Gen Y Rich Is The Biggest Trend

Not long back in 2008 the industry was characterised by an overtly product push model with misaligned incentives between the clients; employees and the firms. The regulator took some concrete steps in 2008-2009 to reduce the overall expenses of managing money for clients and remove the incentive to distributors to constantly churn the portfolio for their own benefit. Very recently the regulator has taken a quantum step ahead and introduced advisory regulations which over the medium term will remove retrocession fees for the wealth manager across all products. This will necessitate a big change as advisors will need to charge clients fees as opposed to earning commissions from product manufacturers. This will make the entire industry more transparent but most importantly will align the interest of the client; advisors and the organisation, enabling all of them to be sitting on the same side of the table rather than on opposite sides.

One of the big trends, which are expected to emerge as the industry achieves scale are multi family office services. The super rich demand more from their wealth managers today. Apart from advising on managing money, the platform also needs to cater to their philanthropic needs, financing requirements, investment banking transactions and helping in setting up the right holding structure and their family trusts. This needs wealth management firms to invest heavily in people with relevant skills and expertise to serve as multi family offices for the super rich.

The second most big trend is the new rich: Generation Y. The new rich are different from the old in the sense that they want a part of their money to be active all the time. They want to be involved actively in investing in equity and real estate. Earlier the stated objectives used to be around capital preservation,high liquidity, low volatility and expectation of double digit returns . The new rich want their money to work more and don’t worry much about liquidity.

The third trend talks about employees as owners. In a knowledge intensive industry like wealth management people make all the difference — as the business moves away from distribution to advisory firms, which are able to retain talents for long. Hybrid models are where employees are substantial owners as it helps manage the delicate balance between the investments required to build the platform as well as correctly align incentives of the employees. Across the world, a larger part of the incremental wealth management is moving to independent financial advisors.

Technology is going to change evereything. India continues to be a high-touch wealth management industry where clients want to meet their advisors often as opposed to execute transactions online. Robo advisory is likely to first penetrate the retail and mass affluent segment as opposed to the wealth management space. Overall future is bright for all three — stakeholders employees, clients and the organisations.

With measures like demonetisation of the old 500 and 1000 notes hopefully India will go more digital and there will be more money flow in the formal savings market as compared to the informal market, real estate and gold. This has a potential to increase the size of the pie of savings to be managed actively in a big way and if done well will lead to a very good organised large wealth management market in India in years to come.