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Point of View - Wipro Banking and Financial Services
CHANGING NATUREOF THE WEALTH MANAGEMENT INDUSTRYChallenges and opportunities for wealth advisors
www.wipro.com
Author: Dr. Ashok Hegde, Global Head of Financial Services,Business Analyst Practice, Wipro Technologies
In the years leading up to 2007, wealth management firms in the US positive outcome of these investments lulled the investors into
had seen a rapid expansion of the HNI segment, which grew at 8.4 believing that high returns was the new normal. But, that was not to be.
percent CAGR compared to 7 percent CAGR in other matured The economic downturn exposed the frailty of investing in asset
economies. This was facilitated by a series of economic factors that classes about which only limited market information was available.
included sustained buoyancy in the capital markets, pervasive wealth A very large number of investors bore the brunt of rapid capital
distribution, and a boom in the housing market, all of which erosion, there-by considerably weakening their confidence in return
contributed toward keeping investor confidence high. But the sub- enhancers. Contraction of the housing market and rising
prime crisis in the US and the global economic slowdown that unemployment levels in the US did little to shore up the overall
followed appeared to have taken the wind out of the sails of the investor confidence.
wealth management industry, mandating fresh thinking on how the Investors have since been rather reluctant to repose their trust in HNIs could be brought into the fold. wealth advisors, which has caused a steep dip in the yields of wealth
The 'crisis of confidence', as Nobel Laureate and economist Paul management firms. Nonetheless, key wealth management service
Krugman would put it, can be overcome with fresh growth strategies. providers are now focusing upon new strategies to leverage growth
In the realm of wealth management, firms would need to come up opportunities in the future. The key questions being addressed are:
with new investment options that will induce the HNIs to return Ÿ How to bridge the investor 'trust deficit'?enhancers and not lean too heavily on capital-protected investment
Ÿ How best can wealth advisors approach potential clients and what vehicles.
would be the key differentiators?Return enhancers had become the preferred option for a wide cross-
Ÿ What kind of infrastructure, support logistics and IT applications section of investors in the period up to 2007, with a new range of
are required to support the new strategies?high risk, high return asset classes beckoning investments. The initial
Changing Nature of the Wealth Management Industry
The global wealth management industry is confronted with new challenges that find their roots in the economic
slowdown in the US and the upheaval of several European economies. The grim economic scenario, particularly in the
North countries, has influenced a significant number of high-net-worth individuals (HNIs) globally to opt for low risk,
low margin investments to the detriment of the wealth management industry. The negative economic newsflow has
visibly shrunk the inflow of new money into investible asset classes, although emerging economies
like India and China have provided key support for the global economic resurgence.
For wealth management firms, the high watermark achieved in 2007 will continue to be the aspirational goal. However,
the economic landscape is vastly different now, and any effort to retrace the growth path should require a dramatic
shift in strategy.
Key Challenges high risk, high return asset classes beckoning investments. The initial
positive outcome of these investments lulled the investors into
believing that high returns was the new normal. But, that was not to be. In the years leading up to 2007, wealth management firms in the US
The economic downturn exposed the frailty of investing in asset had seen a rapid expansion of the HNI segment, which grew at 8.4
classes about which only limited market information was available. percent CAGR compared to 7 percent CAGR in other matured
A very large number of investors bore the brunt of rapid capital economies. This was facilitated by a series of economic factors that
erosion, there-by considerably weakening their confidence in return included sustained buoyancy in the capital markets, pervasive wealth
enhancers. Contraction of the housing market and rising distribution, and a boom in the housing market, all of which
unemployment levels in the US did little to shore up the overall contributed toward keeping investor confidence high. But the sub-
investor confidence. prime crisis in the US and the global economic slowdown that
followed appeared to have taken the wind out of the sails of the Investors have since been rather reluctant to repose their trust in wealth management industry, mandating fresh thinking on how the wealth advisors, which has caused a steep dip in the yields of wealth HNIs could be brought into the fold. management firms. Nonetheless, key wealth management service
providers are now focusing upon new strategies to leverage growth The 'crisis of confidence', as Nobel Laureate and economist Paul
opportunities in the future. The key questions being addressed are:Krugman would put it, can be overcome with fresh growth strategies.
In the realm of wealth management, firms would need to come up Ÿ How to bridge the investor 'trust deficit'?with new investment options that will induce the HNIs to return
Ÿ How best can wealth advisors approach potential clients and what enhancers and not lean too heavily on capital-protected investment would be the key differentiators?vehicles.
Ÿ What kind of infrastructure, support logistics and IT applications Return enhancers had become the preferred option for a wide cross- are required to support the new strategies?section of investors in the period up to 2007, with a new range of
Key Challenges
The ‘crisis of confidence’ can be overcome with fresh
growth strategies. In the realm of wealth
management, firms would need to come up with new
investment options that will induce the HNIs to
return to enhancers and not lean too heavily on
capital-protected investment vehicles.
