How wealth managers are adapting to the changing lifestyles of India's mega rich

In June this year, a relatively minor transaction emitted an important signal from the inscrutable world of Mumbai’s high finance. Investors, led by Hong Kong-based Ward Ferry and US-headquartered General Atlantic, paid $110 million to acquire a 5.1% equity stake in IIFL Wealth Management, valuing the unit of the Nirmal Jainpromoted IIFL Holdings at $2 billion.The news might have caused top executives at the world’s financial hubs in New York, London and Hong Kong to do a double take. At least four marquee banking brands — Morgan Stanley, UBS, RBS and HSBC — had sold or wound down their wealth management business in India between 2013 and 2015. How could a supposedly difficult business be suddenly looking up?The tricky business of managing the wealth of India’s rich, perhaps the most trust- and instinct-led segment in all of finance, is not just looking up, but leapfrogging in sophistication and scope, promising not just high returns, but highly personalised service, and an implicit promise to cater to every need, whim, fancy and emergency. “We might get a call at 5pm in the evening. A businessman has forgotten to pay his advance tax. He needs to pay Rs 30 crore by 6pm and he has no money in the bank,” said Jain, chairman of the IIFL Group, during a recent interview. 64809292 A quick check of the businessman’s credentials and records with the firm, a snap decision to approve a line of credit after banking hours — all this has to be done in minutes to meet the deadline. In the world of the uber wealthy, understandably, some demands will border on the ludicrous. Another wealth manager recounted to ET Magazine the tale of a client who experienced an urgent need to purchase a Rolls Royce car, on his credit card. Could a Rs 10 crore credit limit be arranged on the card, right away, please? Not all demands are impulsive or lastminute.Some mandates can bring the wealth managers close to the client’s innermost thoughts and vulnerabilities. The mandate to draw up a family constitution for a business family with 170 members, spread across the world, each owning small bits of a business that runs in India, can be “an emotionally intense experience”, one wealth manager said. The wealth managers recounted anecdotes on the condition of anonymity, due to client confidentiality. 64809339 This, then, has come to be the expectation: If I’m trusting you with my money, I’ll expect you to be no less than the best in the world in growing my money. I’ll also count on you to be my friend, investment banker, life coach, concierge, legal adviser, 3 am counsel, shrink, credit arranger, voice of sanity and immigration lawyer, all rolled into one.Indian wealth managers are addressing a market with Rs 100 lakh crore ($1.5 trillion) of investible wealth, expected to double in the next five years. It’s already almost equal to the total savings bank deposits in the country. The heft is a given. What’s emerging in this business are three distinct trends — the growing complexity of client demands, the new sectors and the cities that are birthing the wealthy, and the growing sophistication of financial instruments into which the money is being deployed. 64809420 64809423 Two homegrown players have taken a clear lead in wealth management in India — IIFL Wealth and Kotak Mahindra Bank. Indian banks such as HDFC Bank and ICICI Bank, and non-bank players such as Edelweiss and Centrum, are also extremely aggressive, as are foreign players such as Citibank, Standard Chartered, Julius Baer and Credit Suisse. But there seems to be space for all. “Demand is not the problem,” says Anshu Kapoor, the head of private wealth management at Edelweiss, while talking about how much money is out there to manage, “It is the supply that has to keep up.” Growth is a given. The industry is eyeing something in excess of $3 trillion of personal investible wealth by 2022, as the Indian economy is poised to clock high single-digit growth rates. 64809485 The real market for the wealth managers generally begins at personal net worth of Rs 20-25 crore. While boutique services are available for those with lower net worth as well, including web-based tools for those with sub-Rs 1 crore net worth, it is the needs of the ones above the Rs 20-25 crore threshold that are reshaping the industry. One key influence on the industry is the needs of the entrepreneur class — emerging as well as old money. The entrepreneurs, especially those in the small and medium scale bracket, seek help from wealth managers for capital infusion or to monetise physical assets. And they end up getting involved in the business. The relationship works the other way too, where corporate finance services lead to wealth management. It is now important for the wealth manager to be a virtual private bank with access to credit and investment banking. 64809490 Ashish Garg of Boston Consulting Group, which recently released a report on wealth management, says: “In India, for MSMEs, business wealth is fungible with personal wealth.” Then there are the professionals — occupants of the C-suites and those with ESOPs. There is also old money, and Jain of IIFL points out that many such old money clients hail from Kolkata, clients who had made their fortunes in once dominant industries such as jute, and would normally have their chartered accountant manage their wealth.“Everyone has a different relationship with their money,” says Raghav Singhal, who heads wealth management at ICICI Bank, adding that the industry is reaching out to all kinds of clients with surplus money. The needs will vary depending on a host of factors. At 65, a client will have a lower risk appetite, and will be more concerned about wealth preservation and transfer to the next generation, compared with a younger client. Kapoor of Edelweiss adds another layer of complexity here, saying clients might have different sets of assets or wealth and assign risk differently to each — take for example a portion of assets marked for business growth and another portion marked for inheritance and transfer to the next generation. 