Wealth management – A perspective

Wealth management is an ever evolving field as wealth in hands of individuals and corporates has substantially increased, so has the need for careful planning to achieve desired outcomes. The entire wealth management gamut has undergone paradigm change – increasing wealth in hands of individuals, increasing avenues to invest, digitization which has changed the speed and efficiency of delivery as well as the ever changing role of a wealth manager.

As the Covid-19 pandemic spread, there was an expectation that global wealth would contract. However, wealth actually soared higher and global wealth rose over 8.3% over the course of 2020 to reach an all-time high of $250 tn. as per BCG global wealth 2021 report. Wealth has also changed forms from fiat to digital currencies as well as digitization has caught pace and a lot of transactions have been facilitated at a click of button.

Wealth management has become all encompassing, including all financial needs and beyond for clients be it financial planning, portfolio management, retirement planning, planning legacies and bespoke advisory for every client need. Changing economic environment, both domestic and global has necessitated having a defined asset allocation as per risk profile and being nimble to make changes to portfolio as per the prevailing situation.

From investor perspective, it becomes imperative to understand the different asset classes and the yields offered by each, fitment into one's portfolio, knowledge of new product offerings to be better able to manage his/her wealth. Thus the role of a trusted wealth management firm with robust platform and a good relationship manager is significantly important for managing one's portfolio to meet the objectives. The wealth industry has been among the fast adopters of technology. There has been increase in digital interactions as well as digital offerings after the onset of pandemic as wealth management firms adopt to these changing times. Technology has disrupted all areas right from investment advice, to research and portfolio management, through the middle and back offices to client engagement and distribution. This lead to increased interactions as well as transactions as even retail clients rushed to stock markets amid job losses and salary cuts. Just as a proxy for increasing activity – the number of new Demat accounts opened in FY 21 was a record 14.2 million, nearly three times the figure in the previous fiscal year (4.9 million)

How's the customer behavior shaping up as digital becomes the preferred mode to manage wealth?

1. Trusting the digital experience and Quick Adoption: Most of the large clients as well as younger investor base is already tech savvy, hence there was a quick adoption to digital platforms and initiatives. With fear of Covid, clients naturally preferred digital interactions over physical meetings. While data available digitally did aid decision making, clients still exhibited need for quality investment advice. Thus a combination of digital and quality advisors became the strategy for leading wealth management organizations.

2. Reduced Information asymmetry: Access to information on multiple digital platforms as well as increased fund manager interactions digitally made the client more well-read and well informed. This has also lead to increase in clients transacting on their own on simple digital platforms.

3. Switching service providers for a better experience: With digitalization and lack of face to face interactions the quality of digital experience as well as interactions with the advisors laid a foundation of customer satisfaction. Wealth outfits which have been able to optimize digital offerings and create better client experiences have been able to have customers switch to their platforms from those that have not been able to change and adopt to the changing times.

How is the wealth industry gearing up for the opportunity?

To gear to tap the opportunity in wealth management industry, Client centricity should be at the heart of business strategy. To gain increased penetration it is crucial to understand changing customer demographics and expectations. We have been studying the changes in customer trends and aligning our strategy to serve our clients better.

Some of the key strategies that we believe are quintessential are:

1. Client Segmentation in alignment with client expectation: Traditional client segmentation approach classify customers based on AUM brackets and solutions are provided based on the AUM size. Change in the approach is needed as shifting demographics due to aging of baby boomers and emergence of new generations of investors Gen X, Y and Z whose preferences and expectations have been set by new technologies and who want access to best in class products which are available to high net worth customers. Thus a segmentation approach which combines the traditional approach and takes into account individual customer preferences and expectations thus creating dynamic clusters is ideal to cater to needs of the new generation of clients.

2. Personalization: A well informed and well aware client base corresponds to well defined needs and goals. Thus a bespoke investment advice that is tailored to individual requirements rather than a one fit all strategy is required to address the needs. Goal based advisory is likely to become an important tool.

3. Digitalization: Digitization is now at the core of client interactions as have been shaped by client's interaction with Google, Amazon, etc. A simple, intuitive and self - directed digital front end is imperative to service a client base who believes in taking advice but prefers the DIY approach to investing. As the customer seeks to keep himself aware and informed, availability of research and product information digitally is also important.

4. Hybrid Advisory approach: The existing advice delivery model has proved somewhat resilient, but its limitations have also been exposed. The world is moving towards a Digital Platform & Proposition led model with RM providing a human touch to complement that. In particular, large bank owned Wealth Managers have found greater success leveraging channel upgrades made over recent years, while smaller independent Wealth Managers have had more difficulty managing client engagement due to a lack of remote working protocols and digital client engagement infrastructure. Rather than individually using a pure automated or pure personal advisory both can simultaneously be used as complementary approaches. Wealth Managers need to design the advice delivery model of the future, which will have to be 'omni-channel', marrying the expertise and emotional reassurance provided by an RM, with the efficiency, convenience and scalability of digital solutions.

There is going to be inevitable disruption in traditional business models and companies that can fast align their strategies and value chains to address the shift will be able to garner a larger pie of market share. A continuous evaluation of changing client expectations and catering to those on an ongoing basis will become a requisite to cater to the market.

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