
• In-house expert teams are made up of accredited financial planners, accountants, and legal professionals.
Wealth managers also rely on in-house product sales teams and sometimes deal with outside professionals,
upon the client’s request.

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