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Wealth MGTTT PDF
Wealth MGTTT PDF
Cognizant Reports
The high growth rate and the prediction5 that India Wealth Management Market Share
will be the third largest economy in the world by Organized and Unorganized Sectors
the year 2030 makes India an attractive market
for potential entrants in the wealth management
80%
space to establish their presence early and grow
their revenues with the market.
60%
cognizant reports 2
Composition of Underground could result in discouraging future illicit
outflows from the financial system. In 1997, the
Economy
government introduced a Voluntary Disclosure
of Income (VDIS) scheme, allowing individuals
to convert black money into white by paying
taxes on previously undeclared income. Similar
28% targeted measures may be taken in the future,
($178 billion) rechanneling previously undisclosed wealth
into the mainstream.
72%
($462 billion)
Demographics
The demographic distribution in India is very
different from mature markets like the U.S.,
2008 figures
� Illicit assets held domestically dominated by a relatively younger population.
� Illicit assets held abroad Over 70% of Indian HNWIs are under 50 years
of age, with a majority between 31-50 years
Source: GFI report, November 2010.
(see Figure 5).
Figure 4
India’s booming services industry is among the
The Indian market also exhibits particular features driving forces behind the creation of a large
that could provide an additional boost to the affluent population in the past decade. IT and
wealth management industry. IT-enabled services, which form the majority of
these growth industries, employ a workforce
• NRI segment: There is a growing trend among that is primarily under 35 years of age. The
wealth management firms operating in India to
offer tailored products and services targeted accelerated growth of these industries has
at non-resident Indian (NRI) clientele. This led to rapid wealth creation among the young
is a lucrative segment for the Indian wealth urban workforce. The younger demographic dis-
management industry. For example, the total tribution calls for different types of investment
number of NRI and people of Indian origin objectives and service levels (see Figure 6).
(PIO) is estimated at 29 million globally, with a
combined wealth estimated at USD $1 trillion.
Remittances to India reached a figure of USD HNWI Demographic Distribution
$55 billion in 2010.7 It is estimated that about
by Age Group
45% of these remittances are invested in banks
and real estate in India. Regulatory scrutiny
in this segment is likely to be tightened,
especially in light of recent investigations that 100%
10% 15%
have uncovered evidence of employees of a
&!!
reputed global bank aiding NRI clientele to 17% 39%
75% 26%
evade taxes in the U.S.8
• Black money in India: It is estimated that %
cognizant reports 3
Wealth Management Objectives and Channel Preferences
Primary Preferred Technology
Age Group Level of Service
Objective Primary Channels Adoption
Below 30 Building wealth Online Standard services Expert
30-50 Accumulating wealth Online + personal Customized services Proficient/ Conversant
Accumulating wealth, Almost entirely personal Individual services Conversant/ Beginner
50+
retirement planning
Protecting wealth, Entirely personal Individual services Beginner
60+
succession planning
cognizant reports 4
Key market attributes are as follows: Developing innovative product offerings that
address the needs of varied customer segments
• Reach: The HNWI and family-office segment will be critical to success. The complexity of
is largely served by foreign banks and large
designing innovative products in a more restric-
domestic brokers, whose reach is limited to
tive regulatory environment — as well as maintain-
metro areas. It is estimated that about 20% of
ing product structure and pricing transparency —
the Indian HNWI population lives outside ma-
will be key challenges. Recent trends indicate that
jor metros and is still served by unorganized
local players are teaming up with specialists from
players. Therefore, the reach of wealth man-
developed markets to enhance their product and
agement firms will play a very important role
service offerings. For example,
in capturing available wealth and converting it
Axis Bank has partnered with
Banque Privée Edmond de Establishing
to assets under management.
• Entry barriers: One significant challenge for Rothschild Europe for wealth trust is a vital
potential entrants is expensive property prices management services.
for setting up branch locations. The wealth component for
management model is based on a high-touch Given the nascent stage of the any successful
client relationship, and, therefore, establishing Indian wealth management brand-building
a physical presence is critical. However with industry, firms face a short-
the sharp increase in real estate prices during age of trained advisors. This exercise in India.
the past decade, establishing a brick-and-mor- problem is further aggravated
tar model has become cost-prohibitive for new by the high rate of employee attrition. Develop-
entrants. Hence, firms need to take a long-term ing and retaining highly qualified advisors will be
view and expect an extended payback period. critical for organizations, as this is the key differ-
Another barrier for new entrants is trust in entiator for leaders vs. laggards.
investors. Given India’s unfortunate history of
Another force with the potential to change
financial scams, there exists a general sense
market dynamics is the entry of public sector
of mistrust and wariness among investors.
