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Embracing the Digital Opportunity in Wealth Management

As digital disruption gains momentum, the wealth management industry has, so far, stayed on the sidelines. Industry players are watching with anticipation but hesitant to cross the digital divide.  However, given that India’s mega-rich population is swelling rapidly, ignoring the digital opportunity is simply not an option for the industry going forward. The Indian wealth management industry is expected to grow at 10-15% over the next five years. In the growth scenario, promising high returns alone will not cut it anymore. Wealth management firms must be ready to offer highly personalized services that cater to every need, whim and fancy of investors.

How can a wealth management company overcome its digital dilemma and embrace the emerging opportunities by positioning itself not only as an investment banker but also as a trusted friend, coach and counsel?

The New Indian Investor

The anatomy of a typical investor is changing, especially in emerging economies such as India that incidentally also ranks among the top 10 nations of the world in terms of total private wealth held. Around 69% of the total HNI population in India is in the age group of 30-55 years with many of these HNIs frequenting Facebook and also rating social media as an important channel for communicating with their bank.  They are increasingly willing to make some investment decisions themselves — and even share ideas online through social media platforms. Advisory asset management and tax planning are two of the most demanded services among HNIs in India and modern investors are no longer wary of seeking a wealth manager as they neither have the expertise nor the time to monitor their investments. Another growing trend is the demand for wealth managers coming from tier 2 and 3 Indian cities. The Rs. 20-trillion asset management industry has been witnessing a lot of traction on the systematic investment plans or SIPs, mostly from retail investors hailing from non-metro cities. SIP investments from these cities are growing at a robust CAGR of 30% as against the 27% growth seen in top cities.  This has opened a slew of opportunities for wealth managers to scale up their business in smaller cities. Clearly, how Indian investors handle investment decisions or prefer interacting with wealth managers is undergoing a sea change. This, in turn, translates into multi-dimensional challenges for the wealth management industry.

Challenges galore for the modern wealth manager

In today’s digital world, consumers have similar expectations from wealth managers as those from a manufacturer, retailer or an eCommerce player. But in meeting these expectations wealth management firms face some unique challenges including:

#1 Growing demand for holistic wealth management:

Today’s Wealth Management and Private Banking (WMPB) clients want more than perfect financial asset allocation – they want advisors to personalize the management of the entire gamut of their assets, liabilities, life plans and tax savings. Not only do they want better performance across their investment lifecycle but also seamless omni-channel services coupled with superior customer experience.  For instance, business income alone contributes to 39% of wealth for HNIs in India, requiring holistic solutions that can help protect wealth and enable risk mitigation.

#2 Influx of new investment products:

Conventional assets such as shares, bonds or money market investments are increasingly giving way to alternative investments or co-investments in hedge funds and private equity funds. Direct real asset investments in real estate, infrastructure, loans, and agriculture are also seeing an uptick. Modern Indian investors typically seek sophisticated products that can offer high returns in a short period of time. Globally, a new breed of “passion-based” investors keen to invest in products of personal interest such as cars, artwork, wines, or coins is also emerging and bringing about shifts in the market. However, homegrown investors are still wary of taking risks. A recent SEBI-Neilson survey revealed that 90% of Indian households still prefer bank deposits, while less than 10% preferred mutual funds. In rural areas, less than 2% prefer stock market related investments.

#3 Demand for greater value:

Thanks to the ultra-low interest rate environment, high market volatility and the general distrust towards financial institutions after the 2008 recession, modern WMPB clients are more price-sensitive than their predecessors. More than product-driven advice, they expect wealth managers to give solid performance-based advisory support, with greater transparency and control over their investment portfolios. Clients also expect accelerated service delivery at par with other industries. They expect key processes such as account servicing, fund transfers, new account opening and account transfers to be less cumbersome and demand more self-service driven processes that can be completed online in a hassle-free manner.  