Act 1: Build an 'Inside Out' View
Act 2: Build an 'Outside In' View
management industry has taken cognizance of the potential of social
media such as Twitter, Facebook, LinkedIn and others in reaching out Large wealth management service providers networked with to their target. audience. But there is a great opportunity to build a investment banking, private banking and commercial banking mechanism to harness the views of the investing class which can business lines have access to rich information sources. However, serve as insights for shaping the wealth management firm's service their efforts to connect the dots and convert data into meaningful offerings. This would be particularly relevant to firms that are information to service their investors are seen to be at best sketchy. positioning their products and services to the net-savvy, socially Their general inability to effectively mine the information source so networked HNI. Wealth advisors who have failed to comprehend as to create an 'inside out view' limits their potential to service the changing profile of HNIs are likely to fall behind in this clients and differentiate their offerings in the fiercely competitive increasingly tech-driven business environment.wealth management industry. For these firms, the solution lies in
Technology adoption will progressively assume great significance in harmonizing information sources and utilizing insights to create new
the wealth management domain. In the western markets, it will take offerings with compelling value propositions.
some time before new money will flow into asset classes other than
fixed income and capital protected investment vehicles. However,
firms that are willing to tap new opportunities in emerging Social networks have profoundly changed the way the new economies, as well as adopt relevant technologies, are likely to lead generation interacts with the external world. The wealth from the front in the markets of the future.
New StrategyThese questions are easy to comprehend but addressing them
would call for a well thought out strategic plan. Different wealth
management service providers are seen to adopt different strategies
to deal with the emerging economic realities. The following steps
could greatly enhance the effectiveness of their communication with
existing and prospective investors.
Act 2: Build an 'Outside In' View
Act 1: Build an 'Inside Out' View
Social networks have profoundly changed the way the new
generation interacts with the external world. The wealth
management industry has taken cognizance of the potential of social
media such as Twitter, Facebook, LinkedIn and others in reaching out
to their target. audience. But there is a great opportunity to build a
mechanism to harness the views of the investing class which can
serve as insights for shaping the wealth management firm's service
offerings. This would be particularly relevant to firms that are
positioning their products and services to the net-savvy, socially
networked HNI. Wealth advisors who have failed to comprehend Large wealth management service providers networked with the changing profile of HNIs are likely to fall behind in this investment banking, private banking and commercial banking increasingly tech-driven business environment.business lines have access to rich information sources. However,
their efforts to connect the dots and convert data into meaningful Technology adoption will progressively assume great significance in
information to service their investors are seen to be at best sketchy. the wealth management domain. In the western markets, it will take
Their general inability to effectively mine the information source so some time before new money will flow into asset classes other than
as to create an 'inside out view' limits their potential to service fixed income and capital protected investment vehicles. However,
clients and differentiate their offerings in the fiercely competitive firms that are willing to tap new opportunities in emerging
wealth management industry. For these firms, the solution lies in economies, as well as adopt relevant technologies, are likely to lead
harmonizing information sources and utilizing insights to create new from the front in the markets of the future.
offerings with compelling value propositions.
New StrategyThese questions are easy to comprehend but addressing them would call for a well thought out strategic plan. Different wealth management
service providers are seen to adopt different strategies to deal with the emerging economic realities. The following steps could greatly enhance
the effectiveness of their communication with existing and prospective investors.
About the Author
Dr. Ashok Hegde has 18+ years of experience in the banking and securities industry. His experience
includes providing high-end consulting services to global investment banks and investment
management firms. Ashok was extensively involved in systems development related to order
management, risk management and custody applications. He has managed business transformation
projects and engagements supporting outsourcing initiatives of large banks.
Ashok was Principal Advisor for risk system implementation for a large private bank. He has worked
with the equity research team of an international investment banking company covering the emerging
market desks.
Ashok has been associated with financial systems development for clients across geographies and
specialized in front and middle office application suits. He was Council Member for the Finance
Stability Stress Test Study of Reserve Bank of India.
At Wipro he is the Global Head of Financial Services, Business Analyst Practice. Ashok has an MBA in
Investment Banking and a Ph.D. in Economics.
About Wipro
Wipro Technologies, the global IT business of Wipro Limited (NYSE:WIT) is a leading Information Technology, Consulting and Outsourcing
company, that delivers solutions to enable its clients do business better. Wipro Technologies delivers winning business outcomes through its deep
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company recognized globally for its comprehensive portfolio of services, a practitioner’s approach to delivering innovation and an organization
wide commitment to sustainability, Wipro Technologies has 120,000 employees and clients across 54 countries.
Wipro Banking and Financial Services
Wipro serves the top 10 Banks, top 4 Insurers, top 2 Brokerages and supports the top 5 Investment Bank's business transformation initiatives
across the globe. Wipro is the leader in BPO + IT integration initiatives and supports a banks' initiatives to bringing a change in the fixed cost
structure. Wipro's expertise and experience cut across front, middle and back office. Wipro's Banking and Financial Services has already
garnered more than $1bn in revenues and has 85+ customers spread across continents. To know more please write to: [email protected]
Dr. Ashok Hegde
IND/CREST/AUG2011/E71
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