What is Wealth Management? Meaning, Benefits & Objectives

Imagine you have worked hard your whole life, saved some money, and now want to make sure that money works for you, grows over time, and is passed on to your loved ones without a hassle. But can all this really happen? If yes, then how?

Well, do not worry; it is actually quite simple if you know about wealth management. It acts like a financial guide that helps you grow your money, manage your investments, reduce taxes, and plan for the future.

If you wish to learn more about wealth management meaning and significance, this blog will break it down for you.

What is Wealth Management?

Wealth management is a service that combines various financial services to meet your financial needs. It focuses on helping you manage your money, invest wisely, plan for retirement, and ensure your financial future is secure. It is much more than just investing. It is a holistic approach to handling everything that affects your wealth.

In simple terms, wealth management helps individuals (or families) grow, preserve, and protect their wealth using different tools like investment strategies, tax planning, retirement planning, and estate management. It is tailored to your specific needs, whether you are just starting out with savings or you are already wealthy and need to secure your financial future. With the help of a wealth manager or investment manager, you can manage your wealth and save up to achieve your long-term financial goals.

How Does Wealth Management Work?

Wealth management starts with a consultation with a wealth manager, who will assess your current financial status, understand your objectives, and design a strategy to help you achieve those goals. This includes setting up investments, managing risks, planning for taxes, and even helping you with retirement planning. Let us further understand:

• The wealth manager will discuss your financial objectives, such as saving for retirement or buying a home, along with specific timelines.
• They will ask questions to understand how much financial risk you are comfortable with and gather details about the money you want them to manage.
• Based on your goals and risk tolerance, they will develop an investment plan, recommending where to invest, for how long, and in which financial tools.
• They will include strategies to minimize taxes and help you take advantage of exemptions and rebates.
• After you approve the plan, the manager will invest your funds and regularly monitor and adjust the investments as needed to stay aligned with your goals.

Understanding Wealth Management with Example

To understand wealth management, let us consider an example:

Ravi, aged 35, wants to build a fund for his child’s higher education abroad and save for early retirement by the age of 50. He has ₹1 crore in his savings plan and earns ₹30 lakh annually. To meet his goals, he estimates he will need ₹7 crore in total.

A wealth manager will assess Ravi’s goals, financial situation, and risk tolerance. Based on this, they might advise him to invest his current savings and allocate ₹10 lakh annually from his income into a diversified portfolio. The suggested investments could target an average return of 10%-12%, depending on market conditions.

The plan would also include strategies to reduce his tax liabilities, ensuring more savings and efficient growth of his wealth. Over time, the wealth manager will regularly review Ravi’s portfolio and adjust it to align with changing market trends or Ravi’s evolving goals.

With this structured wealth management approach and the power of compounding, Ravi could reach his financial targets within his desired timeframe.

Features of Wealth Management

Wealth management is a personalized financial service tailored to your unique needs. It takes into account your risk tolerance, financial goals, timeline, assets, and liabilities to create a customized plan. Its key features are:

• Personalized Service: Wealth management is not a one-size-fits-all service. Your wealth manager tailors a plan specifically to your financial needs and goals.
• Comprehensive Approach: It covers everything from investment strategies to tax planning, retirement planning, and even estate planning.
• Professional Guidance: Wealth managers have the expertise and knowledge to guide you through complex financial decisions and offer advice to maximize your wealth.
• Goal-Oriented: Wealth management focuses on helping you achieve your specific financial goals.

Benefits of Wealth Management

Wealth management provides several benefits, ranging from investment growth to financial peace of mind. Take a look at some of these advantages:

Retirement planning

One of the biggest benefits of wealth management is retirement planning. A wealth manager helps you create a plan to save for retirement and ensures you are on track to meet your retirement goals. They recommend suitable investment options and help you build a corpus to live comfortably once you stop working.

Tax planning

Tax planning is another huge benefit of wealth management. Wealth managers can help you optimize your tax situation by recommending investments that qualify for tax deductions (like ELSS or NPS). This helps you save money on taxes while growing your wealth.

Risk management

Investing always involves some level of risk. A wealth manager helps identify potential risks in your portfolio and works to minimize them through diversification and other strategies. This helps protect your wealth in case of market downturns or unforeseen circumstances.

Cost savings

By creating a customized investment strategy, wealth managers help you avoid unnecessary fees and costs. Whether it is choosing the right investment funds or minimizing taxes, wealth management helps you save money in the long run.

Ensures Family Security

Wealth management does not just focus on you; it also considers your family’s future. Whether it is protecting them through life cover or ensuring they inherit your wealth without complications, wealth management ensures your loved ones are financially secure.

Flexible Investment Strategy

Wealth managers design flexible investment strategies that can be adjusted based on your changing goals and market conditions. This means your investments stay aligned with your financial aspirations, even as life changes.

Alleviates financial stress

Managing finances can be stressful, especially when you’re unsure of where to invest or how to save. Wealth management alleviates this stress by taking a proactive approach and offering guidance on every aspect of your financial life. This helps you stay focused on your goals without worrying about day-to-day financial decisions.

