IT tuned to manage wealth

With the number of High Net Worth Individuals increasing both globally and in India, portfolio managers are turing to IT companies for management solutions.

The number of High Net Worth Individuals (HNIs) has seen a marked rise. According to an industry estimate, in 2006, the HNI growth rate was over eight per cent. This growth constitutes almost 10 million individuals globally. The wealth controlled by HNIs grew to over $37 trillion. This represents a growth of over 11 per cent over 2005.

In 2006, India's HNI population, or people whose wealth is more than a million dollars, crossed 100,000, which made it the second-fastest growing HNI segment in the world, after Singapore, where the growth was 21 per cent, says a report by Capgemini and Merrill Lynch.

This growth in the HNIs has made the wealth management segment competitive with public sector and co-operative banks joining the rush to retain customers. Thus creating a market demand for technology solutions.

And the reasons are compelling. The burden of handling administrative tasks can take up to two-thirds of a wealth manager's time. In other words, a typical wealth manager spends most of the time handling non-core activities.

All the major IT players, like Tata Consultancy Services (TCS), Wipro, Infosys and firms like Infrasoft Technology are gearing up for high demand in this market segment.

Solutions growth
Any individual having a 30 per cent surplus on his/her savings is considered to be a likely candidate for wealth management products in India, says Hanuman Tripathi, MD, Infrasoft Technologies. This is making banks take the help of IT for providing these customers a differentiation factor.

For TCS, wealth management is one of the focus areas among the top four high growth areas in the financial sector for the next three-four years.

Krishnan Ramanujam, COO, TCS Financial Solutions, said, "While the market is still nascent, we are expecting that this segment will make us grow at 30-40 per cent but that is because the base is small."

He has reasons to say that, "This is an obvious growth sector for banks in India and globally as well. HNIs globally have grown at a rate of 6.5 per cent whereas in India they are growing at 19.6 per cent annually. It is estimated that $290 billion worth of assets are available for wealth managers to work on."

Infosys, too, is gearing up for this. In December last year, it added wealth management to its Finnacle's product suit. The company is already doing two pilot projects for some leading banks in Singapore and Hong Kong; and will soon sign a project in China as well.

Haragopal Mangipudi, vice-president, business head, Finacle, Infosys, said: "We are also in talks with some of the banks in India and by mid-FY09 we will surely make some inroads in the Indian market."

Vikram Gupta, vice-president, private wealth management, from i-flex Solutions hits the nail on its head when he says that after creating a customer base, banks now need to device a mechanism to retain them.

"The other reason for this uptake is that till now there was no dedicated IT solution in this segment. We have been speaking to a few large banks and soon will announce a few tie-ups as well," adds Gupta.

Infrasoft, too, has changed its strategy in the past few months. The company till now was focusing only on the European market.

"We are in the process of customising our wealth management solutions according to the Indian markets. In the very first year of its implementation we are expecting revenues of Rs 15-20 crore and from the second year we will see a 100 per cent growth from this sector alone," said Tripathi.

Outsourcing processes
It is just not the product vendors alone who are bullish on wealth management. The services segment is also growing tremendously. Wipro recently conducted a survey with FSO Knowledge Exchange.

The study stated that nearly 75 per cent of the respondents from wealth management companies globally with asset under management (AUM) over $1 billion or employee headcount exceeding 10,000 have considered outsourcing. Out of the large companies that considered outsourcing, an overwhelming 89 per cent are doing it now.

The top three outsourced activities include portfolio performance measurement & reporting, portfolio management, and client statements.

Mohit Shenoy, GM, securities practice, Wipro says, "We have worked with three of the top 10 wealth management providers globally. Initially, when we started, this was the offshoot of mutual fund processing. But then, this also gave us the capability to serve the wealth management segment."

The company has also witnessed a change in the work getting outsourced. "Earlier, the bulk of the work was on the technology side, but increasingly, the processes or the operational parts are also being outsourced. The other change is that investment houses have started to broad-base their asset base. So they are moving towards the affluent section from the super wealthy segment. That would include anyone in the $500,000 bracket," adds Shenoy.