When discussing wealth management strategies and how Fintech solutions can help investors better manage their portfolios, analysts often talk about how to create new wealth. They may discuss goal setting, risk profile management, and investment management.
Dr. Sekar Jaganathan, Director of Digital Strategy at Kenanga Bank, says that wealth management as an industry has to grow and then it has to “mature.”
Dr. Sekar, whose comments came during a panel discussion about the power of data in wealth management, pointed out (along with the other panelists) that data analytics in the asset management sector is still in its early stages of development.
Ned Philips, founder of a Singapore-based Robo-advisory firm Bambu (and one of the panelists), noted:
“We actually don’t believe that individuals are the right people to understand their own retirement, their own risk, and their own choices. In fact history has shown us that people are actually very bad at managing money and making investment choices. Indeed in America today, almost 50% of people run a cashflow negative life.”
Bambu is getting ready to introduce Predictive Financial Planning. The new tool will take information such as consumer spending habits, lifestyle, education, income, number of dependents, where you currently live and then analyze it. This will allow the software to provide retail clients with personalized financial management strategies.
Mike Hom, Head of Financial Solutions in InterSystems, noted that these AI-enhanced tools and related advancements may help clients with managing their finances.
While commenting on automated financial software tools, Hom added:
“And I think that is great, because [financial management software] tailors to what people want. From the institutional side, you can expand your customer base. How many clients can one advisor take on? Well with some help, some advice and some insights that were given to them immediately, he or she can probably service a lot more [clients].”
There’s also no shortage of information available on the Internet when it comes to money management, and that’s part of the problem for individuals trying to make appropriate investment-related decisions.
In statements shared with CI, Patrick Rush, CEO of Triad Financial Advisors, stated:
“There is an overabundance of information, so much that it can make your head spin.”
The solution(s) to this “information-overload” issue isn’t always to get help from a financial advisor, Rush explains, because working with one who is focused more on their own benefit instead of their clients’ requirements may lead down the wrong path.
Rush further noted the key is first “educating yourself in the fundamentals of financial planning.” He pointed out that the wealthiest Americans have “grown their fortunes by understanding financial basics and following a set of fundamentals.”
Rush also mentioned that “while there are thousands of complicated ways to invest your money, there are only a handful of proven ways to grow wealth.” Like many other financial analysts, he recommends “keeping it simple.”
Rush provides a six-point set of fundamentals individuals can learn to assist them with their wealth management:
A financial plan. Rush says this is “the most important tool to help you build wealth and confidence.” He adds that “everyone should have a financial plan in place before they start seeking investment recommendations,” while noting “that plan should address budgeting, expenses, insurance, investing, long-term care, estate planning, tax-planning benefits, and other matters critical to long-term financial success. It also establishes a list of specific financial goals.”
Evidence-based investing. Rush adds: “This approach maximizes returns by pursuing a proven investment strategy backed by facts, reason, and historical data. It’s a rational, scientific process to determine where to put your money to best make it work for you. Evidence-based investing helps “prevent chasing hot equities at their peak and panic selling.” Those kinds of “fear-based decisions cause investors to buy high and sell low, which eats away at your portfolio over time.”
A portfolio paycheck. Retirees “get anxiety wondering how they’re going to live comfortably when they don’t have their former paycheck coming in.” Rush adds that “the key is finding the right way to draw a paycheck from your portfolio without taking unnecessary risks that could jeopardize your life savings.” He also mentions that “your cash needs will influence how aggressive or conservative you’ll want to be in retirement.”
Taxes, and how efficiencies can benefit you. Rush further notes “tax law is confusing in the best of times.” Since “the passage of the Tax Cuts and Jobs Act of 2017 and the SECURE Act of 2019, more people than ever are uncertain about how the law applies to them and how to optimize their tax situation.” Rush further notes that “there are ways to avoid costly mistakes,” He believes that “prudent asset allocation helps investors defer or eliminate taxes. If you do only one thing to create a tax-efficient portfolio, max out your 401(k).”
Choosing the right healthcare. A study by Fidelity Investments “found that a 65-year-old couple retiring in 2019 will need $285,000 to cover medical expenses through retirement.” Rush also suggested that we need to “formulate a plan for our healthcare needs ahead of time.” He added that “a major medical emergency or long-term illness can devastate your finances. Most elderly Americans will need long-term care insurance at some point.”
Charitable giving. Rush added that “donor-advised funds are a tax-efficient way to give to charity.” He further noted that “qualified charitable contributions are especially attractive to individuals who have reached the Required Minimum Distribution age of 72, when you have to start withdrawing funds from an employer-sponsored retirement plan.”