Clients want wealth management, tax planning, philanthropy all in one
Feb 08 2013
Interview: Satya Narayan Bansal, CEO, Wealth management, India Barclays
What are the main challenges faced by the Indian wealth management industry?
The wealth management industry in India is still relatively new and largely fragmented. The availability of skilled talent is often a challenge. We have attempted to scout for talent, not only from the private banking industry, but also from corporate and investment banking.
Another important challenge is to educate the clients about the overall approach towards managing their wealth. Before the financial crisis in 2008, there was disproportionate attention to a specific investment for its attractiveness/risk without looking at the overall portfolio in a holistic manner. The market, to an extent, was dominated by distributors of financial products. Many families have now realised the need for an overall approach to portfolio risk/rewards and increasingly adopting it, but still it’s a long way to go.
Has frequent regulatory changes impacted the wealth management industry in a big way?
We are in an evolutionary phase so far as regulations around the wealth management industry is concerned. We believe such regulatory changes are going to be there given the evolution. Most of our regulations are getting aligned with the global best practices and it would help the industry in the long run. There are often practical challenges in implementing some of these changes as it takes time to settle down.
How big is the potential in India, given the rising number of HNIs and ultra-rich? Where do you see the industry in a five-year time frame?
There is a tremendous opportunity in the wealth management and private banking space in India as the market remains fragmented. The penetration levels are low and there is a large untapped market. Therefore, the large opportunity is outside the current client base. Current estimate suggests that aggregate AUM of the private banking industry is still around $20-25 billion, which is miniscule compared with the Indian market cap of more than a trillion dollar. Even if you assume 10 per cent of the market cap being in the hands of HNW/UHNW families, the industry should look for assets of at least $100 billion. This is over and above the wealth locked in promoter holdings, alternative investment asset classes such as real estate and gold. Liquidity events will further unlock value and make money available for investment.
n What are the changes required for the betterment of the industry?
There is a need for better monitoring and governance in this industry in order to ensure a level-playing field for all players. We must differentiate between retail investors and sophisticated expert investors like the developed markets.
In terms of products, how have Indian wealthy investors adapted over the past two-three years? Are they becoming very cautious and investing in just gold and real estate?
There has been a growing bias towards physical assets, especially towards real estate and precious metals. Investors have, over the past few years, stayed cautious on equities and have had a bias towards debt portfolios. Investors still get carried away with the overall returns of a particular investment or an asset class without factoring in the risk associated with it. For example, some families have a large bias towards real estate, but have not factored illiquidity it brings to the overall portfolio. Even when a large amount of portfolio is skewed towards debt, what is often ignored is the opportunity to miss in the overall growth by investing in businesses directly or though equity markets.
An important role of a wealth management professional is to advise clients on optimum asset allocation strategies and a disciplined investment approach. This is easier said than done. Often, clients learn this the hard way, when they ‘see’ the risks materialise in their biased exposure or they ‘miss the key train connections’. At Barclays, our proprietary investment philosophy helps us recognise the overall financial personality (much beyond the traditional risk rating models) based on behavioural parameters and helps us build a wealth strategy for a long journey suiting the individual risk appetite and behavioural temperament. Let’s not forget that wealth creation is a journey and not an event.
Firms, especially MNCs, can bring in other related services such as tax planning, philanthropy, besides offering sophisticated products from your global basket. Can you elaborate on this?
Given that a large number of wealthy families are from family-owned businesses, their requirements are quite diverse and complex. They often need private investment banking services, given the closer association of their wealth and the business. They would not only need help in exploring business opportunities outside India, but, at times seek global partners for their businesses. Most families are either already doing it or have a desire to contribute to society at large, but they are often struggling to ensure efficiency of impact around their philanthropy and seek help to build a right structure around it. Succession planning and family governance is one of most critical needs for many families, but often ignored. What we attempt to bring in such cases is our global experience and linkage besides the local understanding so as to offer the right fusion between global and local practices.
Do you see a consolidation in the industry going forward?
Yes, the industry is already in a phase of consolidation and there is more to come. Some of the smaller players have already exited the business and as we understand from the market sources, even some of the larger players are evaluating their business models afresh. We believe such consolidation would be healthy for the private banking market given its fragmented nature at present.