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Wealth management is the process of making decisions regarding your assets, often in collaboration with a wealth manager. This may include various financial aspects such as investments, tax* strategies, estate planning, and other financial concerns.
Wealth management takes a holistic approach to your financial situation, as opposed to working with an advisor who focuses solely on financial planning or investment management.
The main purpose of wealth management is to assist you in attaining financial stability, as well as in the growth and safeguarding of your wealth.
This guide outlines all you need to know about wealth management meaning, wealth planning strategies, and their advantages. Keep reading till the end to find out all the investment options related to wealth creation.
What is Wealth Management?
Wealth management is an exclusive service that facilitates the growth of your wealth with effective management of your finances and advisory support.
A wealth manager is a certified expert offering financial guidance and services to people in want of assistance with wealth management. The most common offerings by wealth management firms or experts are as follows:
Investment management and guidance
Thorough financial planning
Tax planning and accounting services
Estate planning
Philanthropic planning
Legal assistance
Retirement planning
Most Common Wealth Management Strategies
The strategies employed in wealth management are tailored to each client's specific requirements. In essence, the purpose of engaging a wealth management firm is to identify strategies that help preserve and augment your overall wealth.
Within the realm of investments, strategic wealth management includes the following methods:
Evaluating Risk
Risk analysis involves evaluating a client's capacity to tolerate risk about their financial situation. Several factors contribute to this assessment, including the client's investment goals, personality, current and future financial obligations, and more.
Allocating Assets
Asset allocation entails crafting an appropriate plan for distributing investments, such as stocks and bonds, to align with a client's risk-reward preferences. This approach aims to optimise investment returns while the wealth manager effectively manages the overall portfolio risk.
Diversification
Diversification is the strategy of dispersing investments across various asset types to limit exposure to any single asset category.
The underlying rationale is that a portfolio diversified across different asset classes tends to yield higher long-term returns on average while reducing the risk associated with any individual holding or security.
Rebalancing
Rebalancing involves adjusting the asset allocation of a portfolio to bring it back in line with the levels specified in an investment plan. These levels are designed to align with an investor's risk tolerance and desire for potential rewards.
Tax-loss harvesting
Tax-loss harvesting entails selling investments at a loss to offset gains in other investments for tax purposes. The proceeds from the sale are then reinvested in a similar type of asset to maintain market exposure while taking advantage of the tax benefits* associated with the loss.
These are just a few examples of strategic wealth management that professionals may employ to assist you in achieving your investment objectives. The specific strategies chosen will depend on your unique financial situation.
How does Wealth Management Work?
You must first begin by finding a wealth manager to assist with your financial requirements. For this, you will need to meet with several firms before selecting one to hire. Once you hire a wealth manager, the process of wealth management may appear as follows:
Your wealth manager will record your financial objectives, including any specific timeframes.
Through an extensive set of inquiries, they will assess your risk tolerance. You must furnish details regarding the amount of money you want the wealth manager to oversee or invest.
At this point, your wealth manager will formulate an investment plan that recommends various asset classes, financial instruments, timelines, and allocations.
They will also take tax considerations into account to ensure you benefit from the most advantageous exemptions and rebates.
Once you approve the plan, your wealth manager will proceed with its implementation.
The investments will be continuously monitored and adjusted as necessary.
Objectives of Wealth Management Services
Enlisted below are the known objectives of wealth management services offered by a wealth manager:
Setting financial goals and formulating strategies to attain them.
Assisting clients in maximising their overall wealth.
Ensuring the preservation of wealth.
Managing investments and financial matters.
Mitigating the tax implications associated with wealth accumulation.
Crafting strategies for transferring wealth (commonly referred to as estate planning).
Top Advantages of Wealth Management
Develops a structured financial plan
When engaging a wealth management service, the advisor assists you in crafting a strategic financial plan.
With their guidance, you can systematically build wealth over the long term. In this manner, wealth management services contribute to the creation of a well-organised financial plan.
Alleviates financial stress
Wealth managers leverage their knowledge and expertise to help clients navigate financial uncertainties and make crucial decisions when necessary.
This support enables individuals to effectively manage their financial choices, even in volatile market conditions, resulting in reduced stress and improved financial decision-making.
Provides an adaptable investment strategy
Wealth managers continually devise investment strategies tailored to clients' specific financial needs and preferences.
They consider both market conditions and various asset classes, allowing them to chart a path through market fluctuations and make more informed investment decisions. This flexibility in financial approach is offered to enhance clients' financial well-being.
Ensures Family Security
Wealth management extends beyond wealth growth; it also safeguards the financial security of your family and future generations. Your wealth manager can create a plan that safeguards existing assets while establishing a legacy of financial stability.
They will recommend optimal ways to utilise trusts, insurance, savings accounts, investments, and retirement plans to provide enduring stability for you and your family.
Investment Options for Strategic Wealth Management
Equity-Linked Savings Scheme (ELSS)
The Equity-Linked Savings Scheme is a mutual fund scheme focused on stock market investments2. Contributions of up to ₹1.5 lakhs made in ELSS schemes qualify for tax* deductions under Section 80C of the Income Tax Act.
ELSS stands out from other tax-saving instruments due to its remarkably brief lock-in period of just three years. Moreover, you can only redeem your investment after this three-year holding period.
However, you can retain your investments for as long as possible to maximise returns.
Unit-Linked Insurance Plan (ULIP)
When you invest in a Unit-Linked Insurance Plan (ULIP)**, a portion of your premium is allocated to provide insurance coverage, while the remainder is invested in equity or debt funds based on your selection.
The insurer pools funds from all policyholders and invests them in the chosen funds. After investment, the total corpus is divided into 'units' with a specific face value.
Each investor receives 'units' in proportion to their invested amount. The value of each unit, known as the Net Asset Value (NAV), fluctuates with changes in the underlying asset values.
ULIPs enable you to create wealth for long-term goals such as buying a house, funding your child's education, planning for retirement, and more, through systematic investments and market-linked returns.
National Pension Scheme (NPS)
The National Pension Scheme is an excellent retirement fund with tax-saving benefits. NPS assists you in determining where to invest your pension savings.
To maintain an NPS account, you must contribute a minimum of ₹6,000 annually. Upon retiring, you can choose to withdraw approximately 60% of the total accumulated amount for various purposes.
The remaining 40% is used to purchase an annuity, securing a regular income after retirement.
Fixed Deposit
A fixed deposit is a financial instrument provided by banks, post offices, and other Non-Banking Financial Companies (NBFCs) that offers investors a higher interest rate compared to regular savings or salary accounts.
Banks use the deposited funds as capital for their operational activities. Investing in a fixed deposit requires a lump sum amount of money that the investor has already accumulated over time.
Life insurance policies
Life insurance policies offer financial security to your loved ones in your absence. These policies also help you with various financial goals for both you and your family. Additionally, they promote savings and contribute to long-term wealth accumulation.
Certain life insurance policies may also provide a loan facility. Furthermore, insurance premiums are tax-deductible under Section 80C of the Income Tax Act, 1961, offering tax benefits to policyholders.
Final Words
Wealth management is more than mere investment advice and can include all aspects of an individual's financial life.
Wealth managers are licensed financial professionals who offer a wide array of services like investment management, financial planning, insurance product recommendations, tax advisory, and estate planning.
For successful wealth creation, you must not only select the right investment strategy but also allow your investments ample time to mature. The main goal of a wealth creation plan is to secure the financial future of both you and your family.
