28-1 overview of private wealth management

1 introduction

2 private clients
versus
institutional clients

3 understandign
private clients

information
needed in
advising
private
clients

client goals

private client
risk tolerance

technical and
soft skills for
wealth managers

investment
objectives

constraints

other
distinctions

private wealth management:
investment management and
financial planning for
individual investors

diverse broadly defined /
specific clearly difined

private: shorter time horizons, less scale and more significant tax considerations /

behavioral issues more porminet /
formal governance structure greater level investment sophistication

private: financial security after retirement / financial support to family / philanthropic goals

private: often compete with one another and may change over time

institutional: clearly defined, typically related to specific liability stream

private: unique constraints

regulation

uniqueness and complexity

personal
infor

financial
infor

private client tax
considerations

family situation
emplyment and career
sources of wealth

explicit return objective
investment preferences

detailed discussion of financial
objectives and risk tolerance

personal balance sheet

provided may not be comprehensive
→ need to analyze and synthesize

sources of cash flows

common tax categories:
taxes on income // wealth-based taxes // taxes on consumption/spending

basic tax strategies:
tax avoidance // tax reduction // tax deferral

planned
goals:

retirement

specific purchases

education

family events

wealth transfer

philanthropy

unplanned
goals

property repairs

medical expenses

other unforeseen spending

the wealth
manager's
role

goal quantification

goall prioritization

goal changes

key terms

risk tolerance - level of risk willing and able to bear

risk aversion - degree of unwillingness to take risk

risk capacity - ability to accept financial risk
determined by wealth / income / invest time horizon / liquidity needs / other relevant factors

risk perception: assessment of risk involved in the outcome of investmetn decision → depend on the circumstances involved

risk tolerance
questionnaire

not perfect and unclear predictive of behavior

high degredd of subjectivity

how the structuring affect responses

risk tolerance
conversation

enable manager to educate client
about investment risk

risk tolerance with
multiple goals

to address potentially conflicting
risk tolerance levels

technical skills
require min
qualification

capital markets proficiency
a broad understanding of capitial markets
and asset classes

portfolio construction ability
deep understanding of risk and return, correlations
knowledge of vehicles / strategies for implementing

financial planning knowledge
estate law / taxation / insurance

quantitative skills

technology skills

language fluency

soft skills
interpersonal
relationships

communicaiton skills

social skills

education and coaching skills

business development adn sales skills

*reasonably estimated or quantified within an expected time horizon

*unforeseen financial needs

*relevant considerations in goal creation