Information Portol for everyone: Wealth Management in Pakistan

Introduction

Wealth management is a service provided by financial institutions to help high net worth individuals protect and grow their wealth. This advanced investment advisory discipline involves providing a diverse range of services, such as financial planning, investment management, tax planning and cash flow and debt management, based on client requirements.

There are two aspects to the wealth management process; protecting assets from creditors, market crashes or slowdowns, taxes, lawsuits and other unexpected events, and growing asset values through methods that actively manage risk and reward profiles to clients needs.

The Need for Wealth Management

Wealth management helps people determine their monetary goals and develop actionable strategies that could help them realize their goals. It also defends their finances against risks. Wealth management is a service designed specifically for high net worth individuals. The threshold for high net worth varies by country and institution, but the most common definition is individuals who have more than US$1 million in assets, not including their home. Some high net worth individuals have done well in growing their assets from a low base to their current levels, and may feel that they can continue to manage their own portfolios. However, as a person’s wealth grows and/or the markets get more challenging, it becomes increasingly difficult to realize the expected returns.

With greater wealth come greater investment options as well as more complex risks and threats in terms of legal regulations, taxation issues and opportunities for loss. The level of fear or even outright panic that can be experienced grows with the size of the investment involves. Greater diversification is needed than in earlier stages of investing. This is where independent financial advisers or large corporate entities help their clients through professional wealth management.

Wealth Management Services

Wealth management offers the following services:

Investment planning: assists you in investing your money into various investment markets, keeping in mind your investment goals.

Insurance planning: assists you in selecting from various types of insurances, self insurance options and captive insurance companies.

Retirement planning: is critical to understand how much funds you require in your old age.

Asset protection: begins with your financial advisor trying to understand your preferred lifestyle and then helping you deal with threats, such as taxes, volatility, inflation, creditors and lawsuits, to maintaining this lifestyle.

Tax planning: helps in minimizing tax returns. This might include planning for charity, supporting your favorite causes while also receiving tax benefits.

Estate planning: helps in protecting you and your estate from creditors, lawsuits and taxes. This service is critical for every person whose net worth is high.

Business planning: This service aims at optimizing the tax free advantages of running your own business.

Business succession planning: assists in planning for the inevitable to maximize returns.

Wealth transfer: helps you pass on your wealth to your dependents.

Benefits of Wealth Management

Wealth management helps in:

Ø Reducing taxes associated with income, capital gains and estate.

Ø Protecting assets from misjudgments and creditors.

Ø Improving yields with more diversification and less risk.

Ø Managing liabilities such as mortgages and college funding.

Private wealth management

Private wealth management (PWM) is highly customized and sophisticated investment management and financial planning services delivered to high net worth investors. Generally, this includes advice on the use of trusts and other estate planning, vehicles, business succession or stock option planning, and the use of hedging derivatives for large blocks of stock.

The CFA Institute curriculum on private wealth management indicates that there are two primary factors that distinguish the issues facing individual investors from those of institutions.

1. Time horizons are different. Individuals face a finite life as compared to the potentially infinite life of institutions. This fact requires strategies for transferring assets at the end of an individual’s life. These transfers are subject to laws and regulations that vary from locality to locality and therefore the strategies available to address this situation vary.

2. Individuals are more likely to face a variety of taxes on investment returns that vary from locality to locality. Portfolio management techniques that provide individuals with after tax returns that meet their objectives are necessarily going to be specific to these tax structures.

Introduction to Fund shop

FundShop is an Investment Solutions and Private Wealth Management Firm, specializing in mutual funds, pension funds, government & corporate bonds and life insurance. We engage corporations, provident funds, trusts and high net worth individuals and provide organized information on the various avenues available for investment; upon mobilization of funds, we facilitate them through each step of the investment process. As an intermediary, our role is to help in formulating, executing and monitoring investment solutions that meet our clients' needs today, yet are flexible enough to work for them and their family or business in the years to come.

Our corporate clients range from companies in Engineering & Construction to Telecom & Textiles, while our private clients include a diverse sample of young professionals, retired individuals and entrepreneurs. FundShop ventured into wealth management and mutual funds distribution in 2008 and over the last five years has grown into a major player in the industry. With total assets under management of over Rs.3 billion currently routed through FundShop, it is poised to expand and grow further.

