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2024 Curriculum CFA Program Level III Portfolio Management and Wealth Planning


Private wealth management refers to investment management and financial planning for individual investors. The private wealth sector has grown considerably as global wealth has increased and as individuals have taken on more of the responsibility for managing their own financial resources. Private wealth managers can help individual investors seek the benefits as well as navigate the complexities of financial markets.

This reading introduces candidates to the process of designing and executing an investment plan or strategy for the individual investor. We discuss the tools and techniques used by private wealth managers and how the wealth manager interacts with the client to serve the client’s needs. Section 2 examines the key differences between private clients and institutional clients. In Section 3, we discuss how the wealth manager gains an understanding of the client and identifies key attributes of the client’s financial situation that are relevant to the wealth management process. Section 4 covers investment planning, including capital sufficiency and retirement planning. Section 5 discusses the investment policy statement, including its various underlying parts. Section 6 analyzes portfolio construction, portfolio reporting, and portfolio review. Finally, in Section 7, we discuss the practice of private wealth management, including ethical considerations for private wealth managers, compliance considerations, and the various client segments that private wealth managers encounter.

Reflecting the variation in industry terms, we use the terms “private wealth managers,” “wealth managers,” and “advisors” interchangeably. We also refer to “individual investors” as “private clients” or, simply, “clients.” In practice, private wealth managers typically operate either independently or as representatives of organizations, such as wealth management firms, banks, and broker/dealers.

Learning Outcomes

The member should be able to:

  1. contrast private client and institutional client investment concerns;

  2. discuss information needed in advising private clients;

  3. identify tax considerations affecting a private client’s investments;

  4. identify and formulate client goals based on client information;

  5. evaluate a private client’s risk tolerance;

  6. describe technical and soft skills needed in advising private clients;

  7. evaluate capital sufficiency in relation to client goals;

  8. discuss the principles of retirement planning;

  9. discuss the parts of an investment policy statement (IPS) for a private client;

  10. prepare the investment objectives section of an IPS for a private client;

  11. evaluate and recommend improvements to an IPS for a private client;

  12. recommend and justify portfolio allocations and investments for a private client;

  13. describe effective practices in portfolio reporting and review;

  14. evaluate the success of an investment program for a private client;

  15. discuss ethical and compliance considerations in advising private clients;

  16. discuss how levels of service and range of solutions are related to different private clients.


  • Private clients and institutional clients have different concerns, primarily relating to investment objectives and constraints, investment governance, investment sophistication, regulation, and the uniqueness of individuals.

  • Information needed in advising private clients includes personal information, financial information, and tax considerations.

  • Basic tax strategies for private clients include tax avoidance, tax reduction, and tax deferral.

  • A client’s planned goals are those that can be reasonably estimated or quantified within an expected time horizon, such as retirement, specific purchases, education, family events, wealth transfer, and philanthropy.

  • Unplanned goals are those related to unforeseen financial needs, such as property repairs and medical expenses.

  • When establishing client goals, private wealth managers consider goal quantification, goal prioritization, and goal changes.

  • Risk tolerance refers to the level of risk an individual is willing and able to bear. Risk tolerance is the inverse of risk aversion. Risk capacity is the ability to accept financial risk. Risk perception is an individual’s subjective assessment of the risk involved in an investment decision’s outcome.

  • Wealth managers often utilize questionnaires to assess clients’ risk tolerance. The result of a risk tolerance questionnaire, typically a numerical score, is often used as an input in the investment planning process.

  • Wealth managers need both technical skills and non-technical (“soft”) skills in their advisory roles. Technical skills include capital markets proficiency, portfolio construction ability, financial planning knowledge, quantitative skills, technology skills, and in some situations, foreign language fluency. Soft skills include communication skills, social skills, education/coaching skills, and business development and sales skills.

  • Capital sufficiency analysis, also known as capital needs analysis, is the process by which a wealth manager determines whether a client has, or is likely to accumulate, sufficient financial resources to meet his or her objectives.

  • Two methods for evaluating capital sufficiency are deterministic forecasting and Monte Carlo simulation.

  • Wealth managers use several different methods to analyze a client’s retirement goals, including mortality tables, annuities, and Monte Carlo simulation.

  • An investment policy statement (IPS) for an individual includes the following parts: background and investment objective(s); investment parameters (risk tolerance and investment time horizon); asset class preferences; other investment preferences (liquidity and constraints); portfolio asset allocation; portfolio management (discretionary authority, rebalancing, tactical changes, implementation); duties and responsibilities; and an appendix for additional details.

  • Two primary approaches to constructing a client portfolio are a traditional approach and a goals-based investing approach.

  • Portfolio reporting involves periodically providing clients with information about their investment portfolio and performance. Portfolio review refers to meetings or phone conversations between a wealth manager and a client to discuss the client’s investment strategy. The key difference between portfolio reporting and portfolio review is that the wealth manager is more actively engaged in a review.

  • The success of an investment program involves achieving client goals, following a consistent process, and realizing favorable portfolio performance.

  • Ethical considerations for private wealth managers include “know your customer” (KYC), fiduciary duty and suitability, confidentiality, and conflicts of interest.

  • Several global regulations have relevance for private wealth managers.

  • Key private wealth segments include mass affluent, high net worth, and ultra high net worth.

  • Robo-advisors have emerged in the mass affluent client segment. These advisors have a primarily digital client interface. Robo-advisor service providers generally charge lower fees than traditional wealth management firms. Scalability of technology has enabled robo-advisors to service investors with relatively small portfolios.

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