Skip to main content

What should you expect from your wealth manager?

Managing wealth is primarily about asset allocation. The basis for choice of assets and the proportion that should be held in each investor's portfolio depends on his/her objectives and constraints. It is the core proposition of financial planning. While the markets may move up or down, the investor's portfolio has a specific return requirement and risk profile. A professional wealth manager is expected to manage allocations in a way that the return is closer to achieving the investor's goal and the downside risks are well within the stated preferences of the investor. To achieve this, a wealth manager needs proficiency in asset class performance, so that he/she is able to read the macro trends and advise clients to modify their allocations accordingly. That is, the expertise a wealth manager should bring to the table.

There are several investors who think that investment managers should make asset allocation decisions. They would have liked the fund manager to move into cash and protect the portfolio before the stock markets crashed. They would like a midcap fund to hold largecaps, if markets corrected. Many financial advisors and wealth managers also believe that since fund managers are investment specialists, they should manage asset allocations. It is an uninformed expectation.

A fund is useful in asset allocation only if it is managed with a specific objective, and remains true to its stated focus. A largecap fund that also invests in midcap muddles up the choice to use it to take an exposure to a specific asset class. The fund manager's tasks are selection of securities and management of the portfolio, so that the returns are superior relative to a benchmark. The benchmark represents the asset class that the fund focuses on. An equity fund moving into cash will harm the investor's allocation, since to the investor holding the fund means exposure to equity, and not equity and cash. The investor can also redeem his holdings to achieve a lower allocation to equity and higher allocation to cash. It also makes no sense to pay a two per cent fee to a fund when it holds 30 per cent in cash.

If active fund management is about managing sectors and stocks, active wealth management is about managing allocations to asset classes. A wealth manager's fee should be a function of his/her expertise in asset allocation. We seem to be far from this proposition. We have variously christened intermediaries such as financial advisors, relationship managers, private bankers and wealth managers, bringing investment products. Some operate at the basic level of enabling transactions, filling up forms and completing tasks. Some operate at the next level of distributing investment products, with no competence in managing asset allocation.

A small minority takes on the asset allocation mandate. The debate about 'fee-based' and 'commission-based' advisory needs to recognise these differences in competency and quality of service. The armies of bank relationship managers and independent financial advisors that reach out to clients are unable to seek fees because they operate at a lower level. They also advocate 'lazy' allocation strategies such as systematic investment and transfer, hoping that risks will even out with time. A fresh look at competency building for wealth management is needed, before we debate about fraud, fees and mis-selling.

Popular posts from this blog

8% Government of India Bonds quick guide

For those seeking comfort in safety of returns, the Government of India issued 8% savings bond once again comes to the fore. First launched in 2003, these bonds are issued by the government with a maturity of 6 years. The bonds are available at all times with specified distributors through whom you can apply to invest in them. Here is a quick guide to what the bond offers and its features to ascertain to check for suitability. What are Government of India bonds Government of India bonds are like any other government bonds with specified rate of interest. The rate is fixed at 8% per annum paid half yearly, or you can opt for cumulative payment of interest at the end of the tenure. You can buy these bonds from State Bank of India and its associates, other nationalized banks and some private sector banks such as HDFC Bank Ltd and ICICI Bank Ltd, among others. The bonds can be bought from the offices of Stock Holding Corporation of India as well. They are available in physical form onl...

Tax on Kisan Vikas Patra Returns

  Taxation of Kisan Vikas Patra The interest earned on Kisan Vikas Patra (KVP) doesn't enjoy any tax exemption   The interest earned on Kisan Vikas Patra (KVP) doesn't enjoy any tax exemptions. The interest earned from it is taxed as per the Income Tax slab applicable to the investor on redemption. That means an investor in the highest tax slab will pay 30 per cent tax on the returns from KVP . Also, 10 per cent of the interest earned would be deducted as tax deducted at source (TDS). ----------------------------------------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saving Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in india for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Franklin India TaxShield 4. ICICI Prudential Long Term Equity Fund 5. IDFC Tax Advantage (ELSS) Fund 6. Birla Sun Life Tax Relief 96 7. DSP BlackRock Tax Saver Fu...

How EEE and EET Tax affect Retirement Investments

  An important factor while choosing a financial product is its taxation , and for retirement savings, this is even more important as the sums involved are usually life-long savings. Here's a look at the current tax treatment of three major long-term retirement planning products, which are - Employees' Provident Fund (EPF), Public Provident Fund (PPF) and National Pension System (NPS). EPF The tax treatment is EEE, which means your money is exempt from taxes at the time of investment, accumulation and withdrawal. At the time of investment, the tax deduction is under the limit of section 80C of the Income-tax Act , which is currently Rs 1.5 lakh. Partial withdrawals are also tax-free if made after 5 years of continuous service. If withdrawals are made before 5 years of service, 10% tax will be deducted at source. Exceptions have also been provided for transfer of amount and conditions wherein the subscriber is unemployed for more than 2 months or the loss of job was beyond th...

You can close PPF after 5 years for a medical emergency or for higher education

You can close PPF after 5 years   The premature withdrawal, however, comes with a penalty--you will get 1% less interest as applicable from time to time   The finance ministry notified on Monday that account holders of the Public Provident Fund (PPF) can prematurely close their account if it has completed at least five years and the reason for closure is medical emergency and higher education     The change According to this recent change, a PPF subscriber shall be allowed premature closure of her account or account of a minor of whom she is the guardian on grounds that the amount is required for treatment of serious ailments or life-threatening diseases of the account holder, spouse or dependent children on production of supporting documents from competent medical authority. Similarly, you will be able to prematurely close your PPF account for higher education needs only if you produce documents and fee bills showing confirmation of admission in a recognised institution in India o...

How did your Mutual Funds Perform?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300     Don't look only at a fund's performance during a bull run, but also find out how it performed when the market was bearish. Investors should not only look at how their funds performed when markets were booming but also during the bear phases. Now that the market is on an up swing, mutual fund investors will be keen to make the most of the situation. More so, as they have endured a torrid time for the past five years when the stock market was mostly range-bound and the NAV of mutual funds remained static. Most expect their funds to capture the rally and outperform the broader market. And, many funds are delivering superior returns. But, here's a word of caution for our readers: You should never judge a fund on the basis of its performance only during a market u...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now