Role of a financial advisor

Financial Planning | admin | October 10, 2011 at 6:52 am

The wealth management industry has seen unprecedented growth in emerging economies such as India and China. The number of high networth individuals has doubled in our country in the last five years.

The growth and evolution of the industry over a period of time has also witnessed a change in the behaviour and demand pattern of high networth clients. The Indian high networth individual class has evolved from being a homogenous group to a relatively heterogeneous one. In the past, high net-worth individuals were typically second- and third-generation businessmen belonging to niche businesses. With the Indian economy expanding over the last decade and the services sector playing a dominant role in this growth, we are witnessing an increased representation of salaried and professional individuals in this growing segment. Furthermore, this boom in the Indian economy has attracted capital and the participation of nonresident Indians. Both domestic and non-resident high net-worth individuals represent a sizeable opportunity, in terms of value and volume for the growing segment.

Global macro-economic developments and the dynamic external environment have led to a significant change in the behaviour of high networth individuals and have created challenges for financial advisors. The first phase of this behavioural change was in the backdrop of the financial meltdown in 2008 where investors lost heavily across multiple asset classes making 'return of capital' more important than 'return on capital'. The external environment forced clients to consider simple, transparent and liquidity-oriented products instead of exotic and complex ones. Few financial advisors were also faced with reduced trust of clients as demand for transparency and detailing increased.

With the overall improvement of sentiments in the economic environment, optimism has again started to replace fear. Clients have again started exploring investment avenues across asset classes and participating in emerging growth opportunities. While sacred products (low-risk products) have dominated investments in the recent past, investors have increasingly become cautious of the quality of products and services they accept. Today, clients expect much more clarity and transparency from their financial advisors with respect to risk/reward ratio and performance of their portfolio. Most high networth individuals are not overly price-sensitive, but demand for price transparency will remain high in their decision-making process. This has been articulated in the steady shift from commissionbased revenue models to advisorybased models across the industry.

Media transparency has made clients more informed, knowledgeable and demanding than they were before the financial meltdown. With this shift in knowledge, transparency and risk management, along with data privacy, compliance framework and client-need assessment have started to dominate the mind of high net-worth clients while engaging with financial advisors.

The role of a financial advisor has to evolve from merely being productcentric to a 'lifecycle advisor' who caters to the banking and financial needs of their clients, across investment loans and protection needs. Both financial advisors and clients have started acknowledging the need for effective engagement for their investment needs. Early signs of a shift to multiple channels of engagement (online and in-person) with high networth individuals have started emerging vis-a-vis a purely personalised model. Technology is being acknowledged as an important and fast-growing channel of engagement not only for decision making, but also for building reports and review of investments. This, we believe, will be the backbone of the future of the wealth management business.

Against the backdrop of this evolution, we truly believe that Indian banks will play a significant role in facilitating and servicing the client needs of this segment through their product suites, multi-channel approach, efficient service delivery network, and regulatory and compliance framework.

Source: Economic Times