Yatin Shah is Co-Founder and Executive Director at IIFL Wealth & Asset Management and has more than two decades of experience in the financial services industry, across equity research and private wealth management. He focuses on the wealth practice as well as client services, marketing and client experiences, and is responsible for introducing the IIFL Wealth & Asset Management proposition to new clients, and expanding the relationship with existing clients. Under his leadership, the company has, since it opened its doors in 2008, emerged as one of the prominent leaders in the domestic private wealth management space in India, and today has a host of institutional shareholders, employees and founders hold some 27%, and the company enjoys a market valuation of more than USD1 billion. Hubbis was fortunate to ‘meet’ with him by Zoom call recently, to learn of his latest perspectives on the Indian market that IIFL Wealth services, how the firm has been adapting its offerings and methodologies in the face of the current pandemic, how IIFL Wealth is expecting to be a beneficiary of the ongoing consolidation in the industry, and what he and the teams are hoping to achieve in (hopefully) a post-pandemic world.
“We wanted to build a very focused business from day one,” Yatin explains, opening the discussion. “Our primary goal is to be the first port of call for clients’ financial assets; to help them manage their financial net worth – we focused on two activities – what is our value proposition for our clients and why should a wealth manager engage with IIFL Wealth.” As managers of private clients’ wealth, we have had a firm eye throughout on the proposition we offer our clients, and to those RMs who add value to our journey.
“Our clients have been first-generation entrepreneurs, people who have worked really hard to make their money, or they are from business families, professionals, NRIs, or CEOs of large firms, whose wealth was built by the value they generated. While wealth is created by the entrepreneur, it is preserved by our teams at IIFL Wealth. Our clients look to our institutional-level investment services to help them outperform, but with risk carefully managed. Accordingly, we built our platform, people, products, and proposition around this calling, always keeping a firm eye on why clients and RMs, who represent the firm, would join us.”
Building the project
He reports that the timing was excellent, as India has enjoyed a decade or more of growth in wealth as well as the ‘financialisation’ of savings. “We have been able to build a large practice and differentiated from the banks,” he says. “With homegrown expertise and a strong brand, as well as a strong balance sheet and technological expertise, we have been well placed to rise to the top of the industry here.”
From little acorns…
And by many metrics, that is what IIFL Wealth has achieved – in 12 years, the firm has blossomed to almost 1000 employees and manages some USD27 billion equivalent of AUM. The firm has attracted institutional shareholders in the form of ~22% held by General Atlantic from New York, ~18% by Fairfax, a Canadian fund, ~27% held by employees and founders, and the remaining held by institutions and public with a current market valuation equivalent to more than USD 1 billion.
Despite these achievements, Yatin says the firm is really just getting underway in many respects.
“When there is such growth domestically as there has been here in recent decades, and when there is such a powerful drive towards the democratisation of wealth, they pave the way for an immense opportunity ahead. Of course, the pandemic has caused many hurdles, but looking beyond that, we are immensely well placed to continue our trajectory.”
Accelerating and refining
He also comments that the pandemic will be accelerating some of the rationalisation and consolidation in the industry that would perhaps have taken place over a longer period. “I think every company or every market leader in their own industry will expect to see a lot of consolidation beginning with financial services,” he explains. “The Indian wealth management industry has been very competitive, with current cost to income ratios rather unsustainable for many. We have seen some major foreign banks exiting the market here since the crisis, and domestic consolidation before the pandemic hit, for example, our acquisition of L&T Wealth Management in 2020. In short, it’s a tough market in which to compete.”
Digitisation - a constant project
Nevertheless, the WFH phenomenon will have longer-term cost ramifications, as more services and functions are likely to be outsourced and decentralised, even long after the pandemic.
“Digitalisation is no more an annual budget matter,” he reports, “it is ongoing and a core element of survival and growth strategies, with every WM firm now thinking in part like a technology firm. With us, what we had planned for a few years ahead is now arriving in the next three to six months.”
He also highlights digitised prospecting of new customers, as well as remote onboarding, transaction execution, document signing and so forth. App-based dashboards and portfolio review mechanisms are all being implemented that clients and RMs are adapting comfortably.
