Most people believe wealth management is reserved for high-net worth individuals (HNIs) with a corpus of Crores. However, in reality, wealth management is a critical aspect of financial planning. Whether you choose an NBFC FD or an equity mutual fund has a bearing on the value of your total wealth corpus and overall risk exposure. Similarly, whether you draw up a will or set-up a trust for generational wealth transfer impacts the taxes payable. Wealth management takes care of all these aspects holistically. This article discusses the importance of wealth management for sound financial planning in detail.
What is wealth management
Wealth management is a holistic approach to managing an individual’s finances. This umbrella term encompasses various sub-strategies that are designed to help individuals grow, safeguard, and strategically distribute their wealth. Wealth management typically covers the following array of services and strategies:
- Financial planning
- Tax optimisation
- Investment management
- Risk management
- Legacy planning
- Retirement planning
Why is wealth management important
If you have set out certain financial goals for the long-term, wealth management can help you achieve these goals with tailored strategies. Let’s understand the importance of wealth management in financial planning:
Individualised wealth plans
Financial planning and wealth management works best when it’s tailored to suit your unique needs. Experienced wealth managers work with you to understand your financial situation, goals, and investment bandwidth. They curate a personalised plan with suitable strategies for wealth growth and preservation that align with your requirements and goals.
Access to investment expertise
Wealth management plays a vital role in investment management. Partnering with wealth management advisors allows you to tap into their market experience and expertise. These experienced professionals use their market knowledge to identify the best assets vis-a-vis your goals, return expectations, time horizon, and risk appetite. For instance, wealth managers can help you compare and choose the right investments for retirement planning. They can assess various aspects like the return potential, taxation benefits, risks, and lock-in periods of retirement plans to make an informed choice based on your age, retirement corpus requirement, and risk tolerance capacity. Therefore, partnering with wealth managers allows you to take advantage of their industry knowledge and market trends understanding to build a stable and profitable portfolio without doing all the homework yourself.
Mitigate risks
Risks can threaten your wealth and financial well-being. The absence of a risk mitigation strategy can erode your wealth. For instance, being diagnosed with a critical illness can mean significant expenses on tests, medicines, and surgeries. Without health insurance, you may have to dip into your accumulated wealth corpus to cover these costs. Wealth management experts help you prepare for such emergencies beforehand. They help identify areas where risks exist and strategies to diffuse those risks. Common risk management strategies used include portfolio diversification, life and health insurance coverage, property insurance, and creation of emergency funds.
Optimise tax benefits
Even if you are a savvy investor, you may lack adequate tax planning knowledge to optimise tax benefits. Wealth management services can help handle this aspect of financial planning. Given their extensive knowledge of taxation laws in the country, wealth managers help you structure a portfolio with investments like PPF, ELSS funds, and NPS that maximise tax benefits under various sections like 80(C) and 80(D). By incorporating appropriate EEE investments, wealth managers ensure that you enjoy long-term tax savings on even the maturity corpus of your investments. With such tax optimising strategies, you get to retain most of your wealth corpus.
Efficient legacy planning
Creating wealth is not just about having a wealth corpus for yourself. It is also about passing down a legacy to the future generations. However, succession planning can be challenging given the inheritance laws and taxes. Wealth management can take care of these complex aspects to design an effective estate plan that allocates your assets according to your wishes, while simultaneously reducing the tax liability of the heir. In short, wealth management can play a vital role in drawing up wills and trusts that are compliant with inheritance laws to transfer your wealth to your kids and grandkids.
Peace of mind
Wealth management helps you plan ahead, ensuring financial security for the long-run. When you partner with professional wealth managers, you place the responsibility of investment management, taxation, and estate planning to experts. These experienced professionals use their expertise to make critical decisions, navigate market volatility, and uncertainties, ensuring optimum outputs. All this alleviates your financial stress, offering you better peace of mind.
Conclusion
Creation and preservation of wealth requires thorough planning, monitoring, and adjustments. Deploying wealth management strategies can be one of the best ways to streamline these aspects. With a customised wealth management plan in place and professional expertise to fall back on, you can achieve your goals like living a comfortable retired life with ease. So, if you have received a windfall recently in the form of an inheritance or stock market gains, deploy wealth management at the earliest. Instead of spending your earnings shopping on online marketplaces -where you can anyway purchase things on EMI - opt to grow this wealth and preserve it for the future.
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