DRAFT: This module has unpublished changes.

My name is Mustajab Khawer and I am a senior at Tobin College of business.For summer 2017 semester, I was fortunate enough to secure an internship with UBS in their wealth management department. “UBS, headquartered in Zurich, Switzerland, provides financial advice and solutions to wealthy, institutional and corporate clients worldwide, and private clients situated in select regions. Having a good background experience this will be a foot in the door for me in the financial world. It will give hand on hand expericence of investments process and other aspects which I have learned in my Finance Classes.

 

Introduction & Structure and Functions of the Agency/Organization

The internship experience of a student is imperative in the experiential learning process, especially when the conceptual aspects of a university learning setting is applied to the prospective workplace of the individual. I was fortunate enough to secure an internship with UBS in their wealth management department. The operational structure of the group is comprised of their Corporate Center and its five business divisions. These divisions entail Wealth Management, Wealth Management Americas, Personal & Corporate Banking, Asset Management, and Investment Banking.” However, its services of these divisions are operated worldwide in all continents and namely in large notable cities including: New York, Shanghai, Dubai, Tokyo, and South Africa. Within UBS’ wealth management division, my responsibilities include the evaluation of investment portfolios to develop formal financial plans, investigating potential investments from investment companies, and analyzing portfolio performances from the models proposed based on the groups findings. While the use of a wealth manager is based on the theory that he can provide services in any aspect of the financial field, some choose to specialize in particular areas. This may be based on the expertise of the wealth manager in question or the primary focus of the business within which the wealth manager operates.For example, those in the direct employ of a firm known for investments may have more knowledge in area of market strategy, while those working in the employ of a large bank may focus on areas such as the management of trusts and available credit options, overall estate planning or insurance options. The position is considered consultative in nature as the primary focus is providing needed guidance to those using the wealth management service.Wealth managers may work as part of a small-scale business or as part of a larger firm, most often one directly associated with the financial arena. Depending on the business, wealth managers may function under different titles including financial consultant or financial advisor. A client may receive services from a single designated wealth manager or may have access to members of a specified wealth management team.

 

Part 1 & 2 Description of Experiences and Activities

Investment assets can be categorized into broad asset classes. These asset classes can entail stocks, bonds, real estate, commodities, and so on. Investors make two types of decisions in constructing their portfolios. The asset allocation decision is the choice of among these broad asset classes and the security selection decision is the choice of which particular securities to hold within each asset class. Asset classes used within my internship experience are primarily equities (stocks) and bonds.Long-term debt securities issued by a corporation are usually called corporate notes when they mature within five years or corporate bonds when they carry longer maturities. However, bonds can not necessarily be limited to corporations, as they can also be issued by the state and municipalities where certain tax advantages apply for the holdings of these securities. Stocks, also interchangeable with equities, represent ownership within a publicly traded company. The premise behind the definitions aforementioned provides a stepping stone into the world of mutual funds and ETF’s, one of the primary interests of wealth managers when considering investments for clients. In simplistic terms, a mutual fund is a large institutional investor that has the advantage of large-scale trading, while participating investors are assigned a prorated share of the total funds according to the size of their investment. This system gives small investors advantages they are willing to pay for via a management fee to the mutual fund operator. The last type of security that will be the focus  is an Exchange Traded Fund or more commonly known as ETF’s.  As previously discussed, the distinction between the asset allocation decision and the security selection is imperative, especially because the construction of client’s portfolios begins with a solidified combination of the two based upon the objectives and goals of a client. Each evaluation is customized to meet the needs of various expectations and a hypothetical model is proposed based on the security classes that The Bach Wealth Management Group invests in. Taking these concepts together, the group proposes an allocation mix that is derived from the asset allocation decision. Generally, financiers, brokers, and bankers make this decision upon the risk tolerance and objectives for a client. For example, a client who is older, an allocation mix of 60:40 (bonds:stocks) would be recommended because they are risk averse since retirement can be approaching for that particular individual. On the contrary, our advisory for the wealth management department at UBS may recommend an allocation mix of 60:40 (stocks:bonds) for a younger investor. Additionally, other allocation models can be proposed such as 50:25:25 (stocks:bonds:alternative funds), where the alternative funds can be a representation of mutual funds, ETF’s, or investments that are associated with securities in some other manner. Because wealth managers have track records that can date back for more than ten years, the time value of money, as discussed in economics as well as finance courses, should be scrutinized to realize the importance of wealth management.