An engaging experience
“The overall experience is not just one that is acceptable; it is designed to be engaging, even with a work from anywhere protocol,” he reports. “And then in terms of offices, we can see more hot-desking, much more WFH, more mobile and perhaps significant improvements in productivity and efficiency as logistics of travel and commuting are rationalised. The new operating model is increasingly independent of asset and physical infrastructure, it is cloud-based, and digitised; yet keeping the human element tightly knit signifies greater client retention and loyalty.”
All this will, he concludes, improve the cost-income ratio, with the market leaders benefitting most due to their scale. “And I see some of these cost savings to be long-lasting, perhaps between 15% to 20% costs shaved off, offering a significant fillip to our industry.”
The Four Ps
Yatin then delves into more detail on the IIFL Wealth USP, explaining that the business has four very strong pillars, namely people, platform, propositions and products. “As to the proposition he reports that this centres on client engagement, with newer regulations in India helping encourage better alignment of interests between the clients and the firms, with customers more easily taking up DPM and non-discretionary mandates, thereby helping reduce the unpredictability and cyclicality of revenues. More and more clients are opting for the fee-based model. The focus here is firmly on the process of managing money. And yet, product innovation remains as important as ever, and our drive is towards ideation and being first to market.”
Evolving the fee-based proposition
He reports that as to fee-based engagements, the firm in 2019 launched IIFL-ONE as a core solution to help clients convert to this type of model, with a fixed management fee. “This is a solution-based approach to wealth management. The asset allocation is based on the client’s own risk profile, with actual asset allocation being driven by the IIFL-ONE Proprietary Allocation Model. Helping a client select an appropriate asset allocation is a critical activity - balancing her expectation of return with tolerance of volatility. Even within the model, while alpha is very important, equal weightage is given to controlling volatility.
Two streams, one current
The result is that IIFL Wealth now has two core revenue streams, one ARR, or annual recurring revenues, and the second the brokerage business, in other words, execution-driven. “As to the ARR side,” he reports, “this follows a global trend amongst the major private banks, as well as a Netflix type subscription-based model. Where we can create product innovation, product and content, we can drive the IIFL-ONE subscription model. With all-in-one fees and a thoroughly transparent process, we ensure portfolio management free of bias. Additionally, passive strategies are gaining momentum globally, given that active strategies, post fees are unable to beat the benchmark.
“All in all,” he adds, “these elements are driving immense behavioural change in the way clients are engaging with us as wealth managers.”
Driven by the relationship
Yatin explains that the typical IIFL Wealth client has upwards of USD2 million equivalent of investible surplus as AUM for the firm. “Working on a fee-based model and AUM of US$4-5million - this is a sweet spot for us. Over 90% of our clients are, as I explained, first to second-generation entrepreneurs, new tech-age entrepreneurs, professionals who are in CEO type positions and business families. We estimate the total scope of that market is around half a million people here and growing swiftly in recent years.”
He notes that IIFL Wealth’s model will remain relationship-driven, with the RMs and other advisors staying close to their customers but enhanced and freed up by digitisation to boost their own efficiency and the client experience. “Powered with 24 IIFL Wealth offices throughout India, our teams are now able to service many of these cities remotely, effectively navigating the non-stop travel culture. These types of tier two and three cities such as Chandigarh, Coimbatore, Cochin, Lucknow, Jaipur, Bhavnagar, Rajkot, Baroda, or Surat have all been enjoying rapid growth in AUM in the last three years, as many of these locations are hotbeds of new businesses and economic expansion.”
Estate & Legacy planning
Another key development, again accelerated by the pandemic, is greater professionalisation of the approach to estate, succession and legacy planning. “We see this as a vital business from the perspective that this also helps us engage across the generations and sustain our business in the longer term,” he reports.
