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Module 3 – Wealth Management

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Module 3 – Wealth Management

INTRODUCTION

This module is written to give students insights as to the other important aspects in wealth management.
It will cover the scope of wealth management services, components involved in managing wealth, the process
taken during wealth management, and why is there a need for a wealth manager and wealth management.

MODULE LEARNING OUTCOME

In this module, you should be able to:

1. explain the importance of wealth management;
2. discuss the process of wealth management; and
3. identify and discuss the components of wealth management.

Lesson 1:
BREAKING DOWN WEALTH MANAGEMENT

SPECIFIC LEARNING OUTCOMES

In this lesson, you are expected to:

1. identify and discuss the services offered by wealth managers;
2. differentiate estate planning and retirement planning; and
3. discuss the areas of scope of wealth management.

PRE-ASSESSMENT
Instruction: Read each item carefully. Write T if the statement is true and F if the statement is false.

1. Wealth managers also provide banking services or advice on philanthropic activities. ____ TF

2. The wealth manager starts by developing a plan that will maintain and increase the client's wealth
based on that individual's financial situation, goals and comfort level with risk. ____
TF

3. Management fees vary widely and should be researched thoroughly before engaging a wealth
manager. ____ T F

4. Work with clients’ tax and legal advisors to develop a flexible asset and wealth preservation plan. ___
TF

5. A proper wealth management process is far more than a compliant recommendation for a financial
product. ____ TF

6. An industrialized wealth management process excludes counseling, challenging, educating, advising,

and leading clients to better manage their financial circumstances. ____
FF

7. Financial management advisers offer their clients solutions designed to fit the full range of each client’s
needs. ____
FF

8. All wealth managers continue to help their clients make smart decisions regarding their money over a
period of time. ____ FF
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Module 3 – Wealth Management

9. Advance planning is the core offering for many wealth managers, and the foundation upon which they
begin the client relationship. ____
FF

10. One task in goal setting is to establish details about client’s assets and liabilities, income and
expenditure. ____
F

LESSON MAP

Components Process

Scope Importance
Wealth
Management

The map above shows the breakdown of wealth management’s important aspects.

CORE CONTENTS

ENGAGE: QUOTATION ANALYSIS

Activity 1.
Instruction: Read the quote given and answer the question below.

1. What is being implied by the quote?

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Module 3 – Wealth Management

___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________

EXPLORE: READING CONCEPTS

Activity 2
INSTRUCTIONS: Read the concepts discussed below.

WEALTH MANAGEMENT
 A high-level professional service that combines financial/investment advice, accounting/tax services,
retirement planning and legal/estate planning for one fee.
 Clients work with a single Wealth Manager who coordinates input from financial experts and can include
coordinating advice from the client's own attorney, accountants and insurance agent.
 Some wealth managers also provide banking services or advice on philanthropic activities.

BREAKING DOWN 'WEALTH MANAGEMENT'

 Wealth management is more than just investment advice, as it can encompass all parts of a person's
financial life.
 The idea is that rather than trying to make sense of advice from a series of professionals, high net worth
individuals benefit from a holistic approach in which a single manager coordinates all the services
needed to manage their money and plan for their own and/or their family's current and future needs.
 The wealth manager starts by developing a plan that will maintain and increase the client's wealth
based on that individual's financial situation, goals and comfort level with risk.
 After the original plan is developed, the manager meets regularly with clients to update goals, review
and rebalance the financial portfolio, investigate whether additional services are needed and ideally,
follow clients throughout their life.
 Wealth Managers are often part of a wealth-management firm, with access to a team of in-house
experts and services, but may also be solo practitioners who rely on their own network of independent
experts.
 Management fees vary widely and should be researched thoroughly before engaging a wealth
manager.
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Module 3 – Wealth Management

Cash Flow
Management

Retirement Investment
Planning Planning

Wealth
Management

Legal Advice
Insurance
and Estate
Planning
Planning

Tax Planning
and
Reporting

THE SCOPE OF WEALTH MANAGEMENT SERVICES

Portfolio Management
Asset Allocation
 Develop an asset allocation framework addressing both strategic and tactical components.

Rigorous Security Selection

 Not every investment is right for client. Through a detailed analysis, wealth manager identifies
securities customized for client’s portfolio.

Advice and Planning through Envision tool

Current and Future Income Planning
 Develop a plan to generate cash flow for clients short and long term needs.

Retirement Planning
 Develop a strategy for planning for retirement by incorporating clients social security, pension and
assets into a comprehensive plan.

Tax Planning
 Identify and implement tax-efficient portfolio strategies to manage capital gains and losses.