FundShop’s vision is to enrich clients’ lives by helping them achieve the peace of mind that comes with financial security. In line with this vision, we are make a pioneering contribution in modernizing the face of the wealth management industry in Pakistan to bring it in line with international best practices by providing tailor made investment solutions to clients based on their unique financial objectives.

FundShop operates under distribution and agency contracts with leading asset management, brokerage, corporate issuers and life insurance companies in Pakistan and abroad, whereby we are authorized to sell their products to our client network. We also offer a full spectrum of investment avenues including saving plans, annuities, equities, fixed income, commodities and currencies and offshore products. FundShop is a Registered Service Provider (RSI) with the Mutual Funds Association of Pakistan.

Vision & Mission

FundShop's mission is to be the one stop shop for everything our investors need in order to make the smart choices for wealthy living!

FundShop's vision is to enrich clients' lives by helping them achieve the peace of mind that comes with financial security.

Services Offered:

Mutual Funds

These are pooled investment vehicles that allow investors to avail professional fund management services even with small investment amounts. The investor is allocated units of the selected fund and is entitled to the profit generated by the fund manager for the unit holders. Mutual funds also have the advantages of flexible conversion from one type of fund to another, and the units can be encashed at any time without any advance notice or premature penalties. Mutual funds also have the benefit of tax exemption if held for twenty four months.

Insurance Plans

A variety of Insurance plans are available for investors depending upon age, health, gender, risk tolerance, time horizon and goals. Strategies like ‘buying term and investing the difference’ which is a concept involving life term insurance and investment strategies that allow individuals to eventually self insure as well as utilize the tax advantages of life insurance are offered. Lifetime annuities can also be purchased as retirement planning products which ensure a steady stream of income for life, removing the risk of you outliving your savings.

Commodities

TEN GOOD REASONS TO TRADE IN COMMODITIES:
1) SUPERB RETURNS: The price of Gold has risen 271% over the last 5 years in Pakistan, which is a phenomenal return. Moreoever, commodities are not subject to withholding tax at the present time at any stage.
2) LEVERAGE: Clients can invest up to many times their own funds, creating a multiplier effect on profits. (Crude Oil can be leveraged 13:1, Silver 13:1, Gold 22:1)
3) RETURN ON IDLE FUNDS: Even if you are not taking any trading positions, the balance in your commodities account will earn app. 10% p.a.
4) DIVERSIFICATION: Commodities are now a well accepted asset class used to diversify investments and have a role in portfolios of every size.
5) EXPOSURE TO THE GLOBAL ECONOMY: Commodities provide one of the few ways to gain exposure to foreign markets while operating from Pakistan.
6) CURRENCY HEDGE: An ideal way to hedge against currency devaluation. One can also take positions in other currencies.
7) INFLATION HEDGE: Has historically been a proven hedge against inflation as prices of Gold, Cotton, Rice, Sugar, etc. have stayed ahead of inflation.
8) NO MANIPULATION: Due to the vast size of the global commodity market, it is simply not possible to manipulate commodity prices.
9) LONG AND SHORT: The ability to take Long and Short positions is a distinct advantage as it allows one to take advantage of market movement even in recessionery conditions.
10) LIQUID INVESTMENT: The presence of a market maker means that there will always be a counterparty present to square your positions.

Offshore Investments

Ever thought of winning a million dirhams? 10 Pakistanis have already won!! It is not a lottery but a safe investment that earns you returns as well. You can win different prizes every week and a grand prize of AED 1,000,000 every month.

