In a market dominated by distribution-based private wealth managers, IIFL Investment Managers, India’s largest wealth management firm, is looking to migrate to an advisory and discretionary-led wealth management model from a brokerage-led one, across all its product offerings.
It will be the first standalone wealth management firm in the country to do so. In the next three years, the firm expects nearly 40% of its business or assets under management (AUM), which stands at Rs 1.4 trillion, to be under IIFL-ONE, the new fee-based model launched by the firm, which allows clients to access all offerings through an integrated platform for a fee, said a top company official.
Wealth management services can be classified under three categories - distribution, advisory and portfolio management. While the distribution model entails brokerage fee for individual transactions in consultation with clients, portfolio management service allows complete discretion to the wealth manager, while making investments in lieu of a fee. Advisory allows quasi-discretion to be exercised by the wealth manager. Through IIFL-One, the company seeks to club advisory and PMS, and move from a fully distribution-led model. The offerings will include loan against portfolio and mutual funds.
The new model had been in the works for the past three years. “We, however, had to be sure that we had enough bandwidth and own products to offer under the model. We now have an asset management company, a non-banking financial company and an embedded brokerage business with our in-house products,” said Karan Bhagat, Managing Director and Chief Executive, IIFL Investment Managers.
Bhagat added that the firm is already in the process of offering direct plans for alternative investment funds and PMS. “This should happen in the next one month. We are asking products manufacturers, including mutual fund houses, to offer direct plans to us.”
The wealth management firm had been testing the waters for the past two months ahead of the launch. Initially, it will offer its own products under the platform. “We have reached out to about 40 clients. We expect our clients to test the new service with 10-25% of their portfolio. Rs 4,000 crore has already come under advisory and discretionary business in the last two months, when the beta testing phase was on,” said Bhagat.
The average portfolio size for the firm stands at Rs 10 crore.
Meanwhile, the fee based offering will not only allow discretionary power to the firm in managing client money leading to enhanced returns, but will also help in making wealth management a more centralized process, allowing closer monitoring of the client portfolio.
The development comes against the backdrop of the market regulator, Securities and Exchange Board of India, giving a soft nudge to asset management firms to move away from the brokerage model.
On 2 January, Sebi had come out with a consultation paper - the third so far - on adviser guidelines, taking another step in demarcating advice and selling. It said that a Sebi-registered adviser cannot offer mutual fund distribution services and a distributor cannot offer investment advisory services.
“We see IIFL-ONE significantly improving the productivity of our relationship managers since their key client portfolios migrate to our portfolio management offerings, freeing up significant bandwidth from day-to-day transaction execution activities in a typical distribution model,” said Sandeep Jethwani, Managing Partner and Head of Advisory, IIFL Investment Managers.