Estate Investment, Trust and Insurance Planning

 Work with clients’ tax and legal advisors to develop a flexible asset and wealth preservation plan.
Wealth manager thoroughly reviews and address clients life insurance, disability insurance, and
long term care needs.
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Module 3 – Wealth Management

COMPONENTS OF WEALTH MANAGEMENT

There are three essential components to true wealth management:
1. A consultative process
 An adviser’s wealth management process must be consultative to enable them to gain a detailed
understanding of clients’ goals and their most significant financial wants and needs.
 A proper wealth management process is far more than a compliant recommendation for a financial
product.
 An industrialized wealth management process involves counseling, challenging, educating,
advising, and leading clients to better manage their financial circumstances and/or more effectively
develop the opportunities in their financial lives.
 An obvious consequence is the development of close and trusted relationships with clients, who
then rely upon a Wealth Management firm over time as their financial lives evolve.

2. Customized choices and solutions

 Wealth management advisers offer their clients solutions designed to fit the full range of each
client’s needs.
 These services might include several of the following:
o Investment management
o Insurance
o Estate planning
o Taxation
o Cash flow management
o Debt management
o Leasing
o Stock brokering
o Retirement planning
o Mortgages
o Banking
o Charitable giving
o Financial structuring
o Gearing and specialist products.

3. Delivery in close consultation with your clients

 Wealth managers provide their services by working closely with clients on an ongoing basis to
identify their specific needs and how those needs change over time, and design solutions around
those needs.
 True wealth managers continue to help their clients make smart decisions regarding their money
over a period of time.
 If, like many, you have been focusing on investment management, you can see that you need to
expand the scope of your offerings if you want to be a wealth manager.
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Module 3 – Wealth Management

 In its simplest terms, wealth management can be summed up using a single, all-encompassing
formula:
Wealth management = investment consulting + advanced planning + relationship
management (or WM = IC + AP + RM)

Investment consulting
o The core offering for many wealth managers, and the foundation upon which they begin the
client relationship.

Advanced planning
o Addresses four key areas of financial needs that clients have beyond investments: wealth
enhancement, wealth transfer, wealth protection and charitable giving.

Relationship management
o Focuses on three areas: fully understanding and meeting clients critical needs over time;
assembling and overseeing a network of financial experts to help you meet client needs;
working effectively with your affluent clients’ other professional advisors, such as their
lawyers and accountants.
o Wealth management breaks the familiar mold in which clients must contract with a range of
professionals, each specializing in a single area: the investment advisor managing
portfolios, the insurance agent selling life insurance, the accountant handling taxes, and the
lawyer taking care of estate planning.
o As their finances have grown ever more complex, this compartmentalized approach has
become less appealing to clients wishing to streamline their affairs.
o Have never known a better time than today to be building a wealth management firm where
the value delivered to clients is based upon the quality of the advice provided rather than
the quantity of the product sold.

PROCESS OF WEALTH MANAGEMENT

During your initial meeting with the client, the wealth manager will present the terms of business and
explain how they work. If they agree to work with each other and prepare a Wealth Management Plan, they
will commit to a rigorous six step planning process.

1. Data Gathering
o Establishing details about client’s assets and liabilities, income and expenditure. Understanding
arrangements already in place and attitude to investment risk.

2. Goal Setting
o Establishing goals and aspirations for the short and long term. Understanding commitment to
meeting the objectives.
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Module 3 – Wealth Management

3. Define the terms of engagement

o Wealth Manager for providing his services has to define the terms of engagement, the service
deliveries and the fees the wealth manager is going to charge the client for his services.

4. Identification of Needs
o Wealth managers will analyze your current position and assess any gaps in the client’s situation.
o Next wealth managers will identify what needs to be done to meet the client’s objectives.

5. Report Preparation
o Analysis and recommendations are presented in a written report.
o This forms the basis of a formal review at which both the client and wealth manager agrees on
an action plan.

6. Analyzing the opportunities and challenge

o Analyzing the opportunities and challenges is explaining to the client the risk factors associated
with each investment alternative that the wealth manager purposes.

7. Implementation
o Implementing the plan will invariably involve new and changed arrangements.
o Wealth managers liaise with providers and other professionals to implement the agreed plan.

8. Review and Revision

o Wealth management is a long term plan that requires regular annual review.
o Changes in the client’s circumstances are considered as well as fund performance.

NEED FOR WEALTH MANAGEMENT

Wealth Management Needs of Clients

If you were to ever lose your pension plan, a wealth manager can help you create your own benefit
plan. You can also work with your manager to get a better idea of what your liabilities are, which allows you to
insure yourself better and plan your financial future better.

Something else to think about is that your wealth manager can also teach you exactly what your
retirement fund is and how you should use it. For instance, it’s much better to look at your retirement fund as
something that produces an income during your retirement years. Retirement accounts aren’t ATMs for you to
use before you actually retire, and they also aren’t simply something for you to gradually use during retirement.

Not One and the Same

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Module 3 – Wealth Management

Something else to bear in mind is that a wealth management firm in the Philippines isn’t the same as
investment management. Investment management has more to do with bonds, stocks, mutual funds, and
exchange traded funds. It’s better to think of wealth managers as the individuals whose work starts where an
investment manager’s work ends. Any money you make from your investments needs to be spent, saved, and
reinvested wisely, and that’s where wealth managers can help.

