Dasvir Ankhi, Head - Wealth Management, Distribution and Advisory, Tata Capital

The Wealth Management Industry has always been at the forefront of immense action owing to fast changing domestic and global market dynamics, growing number of HNWIs and an era of complex wealth management solutions. Post the 2008 financial crisis, the wealth industry has seen massive shift owing to change in global regulations, changing client behavior, rapid advancement of technology and a fluid competitive landscape.

India Perspective

According to the Asia-Pacific 2016 Wealth Report by New World Wealth, India is ranked among the top five Asia Pacific countries in terms of the number of High Net Worth Individuals (HNWIs). The report further stated that India is expected to witness a 105 percent growth in HNWI population from 236,000 to 483,800 by 2025. The rising increase of e-entrepreneurs, professionals and inheritors presents a challenge of a diversified approach to cater to the rising UHNWIs in the country. The Indian wealth management industry has witnessed a transformation from a fragmented IFA based investment solutions provider (product selling) earlier to a more organized wealth management landscape (goal based investment solutions) with world class technological advancements, customized product offerings and personalized advice based on the prevailing market conditions.

Shifting Landscape

During the pre 2008, systemic risk was substantially viewed as a non-issue. Correspondingly, investors were almost exclusively focused on the expected performance of their asset managers and only marginally concerned about non-performance-related issues, such as operational risk, regulatory risk, liquidity risk, fund governance and transparency. But now, the market as a whole has seen paradigm shift with investors valuing and grading transparency, risk management, governance, convenience and the performance of their portfolios as key before getting associated with a wealth partner.

Changing Client Behavior

In today’s scenario, the client expectations of right and customized advice play a significant role in the decision-making process while associating with a wealth manager. Further, the advice which was erstwhile limited to investments and more generic in nature have seen a shift to a higher level of customization and have broadened to include liabilities, succession planning, taxation, risk planning and even as granular as budgeting and spending controls. Advice from wealth managers are more need based and towards managing risk as compared to just out performance from a set of investments. Investors demand easy and convenient processes, increased personalization and frequent and effective multi-channel delivery systems to meet investment requirements to ensure that their goals are aligned with the changing market dynamics. The changing behavior of the investor could even be seen by the movement from traditional debt based investments to a more diversified asset allocation including equities, complex wealth products and alternate investments.

Technological Transformation

Advice & Personalized Financial Solutions, which were earlier more restricted to wealthier clients, have been growing in popularity in India. The lower strata of wealth clients which were earlier offered standardized investment solutions now have access to quality investment advice at a much lower cost due to the increased digitization of the advisory set up. Affluent customers have also started experimenting with a new advisory model in the form of Robo Advisory and have been shifting some of their financial assets over to this platform. These advisory channels already include mobile, desktop, telephone, and in-person sources. Further innovations in offering holistic advice through digitization are also underway and are expected to have a significant impact on the cost dynamics of the wealth industry.

Some of the emerging trends on technological reach also include:

•Increased use of analytics and innovation in this area by the organizations as client's
engagement tools

• Digitization of the client on-boarding and KYC procedures to offer end–to-end automation

• Focus on offering integrated financial solutions in a single window to clients who include all financial engagements, be it investments, loans or insurance.

• Multi-channel delivery of wealth products and advice to clients in the most efficient way based on each client’s needs.

• Increased degree of personalization of reliable investment advice while ensuring sufficient granularity to a client’s level of risk tolerance, risk appetite, and risk capacity.

Organizational Challenges

Despite an increased growth in HNWI wealth segment, the wealth management industry has not been able to convert the vast opportunities into viable business solutions. A combination of structural and cyclical headwinds has put significant pressure on revenues, margins and costs. Increased digitization has resulted in availability of quality advice at the client’s fingertips and at a much lower cost. Also the rise in demand of the consumers for a “one stop investment services/wealth management solution” coupled with unfavorable market conditions has put substantial pressure on revenues and costs. Rising scrutiny by regulators and a change in the regulatory framework in a bid to raise the financial density in India has further caused serious challenges in the way the wealth management industry operates. Accordingly, the wealth management industry is investing heavily in the technology to both expand their reach and meet the rising demand of wealth solutions. The most important challenge remains in maintaining profitability amid thinning margins and ever evolving regulatory as well as technological landscape.