From being the preserve of a few, wealth management is now relevant for a large number of middle-class Indians who have reasonable savings and surplus. This momentous demographic change has been accompanied by the advent of "manufacturing" entities such as asset management companies, insurance companies, portfolio management services, etc. The increasing complexity of products and asset classes, as well as more onerous regulatory and compliance requirements, has put in motion significant changes in the industry. What was hitherto a relatively unorganised industry, supported by independent financial advisors and focused essentially on tax-saving instruments, has now become an organised industry. The last decade or so has seen the entry of banks, investment banks, equity brokers and many others in wealth management. These industry participants are now striving ever harder to gain a higher "share of wallet" of the investors, and even stodgy public sector banks have entered the fray. Not surprisingly, offering a more comprehensive array of products has become the new mantra. This obviously complicates the choice of a wealth manager, which can be one of the defining decisions for a potential investor. The earlier investors make achoice and start investing, the greater the benefits they can reap.

UNDERSTANDING INVESTMENT NEEDS

While no two individuals are the same when it comes to investment goals, it is possible to classify investment needs, goals and risk tolerance into a few categories, almost akin to "blood groups". Based on factors such as risk tolerance, time horizon of investment and prior experience, investor needs can be better interpreted. So, if your investment horizon is short or if your need for liquidity is high, there is no point in investing in long -tenure options even if they offer guaranteed returns and tax benefits. Also, as investors, we tend to behave differently for different pools of our investment surplus. A wealth manager who has the ability to understand these aspects through tools such as risk-profiling and recommend appropriate product solutions should be preferred.

ADVICE VS SERVICE

Advice is "poetry". Service is "prose". Not surprisingly, therefore, there is a tendency to overrate the value of glamorous factors such as advice or research over service. For most of us, the choice of one mutual fund equity scheme over another will make little difference. However, ensuring that redemptions are re-invested in a timely manner or statements are provided expeditiously for tax filing, can be critical. However, just depending on a relationship manager (RM) for service may not work. Choosing a wealth manager who provides information online, through a helpline or call centre, as well as through RMs, can be a big plus. Technology can be a great enabler for service. Is it possible for you to get a statement with updated NAVs or stock prices? A consolidated statement across all investments made through the firm in different asset classes and diverse mutual funds? Do you get updates on investments and redemptions through a medium of your choice, SMS or email, for example? All these considerations are very important, but seldom evaluated.

EXPENSES OR CHARGES

Often the focus is solely on the fee charged by the wealth advisor. However, charges may be back-ended or embedded in your investment. Be wary of hidden charges. For instance, for a disciplined investor, it may be more cost-effective to buy a term plan and a pure investment rather than a hybrid insurance plan. Similarly, it is feasible to create a systematic investment plan (SIP) using a basket of stocks and execute them at a fixed frequency at a far lower cost versus an investment through a mutual fund SIP. However, not many wealth advisors would be able to provide the platform for execution of an equity SIP.

GOVERNANCE AND CONTROL MECHANISMS

A wealth management firm that rewards its executives primarily on revenue cannot work in your interests. Try and understand how your RM is incentivised. A balance scorecard that measures the RM on various factors such as client retention and AUMs, and not just revenue is essential. Similarly, what are the controls around conflict of interest that may arise from proprietary positions of the firm, if any? In conclusion, you should research the options available to you for financial planning and wealth management. A firm that offers products from various providers and AMCs should be preferred. Understand the level of due diligence in selection of products. Indiscriminate offering of multiple products is a red-flag. Finally, of course, the best way to protect your interest is to be better informed.

Source : ET