Title LM3 Overview of Private Wealth Management IFT Notes.pdf ✅

LM3 Overview of Private Wealth Management 2024 Level III Notes © IFT. All rights reserved 1 LM3 Overview of Private Wealth Management 1. Introduction and Private Clients Versus Institutional Clients ........................................................3 Private Clients Versus Institutional Clients...........................................................................................3 2. Information Needed in Advising Private Clients..................................................................................6 Information Needed in Advising Private Clients.................................................................................6 3. Client Goals .........................................................................................................................................................9 4. Private Client Risk Tolerance ................................................................................................................... 11 5. Technical and Soft Skills for Wealth Managers.................................................................................. 13 6. Investment Planning and Capital Sufficiency Analysis ................................................................... 14 Capital Sufficiency Analysis...................................................................................................................... 14 7. Retirement Planning .................................................................................................................................... 16 8. Investment Policy Statement.................................................................................................................... 19 Parts of the Investment Policy Statement........................................................................................... 19 9. Sample Investment Policy Statement.................................................................................................... 23 10. Portfolio Construction, Allocation, and Investments for Private Wealth Clients .............. 27 Portfolio Allocation and Investments for Private Wealth Clients.............................................. 28 11. Portfolio Reporting and Review............................................................................................................ 31 12. Evaluating the Success of an Investment Program........................................................................ 34 13. Ethical and Compliance Considerations in Private Wealth Management............................. 35 Ethical Considerations................................................................................................................................ 35 Compliance Considerations...................................................................................................................... 37 14. Private Client Segments ........................................................................................................................... 37 Mass Affluent Segment............................................................................................................................... 38 High-Net-Worth Segment.......................................................................................................................... 38 Ultra-High-Net-Worth Segment.............................................................................................................. 39 Robo-Advisors ............................................................................................................................................... 40 Summary ............................................................................................................................................................... 41 This document should be read in conjunction with the corresponding reading in the 2024 Level III CFA® Program curriculum. Some of the graphs, charts, tables, examples, and figures are copyright 2023, CFA Institute. Reproduced and republished with permission from CFA Institute. All rights reserved.
LM3 Overview of Private Wealth Management 2024 Level III Notes © IFT. All rights reserved 2 Required disclaimer: CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by IFT. CFA Institute, CFA®, and Chartered Financial Analyst® are trademarks owned by CFA Institute. Version 1.0
LM3 Overview of Private Wealth Management 2024 Level III Notes © IFT. All rights reserved 3 1. Introduction and Private Clients Versus Institutional Clients In this reading, we take the perspective of a private wealth manager and discuss the process of designing and executing an investment plan for individual investors. We will cover the tools and techniques used by private wealth managers and how the wealth manager should interact with individual investors for serving their needs. Section 1 discusses the differences between private clients and institutional clients. Section 2 analyzes how to understand the needs and requirements of private clients. Sections 3, 4, and 5 cover client goals, their risk tolerance, and the skills required by private wealth managers. Sections 6 and 7 cover investment planning, capital sufficiency, and retirement planning. Section 8 covers the various components of an investment policy statement. Sections 10 and 11 discuss portfolio construction and monitoring. Sections 13 and 14 cover the ethical and compliance considerations in private wealth management. Finally, Sections 13 and 14 discuss the different client segments that private wealth managers can come across. Private Clients Versus Institutional Clients Private clients include individuals and families who want to invest their personal wealth. Private clients and institutional clients have different concerns relating to investment objectives and constraints, investment governance, investment sophistication, and regulation. In addition, the uniqueness of individuals is an important consideration for private clients. Investment Objectives Private clients Institutional clients Private clients have diverse investment objectives. Some common objectives include: • Financial security in retirement years. • Ability to support family members. • Funding of philanthropic goals. Institutional clients have relatively well- defined objectives. Objectives may not be clearly defined or quantified. For example, consider the goal of ‘financial security in retirement years.’ The client may not be able to quantify when retirement begins, how long it will last, and how much cash flow will be required annually. Objectives may compete with each other and change over time. For example, objectives like ‘financial security in retirement years’ and Objectives are typically related to a specific liability stream. For example, the investment objective of a pension fund is to meet its pension liability. The objectives are not likely to change materially over time.