Date & Time: 6th April 2021, 05:30 PM – 06:30 PM IST
Speakers: Rajesh Saluja– CEO & MD, ASK Wealth Advisors
Hosts: Vikaas M. Sachdeva – CEO, Emkay Investment Managers, and
Sachin Shah – Fund Manager, Emkay Investment Managers

Moderator: Sankalpo Pal, Biz. Development, PMS AIF WORLD

Nurturing Wealth to Build a Legacy: Art & Science of Managing HNI Wealth

Emkay Investment Managers, headed by its CEO Mr. Vikaas M Sachdeva, in association with PMS AIF World, India’s Most Trusted and Best PMS & AIF Platform presented 3rd Episode of a very unique webinar series, “Emkay Alpha Maven with guest speaker”, Mr. Rajesh Saluja, CEO & MD, ASK Wealth Advisors.

In this episode, Mr. Rajesh Saluja, who is an avid golf player, shared his views on managing wealth. He explained by quoting various interesting and intuitive aspects, that this is an art as well as science. It is science because investing is a process and art because of the manner in which it gets executed. Just like a healthy body needs proper planning with respect to diet, physical, emotional and spiritual well-being; money also needs planning, because if not planned, ‘money can evaporate into thin air.’

Mr. Rajesh Saluja, who plays cricket as well and loves traveling around the world, mentioned that having a high income is one thing and planning your finances and feeding from those finances is another thing. Having a disciplined approach to managing the money in the right and intelligent way is an important aspect of wealth building and wealth management.

While the science of wealth will revolve around numbers (compounding and returns), the art of wealth lies in the wisdom around what to do and what not to do. Where science will estimate future results based on back-tested data and past performance, art involves intuition around the way going forward.

How should one approach the entire process of wealth creation and wealth management?

To lay out the framework for wealth creation, it is very important to check that an individual’s post-tax and post-inflation surpluses (earnings in excess of expenses of all kinds) grow in a positive manner. So, such investments should be made in such a way that it helps generate maximum alpha. Along with this, comes the aspect of planning. If the goals to be achieved (short-term and/or long-term) are clearly defined, financial planning can become much easier as then investment decisions can be made from a ‘return perspective.’ Wealth creation will happen through growth assets. The Fixed Income products will manage one’s cashflow and adjust for inflation but growth asset classes like businesses, equities, real estate, etc. will generate positive post-tax and post-inflation returns that will in turn create wealth.

Once this is in place, it is very important to understand the significance of not losing wealth. Wealth erosion will happen quickly if one chase speculative investments or investments they don’t understand; hence managing risk (related to how and where the investments are being done) is also an important factor that contributes to wealth creation. Treat wealth creation as an affair, and it’ll end like how most affairs end; but treat it like a marriage with a long-term perception, staying put in ups and downs, the end result will be a happy one, adding in the power of compounding.

Keep your investments simple and focused on goals. Understand the long-term nature of your investments and have the right temperament. There are 3 things that result in wealth creation: Discipline (the right asset allocation & selection), knowledge (understand and know what and where you are investing), and temperament (how you treat and behave with each asset class during good and bad times).

How is wealth creation & management interlinked with estate planning?

Despite being different in nature, in some way the two are interlinked. While one aspect is about creation & management, the other is about protection, planning and appropriate usage. They come in at different stages of an individual’s journey – once the wealth creation is in place, only then can you plan what to do with that – in your lifetime and after your death.

Generation of wealth without proper legacy or estate planning actually leads to squandering away of wealth & fragmentation of the estate.

Time and again we have observed, mostly in the Indian environment, that most disputes are around property and business; this happens because wealth has definitely been generated in the family or business but proper planning around it has not been in place. So, it is important to note that one should not only know how to create wealth but also manage it once it is created and/or is in the process of creation; and this planning and protection can come through in the form of a will or a trust or any other such solution to ensure that the wealth stays and the legacy remains.

The time of planning the utilisation of wealth will vary from time to time but at least the creation of will is something everyone should do as soon as a business or some assets become a part of one’s portfolio. So creation of a will can be and should be done as early as possible but the complex part of estate and legacy planning can be done along the journey.

Traditionally, wills have been and are being used as a tool for succession but it is now being seen that for complex situations (like having wealth that will last across generations, having a large family biz. with many members being involved, etc), wills are being challenged and thus, it is always better to sit down and look for other tools like family trusts or LLPs, and so on. But for an individual having a simple, straightforward life barring such complexities, a simple tool like a will should do the work.