National Bonds of Dubai gives you an opportunity to avail a basket full of advantages by saving a very little amount.
Company was established in March 2006 with paid up capital of AED 150 million. The Gov. of Dubai holds 100% ownership of this company. Fund Shop is the only distributor of these bonds in Pakistan.
Investments are made in U.S. dollars which mean that you not only hedge your savings against exchange rate depreciation, in fact earn a handsome amount of profit on it as well.
Diversification of investments; Islamic money markets instruments (Wakalas and Murabahas), Sukuks, income generating real-estate, UAE based mature private equity and a limited exposure to listed equities in the MENA region.
Strict adherence to sharia guidelines for investment
Implementation of investment policy is independently governed by pre-audit, post-audit and compliance assigned to Ernst & Young, the performance and funds administration goes to Deutsche Bank while Dar Shari'a reviews all transactions for ongoing Shari’a compliant purposes.
Along with the savings and interest there is an added advantage of weekly draws of prizes of up to AED 10,000 and every month there is a draw of AED 1,000,000!
Another benefit is the in-built takaful (insurance) of the bondholders

Individual Takaful Cover

Bond Value (AED)	Takaful Benefit
100 - 10,000	AED 5,000 flat
10,001 - 250,000	50% of the bonds value
250,000 and above	AED 125,000 flat

Services includes:

- Client investments and assets need assessments

- Advising on relevant jurisdictions for offshore/onshore company setups based on client need assessments

- Complete incorporation of offshore/onshore companies

- Bank accounts of registered entities

- Residence Visa processing for directors/shareholders

- Legal remittance via SBP allowed channels

- Tax planning services for multi-asset investment portfolios

- International asset acquisitions

- International business expansions and licenses (education, retail, service sectors etc)

Process flow:

- Client need assessment

- Finalizing of relevant jurisdiction for setup of offshore/onshore company

- Incorporation of the company

- Bank acct opening and other required services (office setup etc)

- Legal remittance via SBP allowed channels

Concept:

- Consolidate international assets under one investment company

- Protect international assets under a foreign investment company

- Legally invest in international assets while being Pakistani residents (stocks, funds, commodities, real estate, private equity etc) which you cannot invest directly from Pakistan

- Tax impact reduction for Pakistani residents

- Succession planning in case of death and disability

- Hassle free and structured process from experienced professionals

- No restrictions on investment assets – your funds your decision

Government Bonds and Corporate TFC’s

FundShop was one of the Collection Agents for the recent, successfully subscribed Rs.4 billion IPO of the Engro Rupiya Certificate. FundShop also arranges good quality TFCs from the secondary market as well as providing Government of Pakistan Treasury Bills, Pakistan Invesment Bonds and Government of Pakistan Ijara Sukuk

Pension Schemes and Retirement Plans

Pension Funds are for those individuals who want to invest their money for a long term period and want to have monthly income even after they retire. Below are some of the details regarding pension funds.

Dual tax benefit. - Tax rebate on contribution amount and Tax exemption on returns earned on those contributions.

A participant at any time before retirement shall have complete freedom to redeem the total or part of his/her accumulated amount (contributions and profits earned thereon) subject to payment of tax @ his/her average income tax rate of the preceding three years.

At the time of retirement up to 50% of the accumulated funds can be withdrawn without paying any tax on it and the remaining can be transferred to your account through which you can get monthly installments.

Shariah Complaint Investments

All the investment choices are also available in Shariah Compliant Structures at FundShop for those who wish to invest in riba free instruments:

1) Mutual Funds: Islamic Income Funds and Islamic Stock Funds are available to cater for those investors who wish to take advantage of the flexibility and tax advantages offered by open end mutual funds, yet are conscious of the boundaries set by the Shariah laws of Pakistan.

2) For Islamic financial institutions and employee retirement funds, Government of Pakistan Ijara Sukuks are also available, which represent sovereign debt.

3) Shariah Compliant offshore bonds are also available; for details, please see the section on offshore investments.

Tax Saving Plans

FundShop - Investment Solutions is a wealth management firm, which helps investors make the right decision about where to invest their funds. Fund Shop is the one stop shop for everything our investors need in order to make the smart choices for wealthy living! We are conducting an awareness campaign, in which we will set up helpdesks and disseminate information regarding the significant Income Tax Rebates that are available to Salaried Individuals through investment in mutual funds and pension funds.

The maximum rebate allowed through mutual funds investments is Rs.200,000, depending upon the individual's income and tax bracket. This rebate can be passed on through your employer by deducting less tax at source while disbursing your monthly salary. Depending upon the timing of your investment, this rebate can be passed on over a few months or as a lump sum.

