What is Wealth Management?

Wealth Management

Managing money takes a village.

You need banks for loans and deposits, insurance agents to buy the right insurance, investment advisors for investing and chartered accountants to file your returns. Managing your money becomes even harder when you try to do any or all of the above by yourself.

But the wealthy and the super-wealthy have several one-stop solutions available to get all of the above. They are ‘wealth management companies exclusively available to them.

The wealth management industry refers to the wealthy and the super-wealthy as HNIs and UHNIs, respectively. UHNI stands for Ultra High Net Worth Individual.

As per Karvy Private Wealth, HNIs have an investable surplus of Rs. 5+ crore, whereas UHNIs have an investable surplus of Rs. 25+ crore. Different companies/sectors may have different definitions of HNIs and UHNIs.

But what exactly is wealth management? What kind of money management services are offered? And finally, who provides wealth management services?

Let’s discuss the industry that manages Rs. 3.2 lakh crore for 7+ lakh wealthy and super-wealthy Indians in 2023.

Wealth Management Services and Products

Wealth management involves planning for and optimising all money matters. Hence, wealth management solves problems related to all of the following:

  1. Budgeting and expense management
  2. Insurance planning
  3. Taxation planning
  4. Investment management
  5. Succession planning
  6. Corporate financing and treasury management

In the following paragraphs, we will discuss the above aspects of wealth management and how they differ for wealthy individuals and families.

Budgeting and expense management

Now you may think: What problem would millionaires have with budgeting? Do they really need to track their expenses?

But that’s definitely not the case. Millionaires have a lifestyle that’s drastically different from the lifestyles of regular people.

Celebrities like Lindsay Lohan, Mike Tyson and Vijay Mallya have declared bankruptcies thanks to their extravagant lifestyles and spending patterns.

So yes, even the wealthy and the super-wealthy need to budget and manage their expenses like most of us.

However, unlike most of us, they can hire a wealth management firm to guide them on spending their money.

Insurance planning

What’s the difference between you and Lionel Messi? Messi’s left foot is insured for almost a billion dollars!

It’s not just critical body parts but also conventional business assets like malls, factories, restaurants etc., that the wealthy insure.

Simply put, the wealthy and super-wealthy need more than regular life and health insurance like most of us. Moreover, the covers (the protection amounts) they need are sky-high, which means their premiums are also exceptionally high.

Wealth management firms advise millionaires on how to go about buying the right insurance, choosing appropriate covers and even negotiating with insurance firms to insure unique assets like Messi’s left foot.

Taxation planning

You would have heard that the wealthy pay low taxes. The quantum of tax may be in millions, but they often pay a lower tax rate than the top salaried folks.

This is because the wealth of HNIs and UHNIs is parked in equity of their own businesses and other public and private businesses. And corporate and equity tax rates are substantially lower than personal income tax rates.

Wealth management firms help the wealthy decide what salaries they should draw from their business to pay the least possible tax. For example - Mukesh Ambani is one of the wealthiest people in the world. He draws a maximum salary of just Rs. 24 crore.

Alia Bhatt, a famous Indian movie actress, purchased an apartment worth Rs. 37 crore in 2023. Interestingly, she purchased the apartment under her production house’s name instead of hers. A classical ‘wealthy person’ move to get tax breaks and other benefits.

Wealth management companies deploy many such tactics to minimise taxes for their clients. It is important to note that these are not tax-evasion techniques but simply exploitation of the tax loopholes that exist in the system, probably, deliberately.

Investment management

Investing is the meat of most bundled financial services and is no different in wealth management.

However, investment management (also known as portfolio management) for the super-wealthy is different in 3 ways:

1. Number of available alternatives

The more money you can invest, the more options open up for you. So naturally, the wealthy and super-wealthy have the most investment options.

While they do invest in stocks, mutual funds, bonds and even FDs like us, they also have access to exclusive alternative investments. An example of an alternative investment is startup equity which is exclusively available to investors with sizable money and contacts.

Other alternative investment examples are commercial real estate and popular paintings, wines and other assets expected to generate income and/or grow in value.

Wealth management firms advise HNIs and UHNIs to invest in traditional assets like stocks and bonds and provide access to alternative investment assets.

2. Sophistication of investment strategies

The wealthy get access to cutting-edge investment strategies across investment instruments and asset classes.

This sophistication is geared towards generating high returns with low risks or any other investment objective the strategy targets to achieve.

3. Focus on wealth preservation

The wealthy are already wealthy. Hence, it is natural that they prioritise preserving their wealth over growing it.

Now this doesn’t mean that growing wealth is not important, it is just not as critical as preservation.

The wealthy generally have the responsibility to invest, keeping future generations in mind. This is also a reason why preservation is prioritised over growth since growth requires taking higher risks with money.

Succession planning

Also known as ‘estate planning,’ succession planning involves passing along assets to beneficiaries in case of the asset owner’s death.

Because of the high value of money and assets that are involved, feuds and legal cases are common in wealthy families over who gets what. However, a proper succession plan can minimise or even eliminate these tussles.

