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Personal Finance Outlook 2013: Wealth management business, an idea whose time has come

Jan 01 2013, 12:22 IST
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SummaryThe year 2012 witnessed a flight to safety, where investors preferred lower assured returns over taking risks in the markets.

January 1 will see the launch of direct plans for mutual funds. And, most likely, they will separate men from boys

Rajiv Bajaj

The year 2012 witnessed a flight to safety, where investors preferred lower assured returns over taking risks in the markets. It was the year of debt, where a lot of money flow came into debt funds of mutual funds, fixed income schemes, bonds and NCDs.

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It was also the year of physical asset classes, with continued money flow seen in real estate and gold, backed by their recent performance. The fundamental belief that gold is simply an inflation hedge was challenged on a continued basis in 2012; the traditional belief that real estate is a long-term investment was challenged, too, since people have now started investing in real estate for short-term gains as well, ignoring the illiquidity risk.

In terms of talent in this industry, I believe that people did not really view wealth management as a career option. Hence, there was limited number of fresh talent coming into the industry. Due to regulatory changes, some people were even seen exiting the business, and only the long-term players are present now.

A greater appreciation for fee-based models has been witnessed in 2012.

Also, customers have been demanding clarity in the way information is presented to them. Thus, they are looking for simplicity, clarity of communication and ease of administrative procedures, ie, taking an online, paperless route to manage things, whether it is viewing their account statements or portfolio performance. Moreover, people are opening up to the idea of reviewing the model of their relationship from commission-based to a fee-based structure.

Going forward, crystal ball gaze into 2013, I see this as a 'game changer' year for the wealth management business. January 1, 2013, is a very important date for the wealth management business; because this is the day we see the launch of direct plans for mutual funds. It will be kind of a separation of men from boys. People, who have loosely defined value proposition, may find it challenging to retain client assets, because clients may want to take the direct route of investment and save around half a per cent expense.

Thus, a clearly defined value proposition is likely to be seen emerging in the industry in 2013, and any player who fails to do so will stagnate and will be virtually

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