Regulations Have Pushed Wealth Management Industry Towards Greater Transparency: Rohit Sarin, Founder Partner, Client Associates

How has Wealth Management evolved post-2008? What are some of the key trends you have observed within the HNWI community, both in terms of behaviour and investment preferences? 

Since 2008, the wealth management industry has seen significant evolution triggered by two things - evolution in regulations and maturity of clients and talent. Industry has evolved from a product-centric distribution driven business model to client-centric advisory driven approach. Regulations have pushed the industry towards greater transparency in engaging with clients which in turn has pushed the industry from chasing upfront transaction-based revenue from selling products to building recurring annuity-based revenue linked to assets under advice. Though still, it’s early days and a long way to go but industry and talent have understood the importance of value addition to their clients.  

HNWI segment has matured in terms of their understanding of various asset classes which have tempered their expectations towards realistic returns with the underlying risk that they are prepared to take. The expectations are no longer to have the highest possible return with the lowest possible risk. They have also understood the importance of availing process-driven portfolio advice customised to their specific needs rather than accumulating a barrage of impressive-looking complex investment products. 

What’s your product mix like? Do Mutual Funds continue to be at the core of your offering, or has your product mix become more diverse over the years? 

We are agnostic to the construct of the product. What matters and comes first is the merit and track record of the asset manager. Category and manager selection is more critical than vehicle selection. So a good asset manager could come from a mutual fund, PMS or AIF platform. What is most important is the quality of output measured by risk-adjusted returns for a given expense ratio. On account of this Independence as a platform, we are able to have the most diverse and extensive access to all asset managers across all traditional and alternative asset classes. 

How has the decision to move from regular to direct plans paid off? What’s your revenue model for the direct plan model? Do you charge a fixed fee or a percentage of AUM? How is the propensity to pay fees within the HNWI community? 

Choice of direct plans have acted as a catalyst for bringing in transparency in client service provider relationship at one end and also establishing a value addition based optimal pricing which a client must pay and a service provider deserves to earn. Initially, some players tried to misuse this choice to gain market share by discounting mutual funds and make up for that by selling expensive and inefficient non-mutual fund products but that strategy has been short-lived.  

We see direct plans as a great opportunity to build transparent and long-lasting relationships with our clients. We work on a composite advisory fee linked to assets under advice irrespective of the construct of the products which brings alignment of our interests with those of our clients. Since HNWI clients too have matured with times they have welcomed the choice of engaging with their advisors in an open and transparent manner. It has given them the lever to hire and retain quality talent to safeguard their wealth. 

Are you bullish or bearish on the markets right now? Reports say that CA, which was circumspect on the markets for the past year or so, is now gradually becoming more positive on the equity markets…. 

From June 17 till March 18 we were bearish on the markets. Then from April 18 till August 19 we had a moderate stance. However, from September 19 onwards we have become bullish on the markets. This is guided by our proprietary risk management process and not by how our team is feeling about the market built on deep data science principles. 

How do you think technology will impact Wealth Management over the next five years? Is the need for face to face contact diminishing, in the age of digital? 

Technology like any other industry or even in our personal lives is going to be a great enabler for the wealth management industry. We realised this more than 10 years back and patiently started developing our own in-house tech platform around the needs of our clients and advisors. However, I feel that while tech will remain an enabler it is not going to replace humans' interface. Anything to do with wealth is based on assurance and a faceless model will at best be able to service a mass market by way of a standardised delivery model. Anything else which requires customisation and high touch like for HNWIs shall keep the human touch as irreplaceable. In the world of Uber, we still have sections of the society who will continue to remain chauffeur driven. In the world of Airbnb, we would still have sections of the society who would want to travel without the element of any surprises. 

What trends do you see within your younger (say, in their 40s) clientele? Are they risk-averse or risk-loving? Where are they investing these days?

Well, it would be incorrect to generalise them all into one category. It really is a function of their individual personality and therefore their preference for risk and return. However, having said that younger clients even if being conservative by nature are more open to examine and learn about opportunities which on paper may look new generation or unproven. Accordingly, besides traditional asset classes, they are open to look at alternative asset classes like venture investing, absolute return strategies, international investing etc. 

What’s your take on REITS? Do you think Real Estate is nearing the end of its lengthy bear cycle now?

REITS is a well-developed asset class in developing markets. However, in India, it is just getting started. There are limited choices of REITS for investors and that too with no track record. It would be wise for investors to wait out for this segment to go through its teething problems before participating in it. Real estate has gone through a fairly long bear cycle on account of structural changes in that part of the industry related to its regulation and financing. It currently offers a great time to acquire an asset for self-use. However, for investing a product and location-specific approach may work better. 

To conclude, do tell us about a few of your business goals for the next year, in terms of AUM growth and revenues. How do you plan to achieve it?

Thanks to our sustainable business model we have grown each year of 17 years of our journey with an average growth rate of 25 per cent. However, this year as the industry consolidates on account of difficult markets and evolving regulations, we hope to benefit additionally from some of the existing clients and talent reallocating themselves with Client Associates. With this shift, we are aiming to grow 30 per cent this year both in AUM and revenues. Client Associates is truly an organic firm in a growing wealth management industry in India and our stability and sustainability is becoming a big draw in attracting strategic clients and talent to our family.