Wealth management can also be seen as a type of risk management. For example, a physician can
open himself up to malpractice by creating a specific type of trust account. Managers are often more aware of
certain state laws and can help a client decide whether it would be more beneficial to forgo a tax benefit.

No matter how much or what you’ve read online about financial and insurance vulnerabilities, nothing
beats the education and opinion of a wealth manager. No matter if you’ve just graduated from college and are
about to start your first professional job or if you think you’re already well on track for your retirement, seeking
out the professional services of an experienced wealth manager is in your best interest. It’s never too early or
too late to start thinking about your golden years or the best way to spend your personal wealth.

Hence, reasons of need of Wealth Management are as below:

1. Growth of HNWI and UHNWI
o High Net worth Individual (HNWI) are generally defined as private individuals with more than
USD 1 million.
o Ultra High Net worth Individuals (UHNWI) are private individuals with more than USD 30 million.

2. Time Constrains
o Research shows time and expertise are the two major constrains for any individual to manage
his/her own wealth.
o Time is a major constrains for almost all HNWI’s as they are usually busy with their business or
profession.

3. Expertise
o Many HNWI’s and UHNWI’s may have the time at their disposal however may lack the expertise
to do informed asset allocation so they require services of wealth management firm.

4. Complexities in Financial Products

o Financial Markets are getting more and more complex global and so are the offerings.
o It requires more than just basic knowledge to understand the risk associated with complex
financial instruments like derivate and swaps.
o Hence services of wealth management firm are desirable.

5. Goals
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Module 3 – Wealth Management

o Financial Goals like Starting business, getting married, holiday abroad, buying a home, a new
car, retiring comfortably require the assistance of wealth management services to plan
scientifically for attainment of each goal.

6. Wealth Transfer
o There is a strong need for wealth transferring from one generation to another or charity in a tax
efficient manner and also in a manner which does not give rise to family disputes.
o Wealth managers provide Estate planning services where wealth transfer becomes smooth and
without any hurdles.

EXPLAIN: GOING DEEPER

Activity 3:
INSTRUCTION. Read the questions below and answer them briefly.
1. Is wealth management important to high net worth individuals? Why or why not?
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________

2. Is wealth management important to low net worth individuals? Why or why not?
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________

3. Differentiate estate planning and retirement planning.

___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________

TOPIC SUMMARY
In this lesson, you have learned that …
 Wealth management is more than just investment advice, as it can encompass all parts of a person's
financial life.
 Clients work with a single Wealth Manager who coordinates input from financial experts and can include
coordinating advice from the client's own attorney, accountants and insurance agent.
 There are three essential components of wealth management: A consultative process, customized
choices and solutions, and delivery in close consultation with clients.
 Wealth managers provide their services by working closely with clients on an ongoing basis to identify
their specific needs and how those needs change over time, and design solutions around those needs.
 Wealth management breaks the familiar mold in which clients must contract with a range of
professionals, each specializing in a single area: the investment advisor managing portfolios, the
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Module 3 – Wealth Management

insurance agent selling life insurance, the accountant handling taxes, and the lawyer taking care of
estate planning.
 There are six steps involved in the process of wealth management: data gathering, goal setting, define
the terms of engagement, identification of needs, report preparation, and analyzing the opportunities
and challenges.

POST-ASSESSMENT
Instruction: Read each item carefully. Write T if the statement is true and F if the statement is false.
1. Wealth managers also provide banking services or advice on philanthropic activities. ____ TF

2. The wealth manager starts by developing a plan that will maintain and increase the client's wealth
based on that individual's financial situation, goals and comfort level with risk. ____
TF

3. Management fees vary widely and should be researched thoroughly before engaging a wealth
manager. ____ T F

4. Work with clients’ tax and legal advisors to develop a flexible asset and wealth preservation plan. ___TF

5. A proper wealth management process is far more than a compliant recommendation for a financial
product. ____ TF

6. An industrialized wealth management process excludes counseling, challenging, educating, advising,

and leading clients to better manage their financial circumstances. ____ FF

7. Financial management advisers offer their clients solutions designed to fit the full range of each client’s
needs. ____
FF

8. All wealth managers continue to help their clients make smart decisions regarding their money over a
period of time. ____ FF

9. Advance planning is the core offering for many wealth managers, and the foundation upon which they
begin the client relationship. ____ FF

10. One task in goal setting is to establish details about client’s assets and liabilities, income and
expenditure. ____ F

REFERENCES

 Jhabak, Pawan. Wealth Management. Himalaya Publishing House 2008.

 Ganti, Akhilesh. Investopedia. Retrieved from: https://www.investopedia.com/terms/
w/wealthmanagement.asp. Retrieved on: June 1, 2021