IWMC 2020: The Changing Wealth Management Canvas in India by Mr. Amitabh Chaudhary

Speaker: Amitabh Chaudhary, MD & CEO, Axis Bank

Moderator: Sunil Singhania, CFA, Founder, Abakkus Asset Manager LLP

Contributed by: Kapil Mehra, CFA, Associate Director, Client Associates

Mr. Chaudhary flagged off the conference with his Key Note Address focused on the changing wealth management canvas in India. He started his talk with a humble acknowledgement that he is not a WM (wealth management) expert yet his delivery was so crisp & macro analytical that one could really relate to it and envisage the future.

Data points & Inferences: Ever since the global financial crisis (GFC) hit the markets in 2008, the global wealth has grown at a rate of 5% p.a. from USD 227 Tn in 2009 to USD 361 Tn in 2019. During this period, wealth in the US and China has grown at the rate of 7% p.a. and 12% p.a. respectively. It is quite interesting to know that the WM industry, despite the crisis, has grown at a good rate. At USD 12 Tn, India accounts for just 3% of the global wealth. This percentage share at GDP level stands at 3.7%, so when it comes to global wealth we are a tag lower than our share of global GDP. In US, the share of global wealth has been much higher reflecting their expansive nature. However, it is quite interesting to know that the profitability pool in the last 10 years has remained flat at around USD 130-140 Bn which indicates the high competition, narrow pricing and increasing sophistication of the wealth management clients. In terms of number of High Net worth Individuals (HNIs), US has 6 MM, China 1.3 MM & India 0.263 MM.  The top performers in the WM business had fewer number of relationships than others, more number of accounts per family and lesser attrition. The inference is that trust & mining of your existing accounts is very important.

Where is the wealth being Invested?: Average Indian HNI is under invested in equity & debt and over invested in real estate & gold. So, Indians have a liking for physical assets compared to their global counterpart though this trend is changing in the last few years.

Emerging themes post Covid & challenges: Regulatory changes are pushing for more transparency, open architecture & more governance like in other industries including real estate and insurance. The wealth managers should be ready for it.

Impact of technology, digitisation & open ecosystems need to be embraced by wealth managers. Concepts like cloud computing, fintech, biometrics, AI, robots etc are important to implement in your proposition and need to offer these solutions to clients as they are aware of these technologies.

Younger HNIs have shown interest in sustainable investing as can be seen by the USD 282 Bn investments in the clean energy sector. The alternate energy & green technology can be the core investment theme going forward instead of a thematic play.

Global push is towards advisory led revenue model: As per BCG, globally around 45% of wealth revenue generated is fee based and in India the number stands at 14% which is incredibly low. So, we should expect to move towards fee based model in India as well. Big crisis like Covid have happened twice in the last 10 years. Each time the global growth has moderated and the Regulator has tried to solve the problem in similar manner as well. We should learn from the past and be prepared for the effect of regulatory actions on our business like liquidity infusion, near zero interest rates and higher compliance. This unprecedented level of liquidity flows to most asset classes boosting their prices and these low interest rates are expected to continue.

Future of WM: In the near future, multiple devices will provide huge amounts of data, analysis, recommendations and products as commodities which will be beyond human cognition. Problem is that they will not know what to do with this data and options. So, priority of a wealth manager should be towards exceptional levels of learnability including global information & events, making sense of these multiple options and presenting a customised wholesome solution to the client. From a personalised business it will move to a hyper personalised business.  For example China’s WM firm Lufax has 5000 products in their mobile app which makes it tough for the clients to decide given paucity of time and limited understanding.

Most of the servicing needs will go digital, so service part of the business will reduce and so should our expectations of a model relying on service. More and more wealth will come in the hands of women and wealth managers are traditionally used to service men as owners of wealth. Hence, be prepared for this change. For the younger generation who is becoming wealthy in the future, wealth will not only be about money and will include creating a meaning, purpose, connection to make a positive impact on the world around.

In summary, the interplay between the needs of a customer, interaction with the customer and the kind of solutions we provide to a customer will undergo a massive change. Not to ignore the fact that pressure on cost will drive margins further down. So focus on value based pricing and specialised solutions. Post GFC, the prices declined 25-30% and now post Covid the pricing is declining further and the WM industry should be prepared for it.

Emerging Trends: Bigger players will become bigger. Organisations with multi geographic, multi capability platforms will rise. Niche players with specialised solutions will charge a premium but the middle level players will find it tough. Also, the larger organisations will expand further by creating ecosystems by adding partners and services. Retail banks and mutual funds will commoditise the products and what you see as niche today will be a commodity tomorrow. Tech companies see this as an opportunity to come in this space and will commoditise things.

Golden Rules for Wealth Managers:  Technology will be the centre of the business and needs to be embraced well, tax optimization for the clients will be really close to their heart, rebalancing and reviewing the portfolios though sounds easy is a high capability & important job.

Playbook for the new normal needs to be played very tactfully. While clients might complain for the volatility, the wealth manager should take them through the right calls they had taken for the client in the past and assure them that things didn’t go as bad due to their efforts.

Clients are much more engaged and inter linked than before and new business models or requirements are emerging. As wealth managers we should be willing to listen to newer ideas and see what works best for the client.

Mr. Chaudhary ended the session with the case study on Burgundy – Axis Bank WM franchise. Built on the three pillars of Integrity, Intellect & Innovation, the team has been able to grow the business at a rate of 23% p.a. and reached a level of Rs 1.55 Lac Crs in advisory assets and is really optimistic of the upcoming future.