By Sandeep Jethwani, Managing Partner and Head of Advisory, IIFL Wealth
“When money realizes that it is in good hands, it wants to stay and multiply in those hands.”
Over centuries, wealth has served multiple purposes. Initially, wealth served to fulfil an individual’s current needs and was basically used to maintain a certain standard of living. Subsequently, people started accumulating wealth to not only serve their current needs but also create a safety net for future needs and contingencies – this led to an era of wealth accumulation. As the amount of wealth and the number of wealthy in the world grew, so did the purpose of wealth. Individuals began to focus on not only wealth accumulation but also on wealth preservation – to maintain wealth for posterity. Through this evolution, customer expectations changed and so did the wealth management process. The ability to tap into this change has helped wealth managers serve their customers better by providing them with more customised and relevant solutions.
With the new generation of wealthy coming to the helm, we believe that the industry is poised for another wave of change. Millennial heirs and first-gen tech entrepreneurs view wealth management differently from the previous generation and are consequently, driving complete shifts in the way wealth is being managed. It is important for wealth managers to identify these changes and then provide solutions that cater to the changing needs while staying tethered to the traditional values of trust and transparency.
Willingness to give rules-based mandate to the wealth manager to manage money and free up time and energy from day-day decision-making and execution
The new generation of wealthy tend to put a lot of emphasis on creating a robust investment policy that encompasses all their requirements and rules and is free from conflicts of interest. They are more inclined to entrust the professional wealth manager with day-to-day decision making on fund manager, investment instrument and execution, provided it’s all under a water-tight rules-based frame-work. They are also more discerning about value-add services and have demonstrated a proclivity towards paying a reasonable portfolio management fee provided the arrangement is transparent and serves in their best interest. Due to their education and exposure, they are well positioned to appreciate the value and role that an investment policy and portfolio allocation play in creating a robust and enduring portfolio. The new crop of wealthy prefers to delegate so that they have more free time to pursue their passions - be it their own businesses, a pet project, travelling, giving back to society or an adventure hobby.
Alternative Investments gaining Traction
The new generation of HNIs are also seen to be gravitating towards alternative investments and structured products to diversify their portfolios and earn higher risk adjusted returns. Venture funds, private placements, early-stage venture investments, hedge funds and alternative trading strategies, all fall under the purview of alternate investments. HNI investors realise that globally a lot of good quality growth businesses are not coming to public markets for capital raise, and to access those opportunities, allocations need to be made to alternative funds.
Actively Engaging Through Technology
The new generation of wealthy have been born in the digital era and prefer to engage with technology in all aspects of their lives. Consequently, they are increasingly demanding a tech interface for their financial and wealth management dealings as well. The wealthy millennials want digital solutions that can bring to them innovative financial products and portfolio analytics in an efficient and timely manner.
Through all this change, we believe that any wealth management solution should be robust, enduring and transparent. Such an approach is likely to weather the test of time and remain relevant through generations.