To put that into perspective, most of us believe that our nominee(s) (person(s) appointed by an individual to look after his financial matters/accounts after his/her death) will necessarily inherit our wealth. Let’s say Mr. A has got a wife, a mother, and has two children. Mr. A has put his wife as a nominee in his bank account. Now in the occasion of the death of Mr. A, his wife will surely get access to his bank account, but in the absence of Mr. A’s will, his children, as per Hindu Succession Act, can challenge her. So being a nominee does not necessarily mean that the wife will get all the money in the absence of a will. But if Mr. A had created a will and made his wife the complete 100% owner of that savings a/c, then no one can challenge her. So having nominee(s) does not guarantee inheritance of wealth as long as there is a will to back it up. Nominee is just a fiduciary legal responsibility of ensuring that the proceeds reach to the beneficiaries.

What is the difference between estate planning and legacy planning?

Estate includes one’s businesses, financial assets, and the likes, and so its planning will include planning regarding succession of the same whereas Legacy is a more holistic view of one’s estate which includes passing down of the family value system as well. So, while estate planning includes the financial aspects of one’s wealth, legacy planning incorporates the non-financial assets which are limited to one’s legacy.

As far the goals are concerned, these are pretty subjective. The goals to be considered for wealth management and legacy planning will of course vary from individual to individual; but it is important for everyone to understand his/her own risk appetite. Everyone has a different way of dealing with money and having a framework around value systems of money. The goal (during creation of a wealth management plan) could be anything- personal or professional, pertaining to an individual’s family or outside, but what is necessary is to make sure that returns generate an alpha and the goals are met in the desired range. It is of utmost significance to define the amount one would need over the coming decades, taking into account inflation and tax-brackets. “With the help of a financial advisor or planner, a full-fledged investment plan can be made after quantifying and putting some number around your goals,” said Mr. Rajesh Saluja.

What are some basic things that a first-generation entrepreneur should keep in mind with respect to wealth management and succession planning?

The edge over here lies in creating the wealth plan. Most people today want to first have a safe space which ensures that all their basic needs (nice house, lifestyle, etc) are met and then wealth management comes into picture for the remaining surplus. Here, says Mr. Rajesh Saluja, the wealth manager can play a meaningful role by understanding each client and creating a customised, right mix of portfolio for him/her. The fundamental approach of wealth management remains the same, irrespective of the individual/business being a first or second or third generation; and that is to preserve wealth and grow it post-tax and post-inflation which helps them sleep well.

Myths regarding Estate Planning:

  • Only the wealthy need an estate plan [Truth: Everyone should have a basic will irrespective of how many assets you have]
  • If I have a will, I do not need a Trust [Truth: Decision of having a Trust is subjective based on current situations and future planning]
  • By creating a Trust, I am giving my assets away in someone else’s name [Truth: Have trust in your Trust]

Some takeaways from the Q&A:

  • A decent and a non-complicated Trust costs about INR 2-3 Lakhs, followed by an annual management fee
  • Asset allocation ensures that all your eggs are not put into one basket. Diversification of funds within each asset class is as important as diversification of funds into different asset classes
  • Even the best fund managers cannot time the market as the markets work not only on fundamentals but also sentiments
  • The moment you have a good number of assets in your name and a family to look after, is the ideal time to create a will
  • There is no regulatory authority for a private Trust in India. It is a private trust, so no need to disclose anything
  • A private Trust can be created with a legal firm
  • A Trust allows you to modify and review your planning from time to time as situations change and/or if there is a need for change

“A good combination of art & science of wealth results in not only wealth creation, but also in wealth preservation, and further transfer to the next generation.”

While Wealth planning and management is a good combination of art & science, estate & legacy planning on the other hand, is more inclined towards being an art as this requires a lot of customization.

To conclude, while an individual can manage the science portion of wealth management, the art of it should be left with the artists, which in this case, is carried out by wealth advisors like ASK Wealth Advisors.

RISK DISCLAIMER: Investments are subject to market-related risks. This write up is meant for general information purposes and not to be construed as any recommendation or advice. The investor must make their own analysis and decision depending upon risk appetite. Only those investors who have an aptitude and attitude to risk should consider the space of Alternates (PMS & AIFs). Past Performance may or may not be sustained in the future and should not be used as a basis for comparison with other investments. Please read the disclosure documents carefully before investing. PMS & AIF products are market-linked and do not offer any guaranteed/assured returns. These are riskier investments, with a risk to principal amount as well. Thus, investors must make informed decisions. It is necessary to deep dive not only into the performance, but also into people, philosophy, portfolio, and price, before investing. We, at PMS AIF World do such a detailed 5 P analysis.

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