 

As part of the way in grabbing the interest of students, the professor had started off the topic of the time value of money with an investment. The question that was proposed was asking to look into a $10 deposit at 5.5% interest 200 years ago. She had started off by explaining the simple interest formula and once it was given, students began to calculate the amount of its present value. The total came out to be exactly $120 excluding inflation, a net profit of $110. Afterwards, the formula for compound interest was given in which the students began to calculate its present value if one were to invest $10, two-hundred years ago. Upon my calculations, I thought I had made an error and the class was skeptical to answer because the number presented did not allegedly seem to accurately depict the actual amount it grew to. Amusingly, with compound interest, the present value of your investment would have been $444,069.84 – a net profit of $444,059.84. In other words, you would have been almost half a million dollars richer if you lived for 200 years with a deposit of $10. Then, the same problem for compounding was presented for 6% interest, an increase of 0.5%. With a 0.5% increase, the present value of that $10 investment would be $1,151,249.04, more than doubling the 5.5% interest investment. Similarly, at UBS track records are provided for this sole reason. When an account gets rolled over to our wealth manager’s, I do a hypo analysis that provides investment details on how the securities have done over time with other financial institutions or companies that manages wealth. From experience, I have seen an average annualized return of about 5-6% from clients’ portfolios. With our models at UBS, the securities selected tries to offset the setback when markets are not doing as well much like the 2008 financial crisis. Because of the ’08 crisis, the potentiality of the net worth of securities withheld by clients decreased drastically, but the model that we propose at The Bach Group is researched thoroughly so that the principal net amount is not decreased. This phenomena forces the wealth manager to not only look at capital gains when investing, as in buy low sell high, but it also opens the perspective towards a more stabilized portfolio that protects the principal amount and can cause compounding to play even more of a significant role. Looking back to that 0.5% increase, at UBS we sometimes show clients that we can increase their investments by as far as an additional 4-5%. Although a 4-5% increase may not seem much initially, it starts becoming intriguing when the difference is in hundreds of thousands of dollars. However, this performance is usually backed by a benchmark, an index more specifically. At UBS, we use the S&P 500. But because the wealth managers at UBS are active managers, we try to outperform the market for greater percentage points that affect the overall compounding of the principal amount. The next linkage will discuss the purpose of these investments in relation to pensions, retirement planning, and personal financial goals.

 

Some of these investments are in employee defined contribution plans, better known as 401k or 403b. Other types of accounts that are managed by The Bach Wealth Management Group are Individual Retirement Accounts (IRAs), traditional retirement plans, and ROTH retirement plans. An employer that offers a defined benefit plan must dedicate and manage a stand-alone fund that promises to pay vested retired employees (those who have served the required number of years to qualify for pension payouts) a specified (or “defined”) amount of income for their lifetimes. Corporations are responsible for investing sufficient funds in qualified capital and money market assets so that the projected cash flows from these investments will be sufficient to satisfy the payouts owed to vested employees. UBS then takes the qualified assets and projected cash flows to make modifications that can result in less risk but still promise the same returns or we can make modifications to meet a certain allocation model such as the 60:40 models proposed earlier for certain clients. Altogether, these make up a great proportion of the kind of work I do at UBS and I believe it will turn out to be a wondrous experience overall.

 

Conclusion

​In conclusion, I believe that this is going to be a successful internship. The reason I believe so is because up until presently, the work I do is interestingly challenging and intriguing to the extent where I see myself doing this in the future. I was not expecting the different types of strategies we have to use. It showed how skillful these skills can be in the future. There is still more to the internship and I know it will keep on improving day by day. I had always thought about going for my Masters in Taxation, but now I am considering to go into the financial industry with Taxation as well. This internship so far has showed me to be time oriented and everything completed on time or before time, in which I have done a really good job.The main insights I gained are the process of investing using peoples wealth and giving them return on it. We learned this in our investments class ranging from stocks to bonds and etc. I have already recommended many of my friends for this position as it is a really good experience. Upon the completion of this internship, an offer may be given based on my performance and contributions to the firm and even if one is given, I am now questioning my career path. Hopefully, I will have more of an affirmative decision by the end of Decemeber.

DRAFT: This module has unpublished changes.