And finally, as to trends, Yatin highlights the ongoing ‘financialisation’ of real estate with the launch of REITs and other vehicles now permitted due to regulatory changes. “It is way more efficient from a tax view to own a basket such as REITs rather than commercial property directly, and risks are also mitigated,” he explains. “Hence we see more HNW and UHNW money moving to these instruments. In fact, we have seen the two largest REITs which got listed this year are Embassy Office Parks and Mind Space Business Parks REIT.
This leads him on to the growth of alternative assets, as investors swap liquidity for reduced volatility, taking a longer-term view on returns away from the public markets.
“If you see globally, UHNW investors have balanced portfolios, and they believe in the long term, they are comfortable being locked in and invested in unlisted or private equity funds or start-up funds,” he reports. “But in India, that trend is only just emerging. And all sorts of interesting new businesses and sectors will attract this capital as the economy evolves so, for example, there are now some 30+ unicorns in India which are privately owned by private investors, mostly foreign, and we will see more Indian investors in these situations in the times ahead.”
And looking international
Finally, he remarks on the rising globalisation of wealthy investors’ portfolios. “India is growing fast but represents only 3% of world GDP and 97% of the world GDP is outside India. Moreover, there is a lack of product here, and investors seeking economic and sectoral diversity must look increasingly to invest internationally. So, we have seen more global feeder funds coming into India, feeding US or European assets to local investors. And the LRS, or liberalised remittance scheme, allows Indian investors to also send USD250,000 offshore each year. And for a wealthy family of four, that means USD1 million, so we are seeing a rapid expansion of these direct international investments as well.”
Yatin reiterates the drive to digitisation as a priority, something that is now both accelerated and constant, as the firm upgrades and as new technologies evolve at an ever-greater pace. “The key focus for us looking ahead is empowering the RMs to be more relevant, more productive and offer a wholesome client experience.”
The second area is to expand the rollout of the IIFL-ONE Portfolio Management fee-based proposition. “This not only boosts the firm’s revenue predictability but offers the clients a better outcome under the all in one fee offering. As such it is so important to have the right platform, tools, investment counsellors, portfolio management expertise, research capabilities and so forth, to build out this franchise, which is exactly what we have in place,” he reports.
And the third priority is to benefit from the consolidation coming through in the industry. “As I alluded to earlier, this is something that is most certainly a trend, and with our scale, we must be extremely well placed to build further efficiencies with the right acquisitions and partnerships.”
His final word is to reiterate the optimism with which he and the team are approaching the future. “There are many uncertainties in this world, and certainly here in India, but looked at through the prism of history and time, the opportunities are immense, and the future holds great hope and potential. IIFL Wealth is ideally positioned and will do its utmost for our clients, our people and our shareholders.”
Getting Personal with Yatin Shah
Yatin hails from Mumbai and is living in the same home as he was born in, with his parents residing on the fifth floor, and he and his family below. “My father was from the Marwari community, which is famous in India for financial acumen, so that is where I learned to love this business to some extent, helping him as I grew up with his portfolio, and then going into broking.”
In 2002, when the markets were going through a tough phase after the dot.com crash, he went to complete his post-graduate qualification in London at the University Cass Business School. “That is where I became acquainted with wealth management as an industry, with friends working there for leading names such as Barclays at the time. And when I returned in 2003, I joined Kotak Mahindra Bank, one of the largest private sector banks in India. I was their third employee in the wealth management unit, and then enjoyed four and a half years of spectacular growth there, with Kotak Bank’s market valuation rising more than 20 times! That gave me the confidence and vision to go out and establish IIFL Wealth along with my colleagues. And we knew from the start that we aspired to size, scale, a robust platform, strong balance sheet, latest technology and so forth.”
Yatin is also a fitness enthusiast, working out four to five days a week, and for the past eight years running half marathons until he suffered a slipped disk. He also enjoys skiing, and quieter moments will find him sincerely appreciating a glass or two of fine red wine.
His wife also works as an entrepreneur and the couple has two children, a daughter aged 12 and son of nine years old. “And the new addition to the family is our wonderful 13-week-old Labrador Retriever, Ziva,” he reports. “Her name means brilliance, light and brightness; it is actually an old Hebrew name. I joke with my wife that I met the first female in my life who understands me, something we laugh a lot about.”