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Rethinking Wealth Management For The Next Decade

Wealth management firms will need to embrace technology and move to provide holistic, personalised advice that is in sync with evolving investment trends and investor needs.

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The wealth management industry is at the cusp of significant change as we enter a new decade. Significant shifts are underway in technology, geopolitics, environment and society.

Substantial growth in GDP across the emerging markets, rapid adoption of new technology, rise in wealth across the nations, increase in the complexity of managing personal finances, global nature of investment opportunities, and wealth transfer across generations will create new challenges and opportunities in the wealth advisory space. It will be imperative for wealth advisory firms to evolve their products, services and methods of delivery to adapt themselves to the new order and continue to be relevant to their clients. 

So far, In India, Family Offices have invested primarily in local, rupee-denominated products. In line with a more globalized world - families often scattered across continents, children working or studying abroad and cross-national marriages increasingly becoming the norm, this investment behaviour is set to change. Family Offices will look to diversify their portfolios internationally across asset classes, geographies, currencies and commodities. Today there are only two ways for Indians to get international exposure in their investment portfolios. First is via the investments made offshore through remittances under the Liberalized Remittance Scheme (LRS), approved by Reserve Bank of India (annual permitted amount of remittance is USD 250,000 for resident Indians and USD one million for non-resident Indians) and the second is via feeder funds that invest in international funds, available through domestic Asset Management Companies. Although international feeder funds and Alternative Investment Funds (AIF) have started to gain prominence in the Indian market, they are still under-subscribed. We will see the evolution of a variety of new products that will provide investors with better access to offshore investment products and the global marketplace. 

The Indian Private Equity and Venture Capital space is gaining momentum in India. India has the third-largest start-up ecosystem in the world, in terms of value and numbers, just behind China and the US. As India embarks on its journey to be a $5 trillion economy by 2024, entrepreneurship will play a big part in innovation and wealth creation. Although domestic capital has not played a significant role in supporting the start-up ecosystem so far, we see this trend changing. Alternative assets such as Structured Debt and Private Equity funds have seen more investment in recent years as investors diversify from traditional products like fixed deposits, bonds and gold. We could see a further fillip to investments in this asset class if taxation policies are streamlined and depth in the secondary market improves. 

Socially Responsible Investments (SRI) that combine financial objectives with social, ethical and environmental issues are gaining momentum with high net worth individuals globally. As themes like low-carbon, climate change and gender equality continue to dominate, we will see SRIs become increasingly popular in India. A shift in the market strategy adopted by many participants as they incorporate economic, social and governance (ESG) factors into their investment process is visible. Regulations, policy support and contraction in the return differential between SRI and traditional investments could bolster investments in SRI. As we progress through this decade, we will see the development of products suited to the needs and preferences of the full spectrum of investors. 

Longer life expectancy and the surging cost of medical care is nudging high net worth individuals to start preparing actively for their retirement to secure their own future. Wealth advisory firms will need to reposition their thinking as many are still optimized around offering accumulation advice rather than income planning. For advisors, providing advice and planning around retirement income will be an incredibly complex task. They will need to help their clients make numerous assumptions around portfolio returns, spending patterns, inflation, future tax rates, longevity, healthcare expenses and many more issues. Meeting the needs of clients focused on retirement will require new capabilities, including new products, tools and services. 

The importance of wealth transfer cannot be overstated. Traditionally, most wealth transfers took place upon the death of those passing on their fortunes. In recent decades, however, more significant levels of wealth are being passed on before death. This is sometimes done to empower or gradually prepare the next generation by giving them limited amounts of wealth to oversee. Need for estate planning, the formation of trusts and family offices is expected to increase in the future. 

The new generation of investors, Generation X & Y, that will be the beneficiaries of wealth transfer (over the 55-year period from 2007-2061, $58.1 trillion is expected to move from one adult population to another) think and interact very differently from the previous generation, their expectations are shaped by their interactions with digital devices and smartphones. This will lead to the emergence of artificial intelligence-driven advisory platforms and force conventional wealth advisory firms to adopt technology to improve customer experience.   They will need to provide omnichannel engagement offering personalized services across the entire wealth spectrum including advisory on global portfolios, integrated estate planning, philanthropy and physical asset investment strategies.

Over the last few years, digital technologies have been transforming the BFSI industry globally. However, a Mckinsey report claims that so far, very little has changed in the US wealth management industry on account of digitization. As per the PWC Global Wealth Management Survey, 69% of HNWIs are now using digital channels however only 25% of wealth managers offer digital channels beyond email.  

With the emergence of “Robo Advisory” and artificial intelligence-driven financial advisory platforms, the trend towards digitization is starting to get apparent. “Robo Advisory” engines essentially convert client survey data into algorithms to produce customized financial plans and asset allocations. They also provide investors market commentaries, product level research and other relevant analysis to assist self-directed investments. Once the models and algorithms have been built and tested, investing and trading tools can be made available to customers with limited human intervention.  Artificial Intelligence-driven financial advisory engines, on the other hand, try and provide a full stack of wealth services to clients to assist them in investments planning, tax analytics, cash flow and liabilities management.

Most of the technology advancements so far have been focused on widening the net for wealth management services and providing access to clients that are typically unable to engage a personal financial advisor.  Traditional wealth management firms have been slow in adopting artificial intelligence and this is where we see an upward trajectory, going forward. Whilst you cannot take away the physical and emotional effort put in by advisors, it will become imperative to use digitization to improve advisor effectiveness, customer experience and engagement. 

The next decade will be an exciting phase in the growth of wealth advisory space. Wealth management firms will need to embrace technology and move to provide holistic, personalised advice that is in sync with evolving investment trends and investor needs. New forms of advice and new ways to deliver that advice will continue to emerge. Competitive positions will erode or strengthen, creating winners and losers across the industry.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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wealth management

Ruchi Sankhe

The author is Managing Director, Origination and Client Coverage, Waterfield Advisors

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