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A Wealthy Experience
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marketplace. The economic growth in India has led to significant rise in disposable incomes and the ranks of affluent households have been soaring like never
before. This huge business opportunity calls for specialised wealth management companies, and many companies that have little to do with wealth management
have stepped in. How will they create their space in this action-packed market?
The wealth management industry operates mainly in three segments — mass affluent (customers with investable surplus of Rs 30 lakh to Rs 1 crore); affluent
(Rs 1 crore to Rs 5 crore); and high networth individuals or HNIs (more than Rs 5 crore).
While the affluent and mass affluent customers are serviced by preferred banking divisions of retails banks, HNIs are serviced by organisations that provide
‘private banking'. The new entrants, independent wealth management (IWM) companies, try to address the sophisticated requirements of the affluent customer.
Investors across the spectrum suffered during the credit crisis because of the inherent shortcomings of the existing structures in the wealth management
practice — product pushing, and absence of advice and portfolio churn. This and recent events such as the Citibank wealth management fraud has catalysed
action towards putting together comprehensive regulations for this business — not an easy task given the involvement of multiple regulators.
IWM companies are trying to fill the space between private banking and preferred banking. The current regulatory structure doesn't allow banks to offer a
wide range of investment products the affluent investor requires and expects. Further, changes in the mutual fund rules have reduced the margins for
distributors dramatically — mutual funds comprise the bulk of the investment product offerings at preferred banking divisions. The regulations say that
investors pay directly to advisors; this means the revenue will depend on the quality of advice and service. This can be best done in an IWM company
The business model of an IWM revolves around the following factors:
nA wide product suite to provide customised solutions for the investor.
nSophisticated and proactive advice.
nAn enhanced level of service offering, using superior technology.
nCreate a brand with which trust, credibility, and integrity can be readily associated.
To help affluent customers navigate the market's ups and downs, a sophisticated advisory process and a wide product suite is required. However, the current
offering from the IWM companies seems to be a copy of their preferred banking cousins. They are found wanting on most counts. An IWM product suite normally
comprises — besides mutual funds, portfolio management services, venture capital funds and deposits — high-involvement products such as real estate and trust
Products push approach and recommendations based on quantitative variables and historic data characterise the advisory platforms of preferred banking
divisions. As IWM companies hire most of their client-facing team from the preferred banking space, their advisory platform is influenced by these factors.
Such people are yet to develop an approach of listening to and understanding client needs, providing an up-to-date investment advice and designing wealth
To become significant players, IWMs must invest in their people. In the advisory proposition, there is a need to include more sophisticated tools for asset
allocation and model portfolios. This includes dynamic asset allocation and qualitative factors in the advisory process, and specialised research on
alternative investment products.
A brand building exercise is also important as most of these IWMs have been set up by equity broking companies in India and they have rarely commanded trust.
A respected brand will help IWM companies reach out to their rapidly increasing potential customer base, who might currently be serviced by the private bank
across the street.
IWM companies should offer end-to-end services from wealth creation to wealth protection and estate planning and in the process form generation-long
relationships. It is only then that these independent wealth management companies will be able to come into their own.
The author works in the wealth management space.
Views expressed are personal