Key Objectives of Wealth Management

The primary objective of wealth management is to help individuals manage and grow their money effectively while securing their financial future. It focuses on:

• Wealth creation through smart investments
• Preserving wealth for future generations
• Tax optimization to minimize your tax liability
• Retirement planning to ensure a comfortable future
• Ensuring family security by securing life cover and estate planning

Wealth Management Strategies

To achieve these objectives, wealth managers use various strategies based on an individual’s risk appetite and financial goals, such as:

Budgeting

A solid budgeting strategy ensures that you live within your means and save for future goals. Wealth managers help you track your expenses and allocate funds for savings and investments.

Financial planning

Financial planning is about setting short- and long-term goals and creating a roadmap to achieve them. Wealth managers guide you through this process, considering your income, expenses, debts, and future needs.

Professional advice

These wealth managers provide expert advice on all aspects of your financial life. They help you understand complex investment options and tax laws, ensuring you make the right decisions.

Allocating Assets

They also recommend the best way to allocate your assets. This involves dividing your money among different types of investments like stocks, bonds, and real estate to optimize returns while managing risks.

Diversification

Diversification is a strategy where wealth managers spread their investments across different asset classes to reduce risk. This helps protect your portfolio from market volatility and ensures more stable returns.

Investment Options in India for Wealth Management

In India, there are several investment options that can be part of your wealth management strategy. Here are some popular ones:

Equity-Linked Savings Scheme (ELSS)

ELSS is a tax-saving investment option that invests in equities. It provides tax deductions under Section 80C and also offers the potential for high returns.

Unit Linked Insurance Plan (ULIP)

Unit Linked Investment Plans combine insurance and investment. A part of the premium goes toward life cover, and the rest is invested in various asset classes. ULIPs offer tax benefits and are a good option for long-term wealth creation.

National Pension Scheme (NPS)

NPS is a government-backed retirement savings scheme. It offers tax benefits under Section 80CCD and helps you build a corpus for retirement while providing a stable income post-retirement.

Fixed Deposit

A fixed deposit is a low-risk investment where you deposit money for a fixed term at a predetermined interest rate. It is a safe option for conservative investors who want guaranteed returns.

Life Insurance Policies

Life insurance policies provide financial protection to your loved ones in case of your untimely death. Some life insurance plans also offer investment options, allowing you to build wealth while securing life cover.

How Much Money Do You Need to Hire a Wealth Manager?

You typically need ₹5 crore or more in investable assets to hire a wealth manager. This is because wealth managers specialize in serving high-net-worth individuals (HNIs) and ultra-high-net-worth individuals (UHNIs), whose financial needs are more complex than regular investors. They help manage large investments, minimize taxes, and protect wealth from potential risks, making their services ideal for individuals with substantial assets.

Before you hire a wealth manager, understand that they are different from financial advisors. Financial advisors provide guidance on various financial matters like investments, tax planning, budgeting, and retirement planning. Whereas, wealth managers focus specifically on the needs of HNIs or UHNIs. So, if you have ₹5 crore or more available, you fall under the HNI category and can hire a wealth manager.

How to Choose a Wealth Manager?

Choosing the right wealth manager is crucial as you need to look for someone who understands your financial goals and has experience with clients similar to you. Here’s how you can make the right choice:

• Some wealth managers focus on specific types of clients, like UHNIs or retirees. So make sure the wealth manager’s client base matches your financial situation.
• Check the wealth manager’s experience in managing finances. A seasoned professional is more likely to handle your investments wisely and provide the right advice.
• Make sure the services align with your financial goals, whether it is retirement planning, tax advice, or investment strategies.
• Think about how often you want to communicate with your wealth manager. Some people prefer frequent updates, while others may prefer annual reviews.
• Look for certifications or qualifications like CFP (Certified Financial Planner) or CFA (Chartered Financial Analyst). These credentials showcase expertise and professionalism.
• Understand how the wealth manager charges fees and opt for one that fits your budget and needs. It could be a flat fee, an hourly rate, or a percentage of the assets they manage.

Credentials for Wealth Managers

Wealth managers should have proper credentials, such as being a Certified Financial Planner (CFP) or having experience with investment management. To become a wealth manager, the individual must first pass the 10+2 board examination. After that, they can pursue further courses like a Bachelor’s or Master’s degree in fields such as business administration, commerce, or technology.

They can also enhance their credentials by completing specialized courses like Chartered Financial Analyst (CFA) or intermediate courses from the Institute of Cost and Management Accountants of India (ICMAI). Additional qualifications like LL.B or PhD can also be beneficial in some cases. This ensures they are qualified to provide sound financial advice.

Difference between a Wealth Manager and Financial Planner

A wealth manager and a financial planner help people with their finances, but they focus on different areas and cater to different clients.

Conclusion

Wealth management is about making your money work for you while protecting it from risks and taxes. Whether you are looking to save for retirement, grow your wealth, or ensure your family’s financial security, wealth management provides a tailored solution to achieve your financial goals. It offers many benefits, from tax planning to ensuring peace of mind, and with the right wealth manager, you can unlock the full potential of your money.

So, take charge of your finances and start your wealth management journey today!

FAQs on Wealth Management