64809495 There are also cultural nuances, like aversion to debt, that wealth managers have to work with. A wealth manager recounts how a client once requested that they help him sell off some of his investments to fund the purchase of an aircraft. “I found it so funny. I said let us do it on credit, but the client was steadfast. He did not want to borrow.”Relationships are KeyWealth managers confide that often they need to do business at odd hours. A dinner meeting at one of the hotels near an airport while the client prepares for an early morning flight is commonplace. A meeting that goes on till the wee hours of the morning — especially if a deal is being discussed — are also common. If the client is a film star, the timings and the constant rescheduling can get rather demanding. And matters can also get emotional, when it comes to a life’s work or passing on a legacy.Arpita Vinay, executive director at Centrum Wealth Management, says that the process of writing a will for a client that takes six months is often akin to having known the client over 20 years. Often the wealth manager helps manage business succession and family succession, and in such cases, as Vinay puts it, there are delicate situations where, “Equal is not always fair.”Trust becomes key here, and Singhal of ICICI points out that it is important to show that the wealth manager is not trying to push products, but has the best interest of the client at heart. “Not just in our heart, but also in our processes,” Singhal adds. 64809557 This means the wealth manager sometimes have to be a coach of sorts to clients, training them on a new area of investment or new sector and prepare them for new opportunities. What hasn’t changed from the olden days is that trust remains paramount in the business. Some wealth managers even declare if they earn any commission from product vendors or mutual funds, and share the same with the client if it exceeds their fees. Iñigo Mendoza, a Spaniard who heads Credit Suisse’s wealth management business in India, has previously worked at the bank’s Swiss headquarters as well as in Singapore. He says wealth management in India is increasingly resembling its global counterparts and there is a distinct demand for greater sophistication.Jaideep Hansraj, CEO of wealth management and priority banking at Kotak Bank, adds that it is important to offer a complete platform to the client, along with the right people, processes and products. “It is not easy to get it all together. Wealth managers have to be able to offer a complete range of services. We offer services like succession planning through our trusteeship company as an add-on service, which is beneficial to clients. When clients require lending or M&A advisory, we refer them to our group companies,” Hansraj adds. There’s more: sometimes a client may want help to move a next-gen member to lead the business in a different country.All the layers of services and ancillaries rest on the foundation of the business — returns on investments in double digits — typically between 12% to 18% on the entire portfolio — depending on the risk profiles. So what is the move towards sophistication that Mendoza of Credit Suisse was referring to, and what are the instruments India’s rich are using to multiply their money? The exotic and esoteric are cast aside in favour of the smart and the sober. There is little clamour for alternative assets such as art, wine or private islands. In fact, the trend now is to eschew physical assets in favour of complex financial instruments, in a departure from the Indian norm.The average for Indian households, according to the 2017 report by the Tarun Ramadorai Committee on Household Finance, is 84% investments in physical assets like gold and real estate. For the Indian rich, too, there have been historically a lot of investments going into physical assets. That is changing.Arpita Vinay of Centrum confirms that clients across the country, including smaller cities such as Chandigarh or Coimbatore, are looking at moving their investments from the physical to the financial. With greater diversity emerging in the profile of their clients, by age, location and risk appetite, wealth managers are fashioning a special class of products.Among the most popular instruments for investing is the socalled long-short fund, which allows the investor to not only buy equities but also go short on it and hedge the risk. There are also various structured finance opportunities, where the client gets to invest in debt financing, through a complex set of instruments that cushion the risk. Also on the menu are the so-called mezzanine finance instruments, which invest in a mix of debt and equity. 64809562 Alternative investment funds, distressed assets fund, infrastructure yield funds, infrastructure investment funds and pre-IPO funds (where investment goes into a company before an IPO) are some of the other areas of interest. These also form part of the bouquet that the wealth manager puts together. Kapoor of Edelweiss says that in recent years, regulators have permitted many new financial instruments in India. Regular mutual fund houses, too, have launched funds targeting the money advised by wealth managers.Given the growing array of choices, investors welcome help in choosing and understanding. Atul Nishar, founder and chairman of Hexaware Technologies, is a client of IIFL Wealth, and had been convinced by Nirmal Jain himself to avail the services of the firm a few years back. He says: “We used to manage it at our family office. However, now we use the expertise of wealth managers as they know much more about the kinds of products available in the market and are able to match our risk profile to the instruments.” Nishar has also taken help from IIFL to invest in startups.Media entrepreneur Raghav Bahl has not only let a wealth manager manage his money but has also taken a firm’s help for tax planning, succession planning and to draw up a will. Bahl says: “As your portfolio grows you realise that your own ability to manage it is quite limited. Anything upwards of Rs 50 crore needs help.”There seems to be a consensus that the number of people in the bracket is increasing. Kapoor of Edelweiss estimates that if the bar is set at Rs 25 crore, there would be five lakh families with that kind of wealth by 2025, with only 25% of them getting help and the rest of the market open to be courted for business. In the meanwhile, with more than 20 mainstream players, the wealth management industry is also ripe for consolidation. The $110 million investment in IIFL Wealth Management could be a harbinger.

from The Economic Times https://ift.tt/2KCxfpr