Investing: Role of a wealth fund manager

I am often asked to compare my two diverse professions. While both are important, in certain respects, wealth manager has even greater impact than a medical doctor. While health is limited to an individual's life span, wealth management has major legacy effect: it shapes future generations too.

Other Get Ahead features:
Paragliding in the Himalayas
12 steps to studying & surviving abroad
Are you a victim of office gossip?
Market experts: What to buy, sell and hold now?

Many university endowment funds including those of Harvard and Yale are run on good wealth management principles and are designed to benefit students who will be studying 150 years later. Similarly, the Nobel Prize is run on the power of passive income and has motivated excellent research in many fields.

Coming to an individual level, I interacted with a 60-year-old successful professional who wanted to pass on his wealth in a certain manner to his offsprings. His objective was to empower his children but not to make them dependent on suddenly inherited wealth. This he could easily do by establishing innovative and flexible Trust deeds (these are simple instruments without any minimum amount). With this he could be certain of a timely regular disbursement rather than lump sum payment, save on taxes, ensure continuous growth of funds and feel secure by making professional financial guidance for his children always available.

He felt happy that he is not only passing his wealth but also his values of hard work and independence. Moreover, he was astounded that he was able to make all those future decisions so precisely, in his own lifetime and without losing control at all. He could also ensure a gift of an educational grant for his great grand daughter on her 21st birthday in the year 2080 with the only uncertainty being whether she would be born in the year 2059.

Then there is this 40-year-old entrepreneur, successful and focused, who stakes everything in the business and generates tremendous return on capital employed. He naturally wants to put any additional money and savings back in the business since his rationale is that he knows his business best. I always remind him that he is violating one main principle of good wealth management and that is diversification.

• Make a litre of petrol go far!

Separating business and personal wealth management is important because it is inevitable that business will go through ups and downs and connecting his personal fortunes to business cycle risks would be a grave folly. Having a separate business CFO and personal wealth manager will not only facilitate wealth protection, preservation but also help in maintaining a consistency of life style.

Finally, there is this 45-year-old busy professional, hard working and well performing. He always strives for the best but is strapped for time and is many times ridden with angst and a gnawing feeling that he is not meaningfully exploiting the immense potential of passive income. In spite of being a high income professional, he has that timidity about money, job insecurity and a bit of anxiety about retirement years.

He is inundated with so much information. Numerous advertisements showing a vast variety of financial products confuse and bewilder him further. Numerous questions always trouble him. How to select appropriate schemes from the ever-growing glut of products and that too, with such divergent performance?

• How to cut costs: Yap less, eat less

He read that in 2007 top performing mutual fund schemes generated 120 per cent return while the worst one delivered a negative 20 per cent. An effective wealth manager binds investment selection, asset allocation, risk management and minimal taxation in a simple but cohesive solution. Over a period of time, he becomes a trusted friend and puts the busy professional in a much more positive frame of mind.

Summarising, these examples demonstrate that wealth management is totally intertwined with life and has a major impact on quality of existence. A good wealth manager not only helps you in becoming a millionaire (in US dollar terms) during your lifetime, but also contributes significantly to a life of happiness, prosperity and financial serenity. Consequently, selecting an appropriate wealth manager is one of life's most important decisions.

Dr Sanjiv Mehta is the MD, Finance Doctor, a wealth management company and author of Winning The Wealth Game: Cricket Strategies For Financial Freedom