In addition to the Rs.200,000 tax rebate allowed through mutual fund investments, pension funds also allow significant tax rebates for salaried individuals, which can go up to 20% of your annual gross income times your tax rate. The specific amount can be calculated for each individual by one of our Wealth Management Analysts.

Formation of Trusts

The role of trusts is becoming very relevant in the investments management industry, especially in the context of Family Trusts used for multi generational succession planning. FundShop is the only investment facilitator which can arrange for legal services in setting up trusts for our clients for various purposes. In addition, FundShop can arrange for a full range of corporate legal services and representation by experienced lawyers that our clients may require including in the fields of mergers and acquisitions, joint ventures, real estate deals, banking and financial transactions, debt and equity issues and capital market transactions etc.

The following is the text of the lecture delivered by Mr. Zaki Rahman at LUMS on the "Practical Applications of the Law of Trusts in Pakistan." There are five areas in Pakistan where trusts are used to do transactions and achieve results:

(i) Firstly, trusts are extensively used in the setting up of charitable organizations to benefit deserving members of the public.

(ii) Secondly, companies use trusts to set up provident funds for their employees.

(iv) Thirdly, the concept of trusts is central to the establishment and operation of certain types of mutual funds.

(v) Fourthly, Real Estate Investment Trusts (abbreviated as REITs) are based upon trusts. This is a very new concept in Pakistan but has been extensively used around the world as an investment vehicle.

(i) Finally, trusts have recently been started to be creatively used by companies to minimize payment of stamp duty in certain transactions. This can obviously be of enormous benefit to companies as the payment of taxes like stamp duty can cost companies a great deal of money specially where transfers of land are concerned.

Thus, trusts are a very powerful, flexible and useful legal device in the business world. There are several other instances of uses of trusts which can be quoted but the above are some of the most common or interesting ones.

CHARITABLE TRUSTS

So, we will now take up our first example of trusts which is in the setting up of charitable organizations. A typical example is where a businessman wants to set up a charitable organization to help poor people financially and for their education and health. Let’s say that the main assets of the businessman are shares in companies and cash. The businessman wants that 50% of his assets should be inherited by his legal heirs upon his death while he wants to use the other 50% for the charitable purposes mentioned above. He can accordingly execute an instrument of trust whereby he appoints, for example, three trustees to whom he transfers joint legal ownership of 50% of his assets. Alternatively, he can also make himself the trustee. The instrument of trust would provide that the object of the trust is to assist poor people financially and for their education and health. Accordingly, in this case, the author of the trust would be the businessman, the trustees would be the three persons to whom he transfers 50% of his assets (or himself, if he decides to make himself the trustee), the trust property would be 50% of his assets and the beneficiaries would be “poor people”. A trust like this would be known as a “public trust” because it is for the benefit of a large section of society rather than for the benefit of specified individuals. Trusts that are made for specified individuals are known as “private trusts”.

Another interesting thing about trusts is that upon the death of a trustee, the trust property is not inherited by his or legal heirs even though the trustee is the owner (or part owner if there is more than one trustee) of the trust property. In normal ownership of course the legal heirs of a deceased inherit all his property. However, as stated before the ownership of property subject to a trust is different from normal ownership. In case of death of a trustee, the part of the trust property that was owned by such trustee would be transferred jointly to the surviving trustees thus allowing the trust to continue. The instrument of trust may contain a provision empowering the remaining trustees to appoint a new trustee in which case the trust property would jointly vest in the new trustee alongwith the surviving trustees. If there was only one trustee, then different rules would apply for appointment of a trustee thus allowing the trust to continue.

The instrument of trust would also typically contain other provisions like how the voting and decision making of trustees would take place, how bank accounts may be opened and operated by the trustees, how a trustee can be removed, the powers and obligations of the trustees, how the accounts of the trust would be drawn up, how the funds of the trust can be invested, how the trust property is to be used to benefit poor people etc.

Now, what is there to stop the trustees from embezzling the trust property and being dishonest with it by using it for other purposes rather than for the betterment of poor people? Firstly, there is a criminal offence under the Pakistan Penal Code known as “criminal breach of trust”. Under this provision of law, misuse of trust property is a criminal offence which can attract imprisonment of upto 7 years. Additionally, there are provisions in the Trusts Act, 1882 which allow the beneficiaries of a trust to go to Court against the trustees to enforce the terms of the trust although this is applicable only for private trusts and not for public trusts.

