Abhay Aima, Group head at HDFC Bank on the evolving landscape of wealth management for UHNIs and what it takes to make a good advisor
by Lisa Pallavi Barbora, 28/9/15, Mint
The value an advisor adds is plugging the gap of time, which a client doesn’t have, to focus on money management
Abhay Aima’s business card lists out four business segments that he is the head of. This shows his depth of experience. Yet his business card descriptions aren’t what define him. He is actually uncomfortable using more than one part of his long designation. Aima, group head, equities and private banking group, third-party products, NRI (non-resident Indian) and international consumer business, HDFC Bank Ltd, spoke to Mint about the evolving landscape of wealth management for ultra-high-net-worth individuals (UHNIs) and also what it takes to make a good advisor. Edited excerpts:
How open are UHNIs towards bankers and advisors giving them money management inputs?
The business of advisory has evolved over a period of time. In earlier days, the concept wasn’t there. As our economy has changed, so has the concept of managing money. Traditionally, money was with business families, which was a difficult segment to crack—the best thing for them to do was take the profits and reinvest in their businesses. The failure rates for Indian businesses were also low. Essentially, personal wealth rarely got impacted. Moreover, surplus simply went towards gold and real estate.
That has changed drastically. Businesses started failing. Secondly, money got made by the salaried class as well, whether through ESoPs (employee stock option plans) or through larger take-home salaries. On the other hand, traditional business setups saw the next generation taking over the reins and their outlook and approach was different.
Both these developments led to a rise in people looking for professional money managers. The salaried class provided a good opportunity as they represented first generation wealth, didn’t have time on their hands to manage money and understood the need for a professional.
The landscape of the advisory business is still changing. Asset allocation, for example, was an alien concept, so was the systematic investment plan. Up until a few years ago, it was more about shall I enter the equity market or shall I exit; it was never about understanding the allocation to equity at various points in time.
Do clients actually follow and stick to an asset allocation?
Traditionally, if you had a safe business, then why should one need an asset allocation? The other thing was that property and gold prices never went down. And the stock market was called satta bazaar (gambling den). There was no concept of asset allocation. The reality, though, is different now.
Gold prices are falling, people have burned their fingers in property and those who have stayed with equity for long have made money. Now, it is much easier to implement as wealth has moved to the salaried and next-generation entrepreneur; yet, there is a mindset which has been built over years and that needs to change.
Among UHNIs, there is access to information across products and an understanding of asset behaviour. Now, the focus is shifting from specific products to overall portfolio structure and money management. Being part of a bank, how does this affect you?
Earlier, both the advisor and the investor were happy with just products. Conceptually, it has taken time for wealth advisors to understand that low-hanging fruit isn’t always the answer. It is tempting to look at the immediate commission earned on a product rather than keeping the profile of the investor and the risk appetite in mind. You will make money immediately but it doesn’t pay over the long term. Ideally, what happens is that when an advisor approaches an UHNI, no matter how well established the organization he represents or the person’s skill, the client will not trust the advisor on Day 1. If you are very convincing and come with great credentials, at best you can get 20% of the investor’s wallet share. Over three-four years or so, if you manage to do a good job, then one may get 70-80% of the wallet share. This means you can’t be focused on short-term earnings and have to focus on the client’s interest. Only then does it become an easy ride. The moment a wealth advisor realizes this dynamic, it works. But it requires effort to get that first 20%. This is something that advisers still need to understand.
How does one private bank distinguish from another given that the overall product basket is accessible to all?
Ideally, what we just spoke about is that the focus needs to be on not looking at short-term earnings and aligning your needs with the client’s. That is easier said than done. Secondly, a distinguishing factor is how much you take the temptation away from the relationship manager. If you are able to centralize product recommendations and keep it independent of sales, then there is value. Advisors with a sales focus will always try to sell what is easier and has a high commission.
Transparency and trust is critical; how much return you are able to generate comes later. If the wealth manager could maximize returns for everyone, then she would be doing it for herself rather than others. We tell our advisors that the client has probably done better than them, otherwise she would be coming to us rather than us seeking her out.
The value an advisor adds is plugging the gap of time—which a client doesn’t have—to focus on personal wealth management.
Service levels are also a differentiator. If these are taken care of, even if a client has made a loss, they won’t walk away if you have been honest and diligent.
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