How Digitization Can Help Wealth Managers Tap New Opportunities

Digitization provides multi-faceted solutions enabling the WMPB industry to better serve its customers.  While the traditional high-touch model will still remain, a slew of new digital services and opportunities will help wealth managers chart a new course. Here are three key opportunities that digitization of wealth management presents:

#1 Boosting sales volumes and efficiency:

Modern WMPB clients want to be educated better on the financial tools. The good news is educated clients invest more. Educated customers typically hold twice or thrice the equities in their investment portfolios than those held by less educated clients. WMPB firms can educate clients better by introducing mobile apps that serve as online channels for transactions, advice, investment news and information exchange, as well as client-to-client networking. Within the Indian stock market domain, a slew of mobile apps such as Stock Watch, Investar and others have emerged that keep investors abreast with the latest NSE/BSE stock charts, market news, equity futures and options, and offer a broad range of financial coverage. Social media also presents an interesting channel to disseminate investment advice. For instance, #AskBQ is BloombergQuint’s daily offering where market experts help investors make the right investment choice — be it in equities, commodities or the derivatives markets. Providing potential customers customized and relevant information about the market is a non-intrusive way of initiating dialogue and has proven effective in boosting sales.  

#2 Streamlining operations:

Digitization and automation are key to standardizing processes, automating repetitive tasks, and rolling out new investment products and strategies quickly and efficiently.  They can also help align reporting processes with market needs and accelerate internal and external communication to improve response time without increasing budgets. Wealth managers can make better use of their time in client interactions by jumping straight to solving issues and providing valuable advice, rather than wasting time on ensuring KYC and gathering basic details. SBI Mutual Fund leverages e-KYC with Aadhar details to accelerate account opening for KYC compliant investors and also offers online SIP calculators to assess income, risk profile, goals, etc.  Robo-advisors are helping WMPB firms cut costs while serving a larger client base who typically may not be able to afford a traditional advisor’s fee. This is because robo-advisors can be made available for a minimal fee, helping customers with several tasks such as offering options to invest in SIPs, making taxable investments, switching funds and so on.  ICICI securities, HDFC Mutual Fund, Bajaj Finance, and robo-advisory start-ups such as ArthaYantra and are prominent names in the Indian robo-advisory space. According to these leading firms the market is warming up to the idea of receiving financial advice from machines.

#3 Strengthening risk and compliance posture:

Digitization can help WMPB firms  automate checks to identify early warning signs for a variety of risks and credit defaults, and provide an electronic audit trail to standardize risk and compliance – all while reducing costs. Digital portfolio risk management tools can go a step further and customize solutions to address specific client needs. These include allowing clients to run real-time portfolio simulations and risk scenarios, enabling alerts to customers in case of special market events or if their portfolio exceeds predefined risk tolerance levels. Clearly, digitization not only helps WMPB firms safeguard their business from legal and reputational damages through improved risk and compliance functions, but also create a more valuable customer experience.  

#4 Powering innovation to roll out new products quickly:

Digitization enables a ‘fail fast’ approach as new ideas can be piloted quickly and those that show some degree of success can be replicated at scale to unlock new revenue opportunities. With the WMPB industry facing large scale market volatility and shrinking margins amid newer sources of competition, any revenue boosting opportunity is worth a try. HDFC Bank, in an industry-first innovation in India, recently launched a new product – lending Digital Loans using mutual funds as collateral.  The aim is to reach out to customers in tier 2 and tier 3 markets and bring them into the digital lending fold by allowing them to pledge their mutual fund assets online or get overdraft limit set in their account in under three minutes. 

Success Lies in Balancing the Old and New

Taking a cue from the software world, innovative wealth management firms can devise a workable solution to keep both their older as well as younger customers happy. The answer lies in taking a ‘hybrid approach’ to digitization that revolves around integrating a technology-driven online customer experience and personal interaction with investment advisors. The resulting model is aptly called ‘high touch, high tech’ and is being increasingly adopted by leading global WMPB players such as Merrill Lynch, Wells Fargo and others who are rolling out digital-human platforms. The model has many takers. According to consulting firm A.T. Kearney, 90% of 35-to-54-year-olds would gladly adopt this hybrid model, especially if it saves them 25 to 50 basis points a year. India too could take a cue from the global players – especially if the wealth management industry is to capitalize on the massive upcoming opportunity worth over USD 3 trillion in personal investible wealth by 2022.  As industry and customer dynamics continue to change, wealth managers who successfully balance digitization with a personalized approach to embed their products and services in the customers’ larger financial ecosystem will outperform the competition.



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