PROVIDENT FUNDS

The second area of application of the law of trusts identified above is the use of trusts in the arena of provident funds. Simply put, a provident fund is a scheme to benefit the employees of an organization (basically for their post retirement life) by setting up a fund in which a portion of each employee’s monthly salary is deducted by the employer and deposited in the provident fund. An amount generally equal to the employee’s contribution is also contributed by the employer to the provident fund. Thus, the employee’s provident fund balance keeps growing each month and upon retirement (or leaving the company), the accumulated balance is paid out to the employee.

Now, the way that organizations generally establish provident funds is by setting up a trust with the trustees generally being individuals from the senior management of the employer organization. The provident fund’s ownership is then vested in the trustees. In this case, the author of the trust is the organization, the trust property is the provident fund, the trustees are generally appointed by the organization from among its senior management (e.g head of HR, head of finance etc.) and the beneficiaries are the employees. The contributions are made by the employee and the employer to the trust. The funds comprising the provident fund are generally invested by the trustees in different investment vehicles within the guidelines set up by the Securities & Exchange Commission of Pakistan which is the regulator of companies in Pakistan. The trustees are empowered by the instrument of trust executed by the employer to make decisions with regard to the funds including investment decisions. The presence of a trust arrangement enables a few trustees to deal with the funds which makes the whole exercise easy. If the funds were instead to be vested jointly in the employees, decisions regarding investment of the funds or general management of the fund would be very difficult as it would be a hard task to get 500 or 1,000 employees to agree on all matters and to sign all documents and take all steps required for management of the provident fund.

MUTUAL FUNDS

Our third example is from the mutual funds arena. Basically a mutual fund is a fund set up by a company known as an asset management company. Various investors contribute to the fund so mutual funds can also be described as pooled funds taken from investors. The asset management company manages and invests the funds in order to increase the value of the portfolio for the different investors. The funds can be invested in different vehicles including stocks, money market instruments and bonds. The different investors are issued units in the fund in proportion to their contribution to the fund. The amounts generated from the investment of the fund is given back to the investors and constitutes their return on their investment in the fund.

What asset management companies generally do (particularly in certain types of mutual funds) is to vest the fund in a trustee. This trustee is generally another company which specializes in such services. The asset management company then becomes the author of the trust, the mutual fund is the trust property and the beneficiaries are the investors in the mutual fund. The instrument of trust would generally empower the trustee to invest and deal with the funds in accordance with the instructions of the asset management company. Once again, the beauty of the trust arrangement is that a single trustee can manage the funds (on the instructions of the asset management company) for the benefit of the investors. The management and decision making in respect of the mutual fund would be virtually impossible if all the investors/unit holders of the fund were to be the joint owners of the fund.

REAL ESTATE INVESTMENT TRUSTS (REITs)

The fourth area to be discussed in connection with trusts are REITs. The word REIT is an abbreviation of Real Estate Investment Trusts. As mentioned earlier, this is a very new area in Pakistan but has been widely employed in the rest of the world. REITs are quite similar to mutual funds in many ways and here also funds are taken from different investors by an entity called a REIT Management Company. A REIT Management Company is more or less the equivalent of an asset management company in mutual funds. The main difference between a mutual fund and a REIT is that the funds of the investors in a REIT are invested in real estate only instead of in stocks, bonds, money market instruments etc. Otherwise, in this case also, the REIT Management Company vests the investors funds in a trustee company which holds the funds for the benefit of the investors. Therefore, the author of the trust is the REIT Management Company and the beneficiaries are the investors. The trustee invests the funds in real estate in accordance with the instructions of the REIT Management Company and accordingly returns are generated for the investors. The legal owner of all real estate purchased with the funds is the trustee but the trustee holds all the real estate on trust for the investors/unit holders of the REIT.

