By Vinay Ahuja, Senior Managing Partner, IIFL Wealth
There is a significant change in the way the new generation of wealthy view their wealth. Millennial heirs and first-gen tech entrepreneurs are driving complete shifts in the way wealth is being managed. The ability to identify these changing needs and thereafter, cater to them in the best possible manner, lies at the crux of being a good wealth manager.
Some of the changes seen in the new generation of wealthy are:
Willingness to let wealth manager manage their money
The new crop of wealthy is a tech-savvy generation that is more patient and has demonstrated a proclivity towards equity investments. They are more inclined to entrust the professional wealth managers 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.
The understanding is that the right advisor will be able to guide them and help them invest in the most suitable products. Consequently, they 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.
The new-gen is more discerning when it comes to value-add services and is willing to pay reasonable advisory/portfolio management fee provided the arrangement is transparent and serves in the best interest of the client. This delegation frees up a significant amount of their time and band-width, which they generally being use for pursuing their passions or starting a pet project– be it travelling, giving back to society or creating a start-up.
Focus on growth assets
There is a focus on equity and private equity, rather than on debt with aim of capital preservation as was seen earlier. Every generation is shaped by the trends and the investment climate extant during their prime years. The previous generation tends to be relatively more conservative with their choice of investment instruments. This conservative attitude is perhaps perpetuated by a host of factors that include double digit inflation and consequent high debt returns combined with the very volatile equity markets we saw from 1997-2003 and then again in the 2008-13 period. Consequently, most old gen investors remain wary of the same, even today.
The newer generation, on the other hand, has embraced equity with open arms. After allocating a certain portion to the relative safety of debt instruments, they allocate the rest to equity. They invest in both listed as well as unlisted (Venture Capital, Private Equity) equities and see it as a core of their portfolio. The new generation prefers to focus on wealth preservation as well as wealth growth, giving equal importance to both.
This generation has seen the benefit of compounding at 15-20% per annum play out over the last two decades and is not unnerved by short-term market corrections.
More objective, disciplined investing
Most new gen millennial investors are professionally educated and are more receptive to practices like asset allocation and portfolio discipline. They are more process driven than hunch driven, are better informed about trends in investments and portfolio building and are fairly agile when it comes to reacting to change in trends and opportunities. They have more access to information and are savvy enough to distil the information available to them to make more informed investment decisions. Consequently, 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 writer is senior managing partner at IIFL Wealth