Why your adviser should tap into overseas opportunities

The concept of diversification is a fundamental aspect of managing one’s money

Rajesh Krishnamoorthy, Minr 18/4/12

source: http://www.livemint.com/2012/04/18210246/Why-your-adviser-should-tap-in.html

What certainly seems to be niche today, and a major reason why I wanted to bring this out in this column, is the opportunity outside India that is being tapped by our financial intermediaries. I have come across only a handful of advisers who are confident about their knowledge of markets outside India and by virtue of their willingness to go beyond their natural markets, have carved out a niche proposition for clients in the UK, the US, the Middle East and Singapore. Let us look at some interesting opportunities that financial advisers can tap into, which can be major value-add to the clients.

First things first—the concept of diversification is a fundamental aspect of managing one’s money. If advisers rise from day-to-day client portfolio management strategies and view it from a global perspective, a bulk of Indian investors has a huge single country risk in their portfolio. Yes—be it large-, mid-, small-cap stocks, debt funds or cash—the maximum (if not full) exposure is to Indian markets. No wonder we had many asset management companies file prospectus with the Securities and Exchange Board of India (Sebi) for feeder funds and Indian investors have, therefore, got an opportunity to diversify investments to Brazil, China, other emerging markets and more recently, the US. However, what is notable is that the Reserve Bank of India (RBI) has consistently kept increasing the limits on international investments by resident Indians—from a mere $25,000 to the current $200,000 per person, including minors, per financial year, under the liberalized remittance scheme. The latest statistics from RBI shows that Indians have wired out $1.16 billion under this scheme. Of this, about $600 million is for investments in property, gilt, equity and debt outside India. Have your advisor tapped this opportunity yet?

Those of you who have relatives or friends in the UK would have come across Qualifying Recognized Overseas Pension Schemes (QROPS). Simply put, here is an opportunity for your advisor to tap into pension investments for your friends and family from the UK. Under QROPS, you can source investments into many schemes. There are QROPS-dedicated platform services outside India that one can work with.

Singapore and Hong Kong have become financial centres of Asia and are increasingly looking towards giving the western centres competition. Hong Kong is a gateway to access Chinese markets. The interest in taking up official residence in Hong Kong is on the rise. To promote the same, the Hong Kong government had come up with the Capital Investment Entrant Scheme(CIES), wherein, if a client could invest HK$10 million (about Rs. 6 crore), he qualifies under CIES for residential status in Hong Kong. This money can be invested into permissible investments and the advisor can tie up with entities licensed by Hong Kong Securities and Futures Commission to facilitate the same under proper introducer arrangements.

Last but not the least is the non-resident Indian (NRI) pie. Many advisers assist NRIs to invest in India. However, very few assist the NRIs with investments outside India (including in the country they stay). In this context, what is noteworthy is that money flowing into India from many of the middle and high networth clients is like the tip of the iceberg. A large part of their wealth finds its way in non-Indian currency investments. To play in this league, one will need to hone skills to understand international markets, currency movements and cross-border tax regulations. Interestingly, for many countries like Singapore there is zero capital gains tax.

Indian investors are beginning to recognize that financial planning, advisory and wealth management services are not free. We must realize that in markets like the UK, the US, Australia, Singapore, Hong Kong and even the Middle East, the financial intermediation profession has certainly taken a different maturity curve with respect to fees for advice. The focus of discussions in our country should move to financial goals, service capabilities and fiduciary responsibilities of the advisor in that regard, rather than why pay fees! You pay for quality and expertise!

Rajesh Krishnamoorthy is managing director, iFAST Financial India Pvt. Ltd.

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