STAMP DUTY MINIMIZATION

Our final example for the use of trusts is for the purposes of minimization of stamp duty and certain other governmental taxes. Stamp duty is a tax payable to the government each time a legal document is signed. So, for example, if two persons enter into a contract, they have to pay Rs. 100/- to the government as stamp duty because the Stamp Act, 1899 provides that stamp duty of Rs. 100/- will be levied on contracts. Now, where transfer of land from one person to another is concerned, the stamp duty can be very high because the Stamp Act, 1899 provides that for transfers of land, stamp duty will be equal to 2% of the value of the property, to be paid by the buyer. On properties exceeding 1 kanal, 2% capital value tax is also charged by the government from the buyer. So, a total of 4% of governmental transfer taxes are payable in these cases. So, for very valuable property, e.g property worth Rs. 20 crores, the stamp duty plus CVT would amount to Rs. 80 lacs which is a large figure that no business or company would like to pay.

Now, where do trusts come into all of this? Let’s take a typical example of a large real estate development firm which is a partnership of three persons. The partners want to convert the firm into a limited liability company to make it more professional. The way that this is typically done is by transferring all the assets and liabilities of the partnership firm to a newly incorporated company and issuing shares against the transferred assets to the partners. The business has thus been converted into a limited liability company with the partners as shareholders and the partnership can now be dissolved. The problem in our example is that the partnership which is to be converted is a real estate development business whose main asset is land. Now when land is transferred to the newly established company, huge transaction costs would be incurred on stamp duty and capital value tax by the company. Let’s say the value of the land is Rs. 1.8 billion. 4% of 1.8 billion would be Rs. 7.2 crores payable to the government!

So to avoid this payment, what can be done is for the owners of the land (who are the partners of the partnership firm) to declare a trust in respect of the land with the newly incorporated company as the beneficiary of the trust. All movable assets (i.e assets other land) can be outright transferred to the new company since stamp duty and capital value tax issues are not applicable there. However, instead of transferring the land and incurring Rs. 7.2 crore cost, a trust can be declared by the partners in respect of the land and the instrument of trust would only attract Rs. 100/- stamp duty instead of Rs. 7.2 crore rupees.

The instrument of trust will need to specify that all proceeds and money from the sale of the land will be for the benefit of the new company. Similarly, all decision making rights in respect of the land will be exercised by the company. The land (although it is not legally owned by the company) can be reflected as an asset in the accounts of the company using the substance over form concept in accounting. The instrument of trust will also need to contain a clause that the trustees authorize the company to enter the land, undertake projects upon it and receive all sale proceeds from customers to whom the offices/apartments/shops or other properties in the projects are sold. Finally, the instrument of trust can state that the trustees (as legal owners of the land) will sign any documents that may be required by the company to sell and transfer the land to customers. Since the trustees are also the shareholders of the company, there should not be any problem with this.

Thus, we have achieved our original objective of enabling the new company to undertake projects upon the land and sell the same and make and retain the money made from such sales without transferring the property to the new company. Thereby a huge amount of transaction costs have been saved which will greatly benefit the company and its shareholders.

Structural and Business model of the company?

The Company primarily acts as Facilitators and Advises clients on various investment avenues. It provides the facilitation service to clients regarding their investment options in Pakistan and abroad, handling all the necessary paper work and finally trading with the Asset management Company. The structure of Fund shop is based on proprietorship and it is not fixed instead it keeps on growing with time and does not operates as a public limited company.

FundShop is an Investment Solutions and Private Wealth Management Firm, specializing in mutual funds, pension funds, government & corporate bonds and life insurance. We engage corporations, provident funds, trusts and high net worth individuals and provide organized information on the various avenues available for investment; upon mobilization of funds, it facilitates them through each step of the investment process. As an intermediary, our role is to help in formulating, executing and monitoring investment solutions that meet our clients' needs today, yet are flexible enough to work for them and their family or business in the years to come.

What is the revenue model?

There are 2 ways to generate Revenues.

1. From the Client: Upfront Consultation fees, Monthly fees etc and an investment advisory analyst is required which normally asset management companies have. For instance 1 % is charged on investment of Rs 1000000.

2. From the Asset management Company: A Certain portion of the management fees charged by the asset management company is distributed to the wealth management company on the basis of routing funds towards their company. For instance if the fund management fees is say 2%, 50% of that amount will be directed the wealth management company. Fund shop does not charge the clients any fees instead they use this revenue model. Therefore it is evident that the more funds you bring in to the asset management companies the more revenue will be earned. But if the clients start withdrawing money from the asset management company, the revenue will automatically decrease. Net Assets under Management directed to mutual funds at over Rs.2.5 billion as at 31 December 2011.

