Technology Is Serving As An Enabler For Wealth Managers: George Mitra, CEO, Avendus Wealth Management
They say that global Wealth Management is changing, and migrating from “high touch” to “high tech”. What’s your take on that? Do you think that the newer generation of HNI’s places lesser emphasis on relationships and more on efficiency?
Technology is a part of everyday life now and has affected everything. Wealth management is no exception, although tech adoption in the space has been a little slower than in other industries. So far, tech-led disruption in wealth management has predominantly impacted two main areas – A) Processes and execution at the back-end; and B) Apps / Web views that serve as touchpoints for clients at the front end. Middle office operations – including investments analytics, advisory, monitoring, etc. – have only recently started going digital. (Robo-advisory is one aspect of this).
There is no doubt that digital enhancements are aiding Wealth Management firms to automate manual processes, streamline operations, and generally become data-driven in decision making. However, making sense of what the data is telling you, and the actual communication of the possible actionable to the client, still very much require human interfaces. This interface needs to be a person or brand the client trusts. And this trust takes years to build. We don’t think this part can be easily replaced by technology.
So, essentially, technology is serving as an enabler for wealth managers, rather than a replacement for them. It is freeing them up to focus on deepening their relationships with clients, resulting in better outcomes overall. Also, client experience gets elevated thanks to back-end and front-end technology enhancements. It’s a win-win for all stakeholders.
As both the adoption and acceptance of technology in this space become higher, the number of human touchpoints in the wealth management process may become fewer. But for crucial decision making, we still feel there is a strong need for a human relationship bridge that is built on years of trust.
Recent research indicates that the overall mood of HNI’s is “risk-off”, but yet we are witnessing record inflows into Cat 1 AIF’s that are very high risk. How do you explain this contradiction?
We think this is indicative of the evolution of the Indian investor. Investors are now more discerning and mature: from taking a call on “risk” based on the type of instrument, they are now trying to understand what the actual risk is, rather than painting everything with a broader brush of “assumed” risk.
The type of vehicle used, e.g: Cat 1 AIF, does not really indicate how risky any opportunity is. Investors are now realizing that they need to deep dive into the underlying investments, the fund manager and where the opportunity fits into their overall financial plan and portfolio, to better assess the risks involved.
The need for this holistic approach in evaluating an investment has become the need of the hour in a ‘risky’ environment, where there has been a precedence of even AAA-rated instruments getting downgraded to “default”.
As a business, do you advise on direct or regular plans of Mutual Funds – and why? How do you see the RIA model playing out, if at all? SEBI has been trying to get the model in place since 2013 but without much success…. What’s the way forward here?
Wealth managers have a responsibility to do the best for a client. They need to ensure investments are not only high quality but also suitable for them while ensuring efficient and timely execution. However, any biases held by wealth managers and advisors can impact this responsibility. As the market matures, removing any such biases becomes crucial. Direct Plans were introduced precisely with this intent.
For truly unbiased advice, the interests of financial advisors should be aligned with those of clients. But are clients ready to pay for investment advice and related services? We think they are, provided the advisor is able to add value to the client. We are now seeing this play out, with clients first experiencing the difference, and then showing a willingness to pay for the high-quality advice.
The onus of showing this value is on the advisor: it takes a lot more effort, a lot more engagement, and yes, lots of process enhancements. But we do feel that this is the only way forward to build trust – to have a system that is intrinsically non-biased.
Do you see demand growth for structured credit within the Ultra HNI space, or is the mood essentially circumspect when it comes to fixed income? Are the credit headwinds by and large behind us?
We see a lot more need for structured credit. The earlier practice of simply relying on an external rating was fallacious. The ability to not just correctly assess the credit risk, but to be able to monitor and enforce security, has become extremely important. There is a substantial reward for those (few) managers with this ability, both in terms of yield enhancement, as well as risk reduction.
Ultra HNIs have started gravitating towards such managers and are being very selective. Overall, we think the interest is more than what it was earlier.
At a product level, do you think that does the industry need to innovate to stay relevant? Ultra HNI’s have, after all, been magnetized by the exotic…
We must always remember: UHNIs are UHNIs not because of chance. They are discerning and have the patience to see through a long-term investment call. What is “exotic” today may become mainstream tomorrow, and this is what they bet on. They take a view and invest - maybe a smaller amount - into the winners of tomorrow.
As their wealth advisors, it is our job to ensure we can curate and provide access to these future winners. But in doing so, we must make sure it is in line with their overall financial goals, is done as part of their portfolio asset allocation, and resist from going overboard in any single opportunity.
