Section 4 - R21 - Overview of PWM (Individuals, Size of Clients PB) Flashcards
Private Wealth Investment Objectives (List)
- Financial security during retirement
- Financial support to family
- Philantropic goals
Difference v. Institutional: Institutional are more defined and unlikely to materially change over time
PB Client Constraints (List)
- ↓ Time Horizon: ↓ Lower Risk Tolerance, ↑ Liquidity Requirements
- Scale: Portfolios are smaller
- Taxes: Individuals are usually taxable
PB Distinctions (List)
- Investment Governance: no formal structure
- Investment Sophistication: more vulnerable to emotional or biased decisions
- Regulation: different to institutional
- Uniqueness and Complexity: similar clients totally different needs or portfolio
PB Personal Information (List)
- Family (marital, children, proof of id)
- Employment / Career (future, retirement)
- Source of Wealth
- Explicit Return Objectives
- Investment Preferences (ESG, art, liquidity)
- Financial Objectives and Risk Tolerance
PB Financial Info (List)
- Assets
- Liabilities
- Cashflows
- Future expenses projections
Other PB Relevant Info (List)
- Wills
- Trust Documents
- Life and Disability Insurance
PB Tax Strategies (List)
- Tax avoid (use tax free accounts, free gifts)
- Tax Reduction (tax-exempt assets, low turnover funds)
- Tax Deferral (defer gains, anticipate losses, retirement accounts PGBL)
PB Planned and Unplanned Goals (List)
- Planned: Retirement, Education, Family Events, Wealth Transfer, Philantropy
- Unplanned: Unforesen. Property repairs, medical expenses, others
Wealth Manager Role (List)
- Goal quantificate
- Goal prioritize
- Goal changes
Risk Tolerance (Definition)
Level of risk an individual is willing and able to bear (opposite of risk aversion)
Risk Capacity (Definition)
Ability to accept financial risk, determined by wealth, income, investment time and liquidity
Risk Perception (Definition)
Subjective assessment of the risk involved in a situation. It may be informed by personal experience and past situations.
Wealth Manager Technical Skills (List)
- Capital Markets Proficiency (general understanding)
- Portfolio Construction ability (build)
- Financial Planning (estate law, tax, insurance)
- Quantitative Skills
- Technology Skills (software, simulation)
- Language Fluency
Wealth Manager Soft Skills (List)
- Communication Skills (verbal, written)
- Social Skills (ability to understand and relate to others)
- Education
- Business, Sales
Capital Sufficiency Analysis (Definition)
Process to detemrine if a client has or is likely to accumulate sufficient financial resources to meet objectives
Capital Sufficiency Analysis Methods (List)
- Deterministic Forecast: straight-line valuation given discount rate and FV input
- Monte Carlo: Input Asset Class assumptions + Taxes, Inflation, Management Fees
Turnaround strategies when capital is not sufficient (List)
- Increase contributions
- Goals more modest
- Goals must be delayed
- Have higher expected returns
Stages of Life (List)
- Education
- Early Career
- Career Development
- Peak Accumulation
- Pre-Retirement
- Early Retirement
- Late Retirement
Retirement Planning Methods (List)
- Mortality Tables: Sum up (Survival Probability * Spending in Year). Discount everything to PV.
- Annuities: Give a lump sum and exchanges that for a series of PMTs (fiex payments). Immediate or Deferred.
- Monte Carlo Simulation: Produces probability of reaching a goal but NOT A SHORTFALL measure.
Behavioral Considerations in Retirement (List)
- Heightened Loss Aversion: ↑ Age = ↑ Loss Aversion
- Consumption Gap: ↑ Age = ↓ Consumption
- Annuity Puzzle: Individuals do not like annuities
- Preference for Investment Income over Capital Appreciation (Aluguel > CDB)
Part of the IPS (List)
- Background and Investment Objective
- Investment Parameters
- Portfolio Asset Allocation
- Portfolio Management
- Duties and Responsibilities
BIPAPD
IPS Background and Investment Objective (Characteristics)
- State objectives
- If there are many, state which are primary
- Include MVportfolio and relevant accounts
- External cashflows and sources
IPS Investment Parameters Section (Characteristics)
a. Risk Tolerance (ability, willingness)
b. Time Horizon (range)
c. Asset Classes
d. Other (ESG, Legacy, Non-Advised)
e. Liquidity Preferences
f. Constraints (restrictions)
IPS Portfolio Asset Allocation Section (Characteristics)
- Choose target allocation per asset class
SAA: Target + Upper / Lower Bounds (for rebalancing)
TAA: Asset Class Target Ranges
IPS Portfolio Management Section ( Characteristics)
a. Discretionary Authority (ability to act without clients’ approval)
b. Rebalancing: methodology and frequency
c. Tactical Changes: if allowed when and to what degree
d. Implementation: MFs, ETFs, Proprietary
IPS Duties and Responsibilities Section (Characteristics)
- Manager Responsibilities: Develop SAA, Recommend investments, monitor, rebalance, cost management, use of derivatives
- IPS review: how frequent
IPS Appendix (List Attachments)
- Modelled Portfolio Behavior
- Capital Markets Expectations
Portfolio Construction Approaches (List)
- Traditional Approach
- Goals-Based Investing Approach
Portfolio Construction: Traditional Approach
- Identify asset class
- Develop CME (Return, Risk, Correl)
- Asset Constraints (Passive, Active, Mgr Selection, Security Type)
- Determine asset allocation
Portfolio Construction: Goals Based Investing Approach
- Same process of traditional but align investments with goals
- Perform MVO for each subportfolio
- Goals: max vol or min probability of success
Portfolio Reporting (List of Items)
- Asset Allocation Report
- Report Summary
- Detailed Performance
- Historical Performance
- Contributions / Withdrawals
- Purchases / Sales
- Currency Exposure
- Market Commentaries
Portfolio Review (Describe Process)
- Actual meet with client to review investment plan
- Ask changes in investment objectives, risk tolerance, time horizon, circumstances
- Discuss asset allocation v. targets
Success Evaluation of Portfolio Management (Description of Criteria)
- Goal Achievement: Is it likely to succeed withouth meaningful adjustments
- Process Consistency: Followed the plan? 3rd parties, rebalancing, tax considerations, circumstances, tactical allocations
- Portfolio Performance: absolute, relative
- Definitions of success: must be aligned between client and manager
Ethical Considerations in PWM (List)
- Fiduciary Duty and Responsibility
- KYC
- Confidentiality
- Conflicts of Interest
- Compliance (varies)
PWM Client Segments (List)
- Mass affluent (financial planning, risk mgmt, retirement planning)
- High Net Worth Segment: customized investment management, tax planning, wealth transfer issues
- Ultra High Net Worth: Multigenerational, Complex Tax, Estate Planning, Other (Travel, Art, Wine, Bill Payment)
- Robo-advisors: cost effective, digital, use MVO, monitor and rebalance
