Exclusive: Yatin Shah featured in Asian Private Banker

As the industry undergoes reforms, to which COVID-19 has given an added sense of urgency, India’s wealth managers will witness more consolidation and will have to make tough choices, believes Yatin Shah of IIFL Wealth.

“This is the time where every organisation looks at its priorities,” the co-founder and non-executive director of the third largest private bank in India by AUM, told Asian Private Banker.

“In the highly competitive Indian wealth management (WM) market — where cost-income ratios are high — firms need a strong focus to stay relevant. It is about continuous investment into people, products, and platforms.” Shah pointed out that wealth managers in India had been experiencing a difficult two years before the COVID-19 pandemic and had been reviewing their businesses.

“Certain financial services firms had been rethinking their decisions for the market, despite having a set of excellent clients and employees,” he said.

A recent case that highlighted the competition foreign players face amid rising domestic players was BNP Paribas Wealth Management’s decision to withdraw from India’s onshore market.

The consolidation process was accelerated by COVID-19, Shah pointed out. “We are beginning to see the tip of the iceberg and will witness more consolidation and tougher choices being made in the industry.”

The case for more reforms

Shah said IIFL Wealth is taking this opportunity to consolidate and migrate clients and talents from elsewhere onto its platform. The firm is focused on revamping and upgrading the platform in the post-COVID-19 world, where certain trends have been accelerated, he added.

“For wealth managers, acceleration starts from client prospecting and client onboarding,” Shah elaborated. Under
the new working-from-home regime, for instance, regulators have little choice but make the onboarding exercise
more efficient for both wealth managers and clients.

Some wealth managers will no longer consider opening new locations, even though they do not plan to give up the existing commercial space. There are others that focus on centralising certain functions and on outsourcing.

One clear trend is the acceleration of investment and digital strategies, and Shah argued there is a case to be made for digitalisation from a cost-income ratio perspective. “We have increased our digital footprint, which will lead to significant productivity gains and better client services, as well as improvement in cost-income ratios,” he enthused. “We expect this to decrease to almost 50% from the current 60-65%.”

No conflict of interest

“Intuitively, in its WM and asset management business, IIFL Wealth focuses on one activity only: managing money.”

The firm, Shah stressed, has always been a solution provider, instead of relying on a brokerage model. This brings in transparency and avoids a conflict of interest between the firm and its products.

“For us, there’s only one side of the balance sheet, which is advisory fees — remuneration from advising products for the clients. Our investment in people and the platform has been particularly strong, in order to build a liability franchise with no conflict of interest.”

The firm’s IIFL-ONE platform allows clients to choose whether or not to pay the firm for the scope of its services, although this has only become possible since regulatory changes took place a few years ago.

The current regulations in favour of flat-fee advisory services have, in Shah’s view, created “a level playing field where every WM firm has to abide by the same rulebook”. For the client, “the quality advisory service is what distinguishes one firm from another”.

Advisory proves strength in volatility

Shah admitted that in times of a bull market, the case for the advisory model is less clear, as the clients tend to have higher expectations of good returns. But in times of volatility, this is a different story. “You have seen how — in the last two, three years — things in the credit market have played out in India. Consider Franklin Templeton Mutual Fund’s sudden decision in April to wind up six debt mutual fund schemes. This is where a strong investment process comes into the picture and exhibits the benefits of a discretionary portfolio,” Shah explained.

“As soon as the client chooses the advisory model, our focus falls on asset allocation, the quality of the portfolio, and risk-adjusted returns based on the objectives of the client. This puts us in the role of a gatekeeper, as we are not incentivised by the size of the client’s wealth.”

The firm’s disciplined approach towards wealth preservation for the client has shown resilience, Shah claimed. “In the past few months, our internal discretionary portfolio has fared much better than the distributed portfolios.”

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Asian Private Banker