Fund shop’s corporate clients range from companies in Engineering & Construction to Telecom & Textiles, while our private clients include a diverse sample of young professionals, retired individuals and entrepreneurs. FundShop ventured into wealth management and mutual funds distribution in 2008 and over the last five years has grown into a major player in the industry. With total assets under management of over Rs.3 billion currently routed through FundShop, it is poised to expand and grow further.

Costing requirement?

Running a wealth management company is a low cost venture as the core team comprises of a few hired individuals who charge a variable salary, electricity bill, gas bill. Basically the cost is fixed .

Regulatory authorities and regulations?

The Mutual funds association of Pakistan (MUFAP) under the Securities and Exchange Commission of Pakistan regulates the wealth management companies. The major regulations are that wealth management companies cannot route banking institutions investments to asset management companies, another restriction is that you should have atleast 4 certified mutual fund distributors authorized by the institute of capital markets working in your organization; it’s exam is conducted 4 times a year and fund shop has 4 certified mutual fund distributors currently working there. The company should be incorporated, have a national tax number, should be a registered service provider from MUFAP. Wealth management companies are not run under companies name but under the individual proprieters name which in the case of Fund Shop is Ms. Rabia Fida in the Individual Registered Service Provider Category (Registration number: RSPI - 001). FundShop - Investment Solutions has three team members who have obtained the membership of the Institute of Capital Markets subesquent to passing the Certified Mutual Funds Distributor examination. Rabia Fida has also successfully passed the Certified Stock Brokers Examination held by the Institute of Capital Markets in May 2012.
Are there any external advisors or directors of directors inside it?
Fund Shop is based on proprietorship in which the team gives it’s input during meetings but the final decision rests with the proprieter. Directorship happens in the case of public limited companies and Fund shop is a proprietorship.

How much management fees is charged for high worth individuals?

Fund Shop does not charge any management fees from high worth individuals but it gets a certain percentage of the fees charged by the asset management companies in Pakistan as per the contract agreement.

How is a wealth management company formed in Pakistan? What is the criteria?

When incorporating a company you are asked what will this company do and what will it do in the future?, What is the basic Memorandum and Articles of Association. For example you have to chooses a name for the wealth management company and specify that it would only do financial advisory and it will be properly established with NTN Certificate ( National Tax number) and everything, so you have to follow the basic ground rules when incorporating a wealth management company.

From whom to take license and its procedure

You have to apply for license with the securities and exchange commission of Pakistan (SECP)for approval and it is expensive ranging from Rs. 1-5 Crores – Rs 2 Crores.

What is the next 5 years projection? Return and cost - Assumption: You are making your own company

It is very difficult to make the next five year predictions for a wealth management company as the structure cannot be fixed in the beginning so once it is incorporated then only is it possible to predict the next five years based on the number of clients, employees etc

Costs can be predicted to some extent unlike revenues, hypothetically lets start with the basic assumption that the basic salary starts from Rs. 30,000 and grows annually at 10%. The electricity bill is volatile and increases in the summer say Rs 50,000- Rs.60,000 and in winters Rs. 30,000 so lets say the Electricity bill is on average Rs 40,000 a month. The one time cost of establishing and office cost around Rs. 1,500,000-Rs.2,000,000 then there is Rent of about Rs. 50,000 – Rs. 100,000 per month or the one time cost of buying your own property.

From the Revenue angle it is very volatile, until and unless you are established and you are pouring in money every month from the first day it is very difficult to predict. Back in 2008, when Fund Shop was established it hardly had 5-10 clients which hardly generated the revenue of Rs. 100,000 a month. Today it has 150 clients and earns handsome returns so the key lies in building its base ( As your clients would increase your revenue and hence nets profits increase). So if the asset management companies do not offer you contracts you may not earn revenue .

References

www.economywatch.com/investment/wealth-management.html

www.investopedia.com/terms/w/wealthmanagement.asp#axzz2FI2LYKbx