Choose Right Wealth Manager : For investors like Mahesh, a flexible approach to investment, such as making monthly lump sum contributions, offers the flexibility to tactically allocate investments across various schemes. Maintaining a savings rate of 45-50%, Mahesh can make substantial monthly investments. Living in a joint family with his parents and his brother’s family helps Mahesh share many costs, keeping their overall expenses low.
How to Choose Right Wealth Manager
Achieving FIRE : Pursue Your Passions
For Mahesh, achieving Financial Independence, Retire Early (FIRE) means having the freedom to pursue his passions rather than quitting work altogether. Currently, Mahesh works as a director of accounts at a publishing company, while his wife teaches at a government-aided school. They have a 13-year-old son.
Besides covering day-to-day expenses, Mahesh aims for his FIRE corpus to fund his son’s higher education and marriage costs. Travel is another priority. “We want to travel more while we’re still healthy. We’ve explored almost all of India and now aim to visit international destinations. I want to cover as many countries as possible, so starting sooner is better,” he says.
Mahesh is also planning for any emergency or medical needs. He expects a conservative 10% annualized return from the equity portion of his portfolio and 7% post-tax from the debt portion (Public Provident Fund, post office, Employees’ Provident Fund investments), giving him blended portfolio returns of 8.5%. He considers 6% inflation for his expenses. This estimate is based on a 50-50 equity-to-debt portfolio.
“With my target mix of 70:30 equity-to-debt, my blended return would be slightly above 10%,” Mahesh says.
Insurance Coverage
Mahesh has substantial medical cover, including a 15 lakh base cover and a 1 crore super top-up, along with a life cover of 15 crore. Although he has no outstanding loans, he has funds stuck in a real estate investment gone bad. While he doesn’t plan to buy more real estate immediately, he might consider a larger family home in the future. For now, he is investing in repairs of their existing home, ensuring it remains comfortable for the family.
How to Choose Right Wealth Manager : Key Parameters
Education: Ensure your wealth manager has relevant educational qualifications, such as an MBA, CA, CFA, or any finance or economics degree.
Experience: Experience in managing market and economy cycles is invaluable. A wealth manager who has witnessed market ups and downs will be better equipped to handle dynamic markets.
Emotional Quotient: Emotional intelligence is crucial in managing investments. Assessing this can be challenging, but it is important to gauge your prospective wealth manager’s emotional stability.
Ethics: Ethical considerations are critical. You need a trustworthy professional to manage your money.
Expertise: Understand how your wealth manager selects investments. Does he use algorithms? What is his product universe? Does he adopt a portfolio approach or a product approach?
Endorsement: Client testimonials are invaluable. Ask for references to get a better idea of the wealth manager’s quality and trustworthiness.
Expansion: Assess the wealth manager’s assets under management, the number of clients, and their growth over the years. This helps gauge their expertise and reliability.
Red Flags in Wealth Management
Incentives: Avoid wealth managers who offer goodies or fancy perks. These should not influence your decision.
Brand: A strong brand adds credibility but should not be the sole factor in your decision. The quality of the wealth manager is more important.
Product Bias : Be wary if your wealth manager constantly pushes certain products. Investigate their motives.
Limited Product Range : In a complex financial landscape, a wealth manager with a diverse product range is essential.
Poor Communication : Effective wealth management involves understanding the investor’s needs and risk appetite. Ensure your wealth manager communicates well and understands your requirements.
Every great journey begins with a single step. In the never-ending journey of wealth management, selecting the right wealth manager is the crucial first step.
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