How will good wealth manager of future look like?

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The wealth management and advisory landscape in India has gone through a tremendous transformation over the last decade and two. There has been a clear shift from just distribution of financial products to responsible goal-based advisory.

Thanks to dedicated financial education programs, sophisticated forecasting tools and sharper insights into financial trends, opportunities and investment risks, the contemporary advisor is able to handhold clients through their entire financial journey. Over the years, good wealth managers have been able to demonstrate the role wealth managers play in generating true financial value for a multitude of Indian investors.

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The changing financial landscape

As per a study published by McKinsey & Co., only 15% to 20% of personal financial assets across Asia are presently managed by wealth management professionals. However, the proportions are expected to rise significantly, augmented by the Covid-19 crisis. Such events that were once considered an anomaly, are expected to happen more frequently. The 2001 tech bubble (-26.05%), 2008 global financial crisis (-41.24%), 2012 Eurozone debt crisis (-16.99%), 2013 CAD-INR depreciation (-6.11%), 2016 Yuan devaluation (-15.06%), and of course the ongoing Covid-19 pandemic are just some examples that will warrant sustainable and responsible investment choices, and wealth managers are expected to play a pronounced role going forward.

In sync with customer psychology

Getting rich and staying rich are two different things. Often a good wealth partner can help investors manage the risk on their investments, through behavioural interventions and by helping them stay in control of their emotions. Cognitive biases and other behavioral obstacles could possibly inhibit investors from making sound financial decisions, especially when their emotions are running high – with 2020 being a prime example. Here, a wealth manager can offer unbiased advice that is based on contextual logic and knowledge of the market. By combining behavioural coaching with education, a wealth manager can communicate the importance of approaching one’s wealth from a holistic perspective i.e. staying invested for the long-term and periodically reviewing their portfolios.

In addition to this, investors may prioritise maximising their returns, whereas a wealth advisor would understand the value of goal-based investing or personalisation of one’s portfolio basis their financial goals, risk appetite and investment horizon.

In sync with customer needs

An investor today demands the same type of transparency and service quality as they do from any other industry. They have always invested for a goal or outcome, but have been handed a menu of standardised financial products to choose from or seek recommendations from their advisors. This is set to change. As WealthTech advances, wealth managers will have, at their disposal, a range of financial products that will compliment an advice-led strategy as opposed to a rudimentary product-led push, to win over and retain customers.

Wealth managers of the future will be intimately involved with planning for various life-stage goals, and will help manage a number of small portfolios across different investment buckets, including the ones designed for meeting expenses, generating cash flow or compounding wealth over the long-term.

With this, we will also witness a greater penetration of alternative investment products that will be critical for outcome-oriented portfolios. For example, a Principal Protection and Growth plan (PPG) offers risk mitigation and liquidity with the primary investment in liquid/ money market funds. The subsequent earnings are then invested in Index funds, allowing the investor to benefit from compounding. Over the long-term, the client can benefit from indexation benefits on the liquid funds and pay a nominal rate of tax at 10% on the Index funds (if gains are above ₹1 lakh). Such products could provide a great alternative to traditional fixed income investments as they not only offer capital protection, but greater capital appreciation, in addition to being tax efficient.

Leveraging digital touch points

Covid-19 notwithstanding, digital-driven experiences are here to stay. Personalised connectivity via the customer’s preferred mode of communication (from virtual calls to social media tools) will become the norm. Relationship management will move to a flexible service model that includes a virtual advisor, as well as experience-led platforms that allow the client to access investment data on demand, complete tasks effectively, efficiently and intuitively.

On the advisory end, by accessing customer data from social interactions and other third party sources, WealthTech platforms will be able to derive behavioural insight into the customer’s investment personality and anticipate how the client is likely to react to changing micro and macroeconomic situations, and thereby offer bespoke guided solutions in real-time.

This combination of a hybrid advisory model will be able to bring the best of both worlds – an understanding of intimate goals and aspirations, supplemented by empathy from an advisor, as well as strategic and timely data culling attributed to robo-advisory.

Accessibility for all

Wealth creation will no longer be restricted to the wealthy. Large scale adoption of hybrid advisory models will allow wealth management firms to lower operating costs by deploying Robotic Process Automation (RPA), and lower transaction costs, thereby making the service affordable and accessible to a wider segment of investors across demographics.

With a digitised bouquet of pay-as-you-use financial products, many Indians will be able to gain affordable access to services ranging from personal financial management tools for retirement planning, debt repayment, flexible budgeting, targeted insurance, estate planning, etc. to educational and research modules such as predictive analysis and simulations that increase investor awareness and help achieve goal-oriented investment functions.

Wealth management is going to move to a model of ‘mass customisation’, where we will be able to retain the traditional investor-advisor interactions (albeit digitally), while benefiting from tools and services that will enhance the advisory’s value proposition for clients. It can be said, without a doubt, that the future of personal financial management in India is on the cusp of leapfrogging. Exciting times ahead!

(The author is the Co-founder and Chief Business Officer of Scripbox. Views expressed are his own.)

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