Changing the rules of the advisory game

The business of wealth management is one of the few segments of the Indian financial services industry  that has not yet seen its full potential. Proof of this is that there are virtually no ‘pure-play’ listed wealth management companies. 

Having said this, the year 2013 was truly a watershed year for the sector — the new investment advisory guidelines introduced by SEBI may change the game forever. Wealth management has always lived in the grey zone, where the intermediaries would project themselves as ‘wealth managers’, ‘investment advisors’ or ‘financial planners’ even though all their earnings came from distributing financial products manufactured internally or by third-party providers. Although their principal mandate is to act in the interest of the investor, by default they would be working in their own interest.

The impact of these guidelines will be understood, absorbed and appreciated only over a longer period. The players have to clearly decide whether they are distributors or advisors.

An advisor can only be someone who is remunerated by clients in the form of fee. This is the beginning of a revolution in the advisory business.

The emerging picture Going forward, in 2014, we will see banks and leading wealth management companies coming up with separate divisions or subsidiaries offering advisory services. 

More importantly, I see some unique platforms coming up to make investors sit up and take notice with their distinctive products and service suites.

There is already a definitive trend of firms identifying their niche and sharpening their offering to their focus groups; we will see more of that.

‘Me too’ players are now passé . If you are a stockbroker dressed up as a wealth manager, you don’t stand much of a chance going forward.

The bruised and battered investor of today is searching for value. So, where could the value be?

It could be in your approach towards financial planning — how you help people manage their cash flows and direct it towards their goals better. People do not need information overload anymore.

They need information based on genuine research, funnelled in the form of easy-to-comprehend advice. Since investors have now understood the importance of portfolio construction the hard way, an offering which helps them do the same would be welcomed.

Also, people find administration of their portfolios very cumbersome; they look for a single view platform with common application, consolidated portfolio, tax reports and the works. Here are some places with ‘value’ for the investor. I believe people will be willing to pay a fee as long as they get some or all of the above delivered effectively.

Value for money I strongly feel that fee-based advisory structure requires a lot of regulatory support and the traction will continue to be slow all through 2014. So far, very few intermediaries have shown interest in these new guidelines, since only 75 firms have applied for the investment advisory licence.

The reason is that this licence comes with a lot of responsibility and effort, while the benefits to a firm taking this route do not seem to be enough due to a lack of precedence and scale.

This initiative undoubtedly requires a boost, perhaps by giving some unique benefits only to the investment advisors, and not to others.

The rule-makers need to put on their thinking hats to add momentum to this change.

This year will see the revival of investor interest in the capital markets.

There are signs of it already as we see some big IPOs/FPOs entering the market (such as Power Grid), and there are others lined up.

This will ensure that distribution-led models too do well and will probably get more time to transition to advisory. 

I am a reluctant forecaster of short-term trends, but over a longer period of time I am confident that the wealth management business will shine and add true value to investors.

If you are a young professional wanting a value-creating career in financial services, this is the space to bet on over the next decade.

(The author is Vice-Chairman and MD, Bajaj Capital. The views are personal.)

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