banks into the wealth management market. While
Establishing trust is a vital component for any
they haven’t been aggressive yet, their entry into
successful brand-building exercise in India.
the fray is inevitable. Given their phenomenal
• Products and services: Existing wealth manag- brand equity, reach, old corporate relationships
ers offer various products and services, and the and ability to invest in top-of-the-line technology
portfolio has grown remarkably in the last few platforms, public sector banks will be a formidable
years. However, the sophistication and breadth competitor, particularly in the mass affluent
of products is still limited, compared with the segment.
choices offered by players in mature markets.
cognizant reports 5
Regulatory Environment The Securities and Exchanges Board of India
(SEBI) recently announced plans to set up a
The Indian regulatory environment is evolving,
self-regulatory model for the wealth manage-
and there is still significant ambiguity in the juris-
ment industry along the lines of AMFI (Asso-
diction of various regulators. The limited range of
ciation of Mutual Funds in India) and AMBI
investment products offered is largely due to the
(Association of Merchant Bankers in India). It
cautious approach adopted by Indian regulatory
has been proposed that the new organization,
bodies. India’s fixed income, commodities and
once formed, will act as a regulator, as well as
derivatives markets have not kept pace with its
a market development authority.
equities markets in terms of maturity. However,
it is expected that the regulatory environment in • Evolving tax laws. Tax rules are evolving and
India will evolve rapidly, in tune with market and are set to change, which might affect investor
investor needs (see Figure 8 for a list of regulatory behavior. For example, the new Direct Tax
changes in the securities trading space). Code, which is set to replace existing tax laws,
proposes a move from an Exempt-Exempt-
• Fiduciary
duty and investor protection. Exempt regime to Exempt-Exempt-Taxable
Financial advisors in India are not bound (i.e., a deferred taxation regime), which
by stringent fiduciary duty regulations; may influence investor preference for some
however, recent years have seen a number products over others. This, in turn, may drive
of regulatory changes aimed at safeguarding greater product innovation.
investor interest and curbing
Wealth management organizations will need to
money laundering, such as the
Investor education introduction of limits in fees be flexible to continuously adapt and ensure that
they can suitably tap into any market opportuni-
programs could and commissions charged by ties created by such changes.
deliver information unit-linked insurance products
(ULIPs), elimination of entry
pertaining to various loads charged by mutual funds, Strategies to Succeed in India
asset classes and strengthening of Know Your The overall outlook and trends in India indicate
a huge potential for growth for new and estab-
the associated risks, Customer (KYC) norms, etc. lished wealth management firms. To exploit this
Recent adverse incidents in
fee structures and potential, players will require a comprehensive
the Indian wealth manage-
benefits of each. ment space have highlighted
and strategic approach, encompassing invest-
ments in brand building, state-of-the-art advisor
regulatory loopholes.12 While
technology platforms, enhanced reach and trans-
there are no regulations aimed specifically
parent and compliant wealth management for
at protecting the interests of private banking
investors.
customers in India, this may very well change
in the near future. This could
mean tighter norms around
• Invest in brand building to build trust. For
wealth management firms seeking to grow
Qualified advisors advisor eligibility (qualifica- their business in the Indian market, overcoming
will be the best tion and training), disclo- the trust barrier is the greatest impediment for
brand ambassadors sure requirements, stricter
rules regarding investment
building a strong brand. Widespread mistrust
can be attributed to the spate of dishonest
for new firms advice, especially in the public practices, which for years have reverberated
seeking to gain a domain, and perhaps even a across the financial services space.
competitive edge new self-regulating author-
ity for advisors that may be
Promotion of investor education can help
against established empowered to define the fidu- in long-term relationship building. Greater
financial awareness will also help in informed
players. ciary role and duties, monitor decision making and will reduce the chances
the suitability of investment
of fraud. Investor education programs could
advice, etc. We also expect data privacy-relat-
deliver information pertaining to various asset
ed rules and guidelines to become stricter.
classes and the associated risks, fee structures
These changes will impose higher training
and benefits of each. Programs must be
costs, as well as investments in processes and
tailored, allowing for differences in the maturity
IT for compliance (disclosure/reporting, data
and experience levels of investors. In addition,
security, etc.).
cognizant reports 6
programs should cover common fraudulent them. Moreover, increased attrition leads to
practices rampant in the industry and include higher recruitment costs.
precautionary measures that investors could Investing in advisor technology can help
take to avoid falling victim to such practices. address these issues to a large extent.
