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CFA Level III · Private Wealth Pathway

Wealth Planning for the CFA Level III Private Wealth Pathway

Wealth Planning covers how you build a plan for a private client: discover goals, set an investment policy statement, measure economic net worth, plan spending and retirement, manage risk, reduce tax, transfer wealth and handle concentrated positions. You solve it by linking every recommendation to the client's objectives and constraints.

What this chapter covers

Wealth Planning is the foundation of the Private Wealth pathway. It starts with the client, not the market. You learn how to gather facts, separate needs from wants, and turn them into a written policy that guides every later decision.

The chapter moves from the client's whole balance sheet to specific planning areas. You look at human capital and financial capital together as economic net worth. You then plan lifetime spending and retirement, protect against risks with insurance, reduce tax drag, plan how wealth passes to others, and deal with large single holdings or a business.

This chapter connects to the common core. The investment policy statement feeds Asset Allocation and Portfolio Construction. Tax and risk ideas show up in Derivatives and Risk Management. Client duties tie to Ethical and Professional Standards. Pathway questions come as a mix of item sets and essay sets, so you must be able to both calculate and justify in words.

The Private Wealth pathway makes up 30-35% of the topic weight, and this chapter is the base for the rest of it. Questions are built around a client case, and the marks go to applying objectives and constraints, not to reciting definitions. If you can read a case quickly, pick the facts that matter and justify a recommendation in a few precise words, you earn points across item sets and essay sets. There is no penalty for wrong answers, so you should always attempt every question.

Wealth Planning: topics in the order to study them

  1. 1Private Wealth Management Overview and Client DiscoveryIt sets the vocabulary and the process of gathering client facts that every later topic depends on.
  2. 2Investment Policy Statement for Private ClientsIt turns discovery into objectives and constraints, which is the frame for every recommendation in the chapter.
  3. 3Human Capital, Financial Capital and Economic Net WorthYou need the full client balance sheet before you can judge risk capacity or insurance and spending needs.
  4. 4Lifetime Financial Planning, Retirement and Spending NeedsIt uses economic net worth to size goals and test whether the plan is funded.
  5. 5Insurance and Risk Management for IndividualsOnce goals and human capital are clear, you can see which risks threaten them and how to transfer those risks.
  6. 6Tax-Efficient Planning and Account StructuringTax affects returns and spending, so you study it after the core plan exists and before wealth transfer.
  7. 7Estate Planning and Wealth TransferIt builds on the tax and account ideas and covers who receives wealth, when and how.
  8. 8Concentrated Positions and Business Owner WealthIt is the most applied topic and pulls together the IPS, tax, risk and transfer ideas in one case.

How to prepare Wealth Planning

Prepare this chapter as a case-based skill. You are learning to read a client, not to memorise lists.

  1. Read the topics in the study order and write a one-page summary of the planning process from discovery to implementation.
  2. For each topic, list the client facts that change the answer, such as age, income stability, dependants, tax status and liquidity needs.
  3. Practise writing the IPS sections for several different clients, and state which objective or constraint drives each choice.
  4. Work the calculations by hand, such as economic net worth, spending needs and funding gaps, and show every step so a correct number earns full credit.
  5. Practise essay sets by reading the bold command word first, such as calculate, justify or recommend, and answer only what is asked, in the number of responses requested.
  6. Do mixed item sets under time, spending about the same time per set as the exam allows, and review every wrong answer for the missed client fact.
  7. In the last week, redo cases from memory and link each to Ethical and Professional Standards, such as suitability and communication duties.

Common mistakes in Wealth Planning

  • Giving a generic recommendation that ignores the client's facts

    Fix: Underline the client facts first and name the one that supports each recommendation.

  • Confusing risk tolerance with risk capacity

    Fix: Treat tolerance as the client's attitude and capacity as financial ability to bear loss, and say which one is binding.

  • Leaving human capital out of the client's balance sheet

    Fix: Always start with economic net worth and consider how stable and market-linked the client's income is.

  • Writing long essay answers that do not match the command word

    Fix: Read the bold command word, answer only what is asked, and give only the number of responses requested.

  • Showing only the final number or skipping units and steps

    Fix: Write the formula and each step in your working, and check the sign and currency before you enter the answer.

  • Treating tax and estate topics as isolated from the IPS

    Fix: Tie each tax or transfer technique back to an objective or constraint in the IPS and say why it fits.

Last-day revision: Wealth Planning

  • Discovery gathers goals, constraints, risk attitude and facts before any recommendation.
  • The IPS links objectives (return, risk) and constraints (liquidity, time horizon, tax, legal, unique circumstances) to a plan.
  • Risk tolerance is willingness; risk capacity is ability. The lower of the two usually limits risk taken.
  • Economic net worth = human capital + financial capital (including other assets) minus liabilities.
  • Human capital is the present value of future earnings; stable earnings behave more like a bond.
  • Separate needs from wants and plan for essential spending with the most certain assets.
  • Insurance transfers risks that could wreck the plan, such as death, disability and longevity.
  • Tax drag lowers returns, so place assets in accounts with the tax treatment that suits them.
  • Estate planning covers who gets assets, when, how and at what tax cost.
  • Concentrated positions carry single-asset risk; you can sell, hedge, diversify or gift, each with different tax and control effects.
  • Answer the exact command word and show each calculation step.
  • Always attempt every question because wrong answers carry no penalty.

Wealth Planning in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Wealth Planning: frequently asked questions

What is the Wealth Planning chapter in the Private Wealth pathway about?

It covers how an adviser builds a plan for a private client. You move from client discovery and the IPS to economic net worth, retirement planning, insurance, tax, estate planning and concentrated positions.

How are Private Wealth questions asked on the exam?

Pathway questions are a mix of item sets and essay sets. Each set is worth 12 points. Item sets have a vignette and 4 multiple-choice questions worth 3 points each, while essay sets use command words shown in bold.

Do I need to memorise formulas for this chapter?

You need a few core calculations, such as economic net worth and present value of spending or earnings. The larger share of marks comes from applying client objectives and constraints and justifying a recommendation clearly.

Can I change my pathway after registering?

No. You choose one of the three pathways at registration and it cannot be changed afterwards. The charter is the same whichever pathway you take.