Wealth management firms help wealthy families with succession planning right from creating a will, assigning power of attorneys and all the way up to seamlessly transferring the wealth and assets as per the wish of the deceased or the law.

Corporate financing and treasury management

For many wealthy folks, their businesses are closely tied to their personal assets. One reason for this is that businesses have lower tax rates and get tax breaks/concessions that individuals don’t.

So, suppose an owner of a medium-sized business wants to buy a car. In that case, it is much better for him to buy the car through his business entity than buy it personally. Since the transaction involves spending through the business bank account, it becomes a part of treasury management.

Wealth management firms may offer wealthy business owners corporate financing and treasury management services. It makes sense for business owners to let a wealth management firm manage their business and personal finances to be optimised better. 

It is important to note that not all wealth management firms offer this service. Further, decently sized businesses have in-house finance teams and rarely require this service.

Meet the Wealth Manager

When interacting or working with a wealth management firm, you will have a single point of contact for all your communication with the firm. This person, also known as the relationship manager, can make or break your experience with the firm.

Your relationship manager must have three qualities:

  1. Solid knowledge of traditional and alternative asset classes and investment solutions that the firm offers
  2. Understanding of and sympathy towards your personal and financial situation
  3. Respect and an unbiased attitude towards your time and money

The NISM (National Institute of Securities Market) and CRISIL (Credit Rating Information Services of India Limited) have designed the NISM and CRISIL Certified Wealth Manager (NCCWM) program to transfer the above qualities to financial professionals.

NCCWMs find jobs as relationship managers/wealth managers at financial services companies like wealth management, portfolio management and mutual fund distribution companies.

Like NCCWM, relationship managers at wealth management companies may have other certifications and qualifications like MBA (Finance), CFA, CA etc. These certifications are good indicators of the knowledge and credibility of relationship managers.

Note: The wealth manager is not the person who makes investment decisions. A team of investment professionals makes investment decisions related to asset allocation, security selection, and others. One of the wealth manager’s primary responsibilities is to be a bridge between you and the firm’s investment team.

What is Private Wealth Management?

As we saw, wealth management covers a full spectrum of financial services concerned with wealth preservation, creation, and planning.

However, wealth management can be availed by different entities like wealthy individuals, wealthy families, trusts, institutions, corporates etc. Each entity has its own wealth management challenges and requirements and needs a different approach.

The wealth management practices associated with financial services for wealthy individuals are referred to as private wealth management. The focus is on the financial management of individuals. It may consider other overlapping aspects (family, business) of the individual’s wealth management.

Other forms of wealth management are institutional wealth management and family offices. Institutional wealth management is available for large institutions like businesses and trusts, whereas family offices are generally set up in businesses owned by one or a handful of families.

Wealth Management Companies in India

As of 2023, India has the 3rd highest number of billionaires and 6th highest number of millionaires in the world. So it is not surprising that India has a competitive wealth management industry.

Almost all major banks have wealth management divisions, most specialising in private wealth management. Here are some of the bank-led wealth management divisions:

  1. HDFC Bank Private Banking
  2. SBI Wealth (by State Bank of India)
  3. ICICI Bank Wealth Management
  4. Kotak Private (by Kotak Mahindra Bank)
  5. Burgundy Wealth Management (by Axis Bank)

Apart from banking divisions, many independent wealth management firms exist in India. Some of them are:

  1. Nuvama Wealth (formerly known as Edelweiss Private Wealth)
  2. IIFL Wealth
  3. ASK Investment Managers
  4. Anand Rathi Wealth
  5. Motilal Oswal Wealth

Disclaimer: The wealth management companies mentioned above are not recommended by us. All the content on this page is for informational and educational purposes only.

Asset Management vs Wealth Management

Asset and wealth management are two terms often used interchangeably, even by finance professionals.

However, in the Indian context, these are two distinct terms and can be defined by the entities that offer these services.

Mutual funds are commonly referred to as asset management companies. Mutual funds offer mass investment products in the form of mutual fund schemes. Each scheme is mandated to invest within a certain set of rules by investment professionals.

Mutual funds are mass investment products because there is no barrier to investing in any form. Anyone with just Rs. 100 can start investing in mutual fund schemes and get professional money management.

Wealth management companies offer wealth management which are specialised and holistic services for wealthy individuals, families and even corporates. Unlike mutual funds, wealth management requires a significant investment of Rs. 5 crore and above.

We talk about other differences between asset and wealth management here -> Asset Management vs. Wealth Management

Disclaimer: Mutual fund investments are subject to market risks. Read all scheme-related documents carefully.

Wealth Management FAQs

What is the role of wealth management?

Wealth management has two primary roles: preserve and grow client wealth. Wealth management firms do this by optimizing money decisions for their clients.

What is the difference between wealth management and wealth planning?

Wealth management and wealth planning are the same and refer to managing money for wealthy individuals, families, trusts, corporations etc.