Investments in advisor training and qualifica- Superior advisor technology has the potential
tion will be vital for firms looking to stay ahead to greatly enhance advisor productivity, by
in the game, as advisors are the primary touch- minimizing the time spent on administra-
points for investors. Well-trained advisors are tive and compliance activities, thus allowing
especially critical in high-touch relationships advisors to better focus on client servicing.
in the case of ultra high net worth individual Advisor platforms that offer lead management,
(UHNWI) clients. Given that regulations sur- portfolio management, financial profiling,
rounding advisor qualifications, data privacy asset allocation and transaction management
and fiduciary duties are inevitable in the not capabilities can integrate multiple touch-
so distant future, companies that invest early points and improve advisor
in adopting these practices and train advisors experience. Adoption of
ahead of others can win customers’ trust and these platforms will also Advisor platforms that
advisors’ loyalty. Qualified advisors will be reduce time to market and offer lead management,
the best brand ambassadors for new firms help in providing differen- portfolio management,
seeking to gain a competitive edge against tiated services based on
established players. client segments. financial profiling,
asset allocation
• Invest in advisor technology to improve • Offer a 360-degree view.
productivity and advisor retention. Given Providing advisors with a and transaction
the large number of firms entering the wealth panoramic view of clients management
management market in India, and the inevita- will help to enhance advisor
bility of public sector banks launching wealth productivity and enable
capabilities can
management services, the shortage of quality advisors to deliver high- integrate multiple
financial advisors is expected to be more acute quality services (see Figure touchpoints and
than ever. 9). A 360-degree solution
serves to aggregate critical
improve advisor
Additionally, firms will need to work out
a retention strategy for their advisors as customer data and saves experience.
demand of resources rapidly exceeds supply. advisors from duplicating
Stemming attrition is critical because when information in disparate systems. It presents
advisors leave the firm, they take a significant a consolidated relationship view, allowing
portion of their client base and assets with advisors to easily generate the insight needed
to identify and serve client needs (see Figure
10).13 A user-friendly solution can help advisors
A Unifed View access client data in real time and deliver a
seamless, high-touch service experience.
• Embrace mobility. Mobility solutions provide
Personal wealth management firms with the ability to
Profile conduct business in locations that are not
covered by the branch network. They also
provide financial advisors with the flexibil-
Portfolio Accounts ity to work from anywhere and provide them
View
360º Customer critical information on a real-time basis. Also,
View as the target segment in India is fairly young
and fluent in the use of technology, mobility
solutions will help avoid situations where the
Financial customer is better aware than the advisor, con-
Transactions
Profile tributing to higher customer satisfaction.
• Increase reach through smart use of part-
nering and technology. The reach of large
Source: Cognizant Business Consulting wealth managers is primarily limited to metro
Figure 9 areas, which leaves out a significant target
cognizant reports 7
Personal Profile
Information
Interfaces
Performance
Positions Wealth
Management Tools
Account
Third-Party Relationship
Client Relationship
Client
Prospect
P Risk & Back-Office
Onboarding Compliance Processing Process
Sales &
S
Account Prospecting
Client Portfolio
M
Servicing Management
CR
Workflow
Alert Financial
Planning
Trading & External Agents
Reports 360 View
Book-
keeping Contact Management Tools
Build
Books of Record
Transaction
Tools Systems
The 360-degree service model is delivered through wealth management processes relying heavily on the information
and specialized tools shown in the other two dimensions.
population. Also, since the target population Partnerships with reputed local brokers/
is fairly young, most are conversant with new regional banks can also help improve the reach
technologies. of wealth managers, as well as address the
Internet and mobile technology trust issue. However, making this happen will
Shifting to a penetration is deep among require a great deal of due diligence from both
the target segment and has parties and will extend time to market.
profit-sharing model
(where the advisor’s
the potential to exponen- • Focus on transparency and compliance.
tially increase the reach of Financial advisory regulations are still under
fees are based on the wealth management services. the purview of the Ministry of Finance.
Employing these technolo-
overall performance However, to create a more comprehensive reg-
gies will also help firms serve ulatory environment, all regulators will have
of the portfolio) customers in a cost-effective to work together to address a variety of dis-
would help mitigate manner and will enable them tribution segments, from service pensions and
to reach out to the larger mass
issues to some insurance, through investments and wealth
affluent segment. With the management. This is particularly impor-
extent. recent launch of 3G services in tant given the significant flux in regulations
India, wealth managers have aimed at protecting investor interest in recent
the potential to connect with clients via video years. Wealth management firms offering
telephony, further reducing the need for them services in India will need to build flexibil-
to establish an extensive physical presence. ity into their operating models and processes
Customers demand flexibility in how, where in order to adapt to frequent changes in the
and when they access desired information and regulatory landscape.
