#6thIWMC – Panel Discussion on “Challenging the Conventional”

Despite the pandemic in the last one and a half years, there’s been a growth in all the categories of investors such as HNWI, mass affluent, or the retail investors. However, with the arrival of fintechs, wealthtechs, and the new customer segments like millennials and Gen Z, the traditional ecosystems and business models are really being challenged and perhaps the traditional RM led model may really not be enough anymore. Clients have become more tech savvy and thus desire a combination of digital and human interface.

Keeping up with the new market offerings

• There would be a plethora of products every now and then having flavor of the day. But at the end, what matters is creation of sustainable wealth and getting reasonable real returns.
• A product comes at a later stage, but the most important thing is to understand the risk profile of the customers and to offer them a proper asset allocation. Automating asset allocation can go a long way because in reality it is preached more than practiced. Stock exchange’s platform and other platforms can easily facilitate rebalancing of the assets on a regular interval at a fixed frequency.
• Trends like Zomato mania, cryptocurrency and such others will keep coming and people would want to invest in those kinds of products. However, this investing behaviour is not advisable and if at all anyone wants to invest, it should be a very small percentage of your assets. One should not put their serious money into such things. Long term equity investing via SIPs is a proven investment strategy to create wealth.
• At times it is seen that there is a gap between the market returns and customer returns which is basically because of investors’ behavior. As a distributor or as an advisor, the focus should be more on managing the behavior of customers rather than offering them products. The underlying principle should be what the customer needs and not what the customer wants.

Managing client expectations and client behaviors

• For distributors and advisors, every client may not be a potential client. A large part of their role is about managing client behavior which even brings some degree of differentiation. What differentiates all wealth management platforms offering same product or same technology is their core investment philosophy through which they guide clients.
• Role as a wealth advisor is really to get the client focused towards the right direction, making sure that he can achieve his goals with the least amount of risk. Investing has three key components – discipline, knowledge and temperament. Discipline is sticking to asset allocation, knowledge means investing only in areas where you have some understanding and temperament is how you behave during good and bad times.
• Product innovation is also important and some good investment ideas have come up. Some of the local Indian firms have also driven this change by providing customized solutions.

Dealing with new customer segments

• The last 18 months has led to a revolution, not only in terms of how customers look at their portfolios, and the kinds of products that are offered, but also the way number of these new target addressable markets (TAM) are emerging.
• For large wealth management firms, there are three major changes. One is the influx of new money that is coming in through young 20-30 year olds. Secondly, a very large professional segment is emerging now as serious wealth customers – the ultra HNIs or UHNIs. These people are extremely money rich but time poor and are thus habitual of making decisions very quickly. Further, there is now more emerging role of women in terms of really being able to take sizable decisions around portfolios.
• The kind of questioning, decision making and analysis that these segments want is very different from the traditional customers which are still much more relationship oriented. Right data has become very important. Moreover, for this segment quicker decision making, more access and ease of technology to be able to access information as per their convenience are more important.
• Particularly for UHNIs, there’ll be three areas of focus in upcoming times:
1).  Client experience – This includes reporting, ability to take any portfolio information as per their convenience etc.
2). Relationship manager productivity – Ensuring that an RM can handle many more clients by leveraging technology.
3). Bringing costs down – This is because margins would be under pressure as more competition comes in.

Some major milestones in this journey would be:

• Wealth management firms giving their sales, marketing and RMs, an ability to conduct client acquisition, portfolio management and advice through digital means.
• Integrating the transmission of all the customer information across multiple AMC channels and products, which is a big piece missing right now.
• Introducing technology in such a way to really input external data of a client and then output specific client recommendations. Using technology to offer advice holistically across client portfolio.
• Increasing scale by allowing clients to top up further transactions straight away and avoiding the whole RM interaction.
• Using artificial intelligence and big data analytics to provide insights to both RMs for better decision making and to clients for managing portfolio behavior. Because today, clients are overloaded with information. So by using advanced analytics, one can understand each individual and can come up with better recommendation.

RMs are not going away, technology will only support RMs to interact with clients better. Human capital applied in the right way, with the right experience will continue to be a key differentiator at least with the UHNIs segment. Because in the ultra HNI space, service is not just limited to portfolio management, but also includes wealth structuring, tax planning and creation of trust.

Emerging trends from the perspective of Indian clients

There are two trends that can be seen in a large way. One is now more and more sophisticated customers ask for answers around sustainability, both on the fixed income as well as on the equity side. The second one is the impact of entire digital and technology revolution in India that is shaping the client portfolios and their investment decisions. Clients are now very keen to understand new age businesses and processes as well as how they are disrupting existing businesses. From the retail perspective, it was seen in the case of Zomato. But this is going to have a broader impact on traditional investing over the next few years. We’ve probably just touched the surface here.

Impact of social media influencers

The emerging trend of DIY investors has further amplified in the last one and a half years on the back of bull run, making quick gains through IPO and such other short-term trends which is not the right approach of building long term wealth.  To add to this, there is a deluge of social media influencers these days with massive reach who sometimes also give a lot of misadvise. However, financial advice is a serious business as it deals with people’s money. It is different from coming up with a cooking show and having a lot of followers.

Though presence of people with sound financial background and knowledge on social media is a welcome move to spread awareness, but even then this new market should be regulated so that people do not end up consuming wrong advices. Similar to developed markets, regulations in India would also evolve with time and eventually this influencer market would also be regulated just like it happened in the case of advisors on television business channels.