In a strategic reshuffle at Bank of America-Merrill Lynch, Atul Singh has taken over as managing director of Global Wealth and Investment Management in India. In an interview with Vandana, he outlines plans and explains why wealth management is an important business. Edited excerpts:
The competition in wealth management has been intense, with a number of small players having mushroomed in recent years. How do you place yourselves in that league?
The business of wealth management is about delivering advice. Two critical components are talent and infrastructure. By infrastructure, I mean research and execution, investment banking, sales and trading, and ability to deliver a consistent client experience.
And, talent is required to deliver these capabilities to clients, consistent with their needs. As the market evolves and assets go up, client needs become more complex. That’s where we come in.
For me, scale is absolutely important. The bigger will become better because of ability to attract talent and capability to invest in infrastructure. There will be players at the niche level, but they will struggle to scale up. The potential to grow is huge in India, a reason why everybody is coming in. Even if you take a 2008 number of 84,000 HNIs (high net worth individuals) based on the Merrill Lynch-Capgemini Wealth Report, that itself makes it a very large market.
An even bigger opportunity is in terms of penetration into that market. The market will keep growing at a phenomenal pace but the real opportunity is in getting a lot of these individuals to take professional advice. That the number of such individuals is going to triple over the next 10 years proves the rate of wealth generation is going to accelerate. Within Asia-Pacific, we believe India, China and Japan present good opportunities in the wealth management space.
Do you see client acquisition getting difficult?
The answer is yes and no because in India, the platforms are still quite differentiated. In our business, you need scale and infrastructure to create and deliver advice. Few firms have that today. So, in an environment where platforms are not alike, client migration does not happen to that extent. Because of different platforms, you will not see financial advisors taking clients with them once they move from one company to another. You can contrast that with the US, where a large number of product platforms have almost converged from a product capability perspective. So, the likelihood of a client leaving a platform and going to another firm is far higher. Today, a client is not necessarily going to get that by moving to another firm in terms of advice that we offer. India is still far away from that convergence stage.
What are the new initiatives being planned with Bank of America on board?
Bank of America adds significantly to our strength. Our DNA has been more of a capital market firm. So, getting banking capabilities is transformative and very significant. There are various plans to make use of the banking platform in the near future. Most notably, we will start to get some of the corporate banking services executed for our clients. Currently, Bank of America offers large corporate banking services in India, something we could bring to our clients immediately. It will include services such as day-to-day trade finance, cash management, and forex-type businesses.
We will continue to make investments in delivering advice to our clients and being innovative. We are trying to move clients towards a portfolio-based wealth management approach, as opposed to just selling products and chasing transactions. One key initiative for us, where we have the lead position, is trust and estate planning. India is still a country of first-generation entrepreneurs. At some point, the need for them will shift from wealth generation to wealth preservation and succession of that wealth to next generations. We are seeing a lot of traction there.
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Offshore investing is another area where we have the ability to use our vast global advisory platform. We could use the $200,000 window to get access to a bouquet of products ranging from stocks, bonds, ETFs (exchange-traded funds), commodities, etc, which further adds to diversification in clients’ portfolio.
Have alternative assets fallen out of favour post the downturn?
Yes, there was some disillusionment during the crisis with this asset class. But, going by the theory of diversification, there will always be a place for alternatives. The only concern is about not overdoing it. There was some exuberance for that asset class, which has mellowed down now. India is still a nascent market in terms of alternatives. However, going ahead, as the market grows, Indian clients will have increased exposure to this asset class. Of course, matching client suitability and asset allocation.
Do you see a lot of investors sitting on cash currently?
Yes, the cash allocation has been higher than historical averages. It is hard to put a number because a lot of the money goes into short-term bond funds and cash funds. But, I will say there is still a sizeable amount of money sitting on sidelines to be invested into equities.
Real estate seems to be gaining some ground and so is private equity. What is your view?
Traditionally, Indian clients have had a fair amount of exposure to real estate. Innovations will come in that asset class in due course. For example, Real Estate Investment Trusts and real estate funds are something HNIs may look at. But, on an asset allocation basis, we believe it will continue to form an important part of clients’ portfolio. Private equity in India attracts a lot of funds coming from abroad. We still have to see a significant amount of money likely to be raised in India, to be invested in Indian private equity. That could emerge in a bigger way in the near future.