a deeper understanding of alternatives before Currently, most wealth management firms
making final investment decisions. Wealth operate on a transaction-based pricing model;
management firms need to provide sophis- thus, profits are based on fees and commis-
ticated analytics and decision making tools sion. Advisors tend to push products that
to equip these individuals with the insights earn higher commissions under the current
required to fulfill their investment needs. framework and recommend frequent portfolio
This will also help in investor education and churns to increase the number of transactions,
contribute to brand-building efforts. leaving clients feeling cheated. Moreover, with
cognizant reports 8
regulators stepping up vigilance and com- inventive products will be a key differentiator
missions heading south, this model will soon for targeting the UHNW segment.
be unsustainable. Shifting to a profit-sharing
model (where the advisor’s fees are based on Moving Forward
the overall performance of the portfolio) would The wealth management industry in India is
help mitigate these issues to some extent. poised for significant expansion, given the
Firms will need to innovate to create attractive favorable market landscape and expected
product offerings within the evolving regulatory regulatory boosts for the sector. This provides
environment. For example, changing tax rules exciting growth opportunities which will drive
have the potential to render many popular rapid market expansion, coupled with an increase
products obsolete. In addition, anticipating in the number of industry participants.
investor needs and addressing them proac- To successfully tap into this potential, financial
tively will be the key to carving out a niche in a services organizations must undertake a
market that is expected to grow more crowded customized approach, taking into account the
over time. For example, while the “retirement specific attributes of the Indian market. This will
segment” is not big in Indian markets today, need to be supported by a robust and cost-effec-
the focus on retirement planning is expected tive business model focused on improved trans-
to grow in coming years. Consistent, well- parency and compliance, synergistic partnerships
performing products in this segment will help and efficient technology solutions.
in gaining an early market share. Moreover,
Footnotes
1
Goldman Sachs Global Economics Group, “BRICS and Beyond,” The Goldman Sachs Group, Inc., 2007,
http://www2.goldmansachs.com/ideas/brics/book/BRIC-Full.pdf
2
2009 figures.
3
Investable assets > $1 million.
4
Investable assets > $50,000.
5
“BRICS and Beyond.”
6
2009 figures.
7
Migration and Remittances Factbook 2011, The World Bank,
http://siteresources.worldbank.org/INTLAC/Resources/Factbook2011-Ebook.pdf
8
David Voreacos, “HSBC Said to be British Bank Involved in U.S. Tax Conspiracy Indictment,” Bloomberg.com, Jan. 27, 2011,
http://www.bloomberg.com/news/2011-01-26/hsbc-said-to-be-u-k-bank-involved-in-u-s-tax-conspiracy-case.html
9
Global Financial Integrity (GFI) Report, November 2010.
10
Ibid.
11
This is based on the short-term U.S. Treasury bill rate as a proxy for the rate of return on assets.
12
Anjli Rava, “Fraud Probe at Citibank Branch in India,” FT.com, Jan. 5, 2011,
http://www.ft.com/cms/s/0/46b0182a-18ae-11e0-b7ee-00144feab49a.html#axzz1Mp3inMP9
13
“Client Service Challenges in the Interplay of Private and Consumer Banking with Asset Management: Recom-
mendation for a 360-Degree Service Model,” Kirthi Ramakrishnan, Cognizant Business Consulting, Banking and
Financial Services
cognizant reports 9
About the Authors
Aamod Gokhale is a Senior Manager in Cognizant Business Consulting and leads the Asset and Wealth
Management Consulting Practice in Asia-Pac. He has 14 years of experience leading consulting engage-
ments and strategic application development programs ranging from institutional asset management
and mutual funds, through financial advisors and brokerages. Aamod can be reached at Aamod.Gokhale@
cognizant.com.
Dheeraj Toshniwal is a Manager within Cognizant Business Consulting and leads the Wealth Management
Consulting Practice in India. He has experience leading business and IT transformation engagements
with global banking and wealth management firms. Dheeraj can be reached Dheeraj.Toshniwal@
cognizant.com.
Siddhi Chanchani is a Consultant in the Banking and Financial Services Practice within Cognizant
Business Consulting. She can be reached at Siddhi.Chanchani@cognizant.com.
Research assistance was provided by Bhaskar Sriyapu (and team) within the Cognizant Research Center.
About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-
sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered in
Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry
and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50
delivery centers worldwide and approximately 111,000 employees as of March 31, 2011, Cognizant is a member of the
NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 1000 and is ranked among the top performing
and fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant.
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