The Indian wealth management industry was in the middle of a dramatic multi-year transformation well before the onset of the coronavirus.
A structurally evolving economy and capital markets, changing regulations, accelerating technological change, and intense competition have been driving major shifts in client and, to an extent, employee behaviour.
A subtext of this transformation is the massive size and growth potential of the market across all client segments. One that is estimated to grow to more than $5 trillion in the next five years, and where we have, arguably, only scratched the surface.
Faced with these forces, and the resultant declining margins, the pressure to reinvent and revitalise was already high. Then came COVID-19, which, in the near term, focused attention on business continuity, belt-tightening and heightened client engagement, with most firms adapting well.
In the longer term, it means an acceleration of the responses to the same forces, particularly technology, as this is where the client behaviour is likely to change most radically.
Further, the economic fallout of the pandemic, combined with the policy response, will likely affect growth, real yields and inflation in the long run.
The after-effects of the proverbial “borrowing from the future” will need to be managed carefully in client portfolios.
As the industry gears up for a “new normal”, firms are likely thinking about their strategic priorities in three key areas:
The first is the reconfiguration of business models for greater productivity and efficiency at all levels. With a regulation-driven move to longer-term advisory models and a major reduction in upfront transactional income, firms will need to look closely at their costs-to-serve.
They will need to invest in creating organisational habits that optimise return on effort whilst maintaining a client-centric, holistic approach to providing advice.
The second is a reimagining of delivery and advice models, with a greater emphasis on digital delivery and remote working. This will involve retooling the organisation and upskilling people.
The pandemic experience, for both firms and clients, has probably served as a much-needed boost for digital adoption.
This is evident from the fact that most wealth managers have been digitally delivering almost 90 percent of their services during the lockdown and many have seen their client engagement levels increase considerably.
The third is vigilance in managing client portfolios. Market uncertainty and volatility are likely to remain high for some time. This is not just despite but, perhaps, because of the actions taken by policymakers in the form of monetary and fiscal stimuli approaching $15 trillion globally.
The Reserve Bank of India has provided liquidity worth $ 137 billion or 4.7 percent of GDP. With falling interest rates and other developments in the financial markets, including positive ones like the expansion of alternative investment avenues, there will be challenges and opportunities.
Aside from maintaining basic asset-allocation discipline, such a situation calls for a balance between heightened attention to risk management and an agile stance for identifying attractive opportunities typical of market dislocations.
As firms review and refine their business models, the forces at play overwhelmingly represent good news for clients.
Favourable regulations, an expanding product universe, falling costs and new technologies mean that clients have more choices than ever before.
Whilst firms need to maintain strong fundamentals and trust at the core, all constituents would greatly benefit from an agile and flexible stance, and a commitment to accelerated learning in this environment.
(The author is Founder and CEO of Sanctum Wealth Management)
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