In the next five years, and despite the current economic slowdown, Indian households and families are likely to generate wealth at one of the fastest rates in the world. Research and advisory firm Celent says that we may have 42 million households with a net worth of more than $5,000 by 2012. These are ideal circumstances for wealth management to blossom in the country.
Unfortunately, we do not have any integrated regulatory framework for the industry. Some guidelines are in place for the bankers working in wealth management, regarding the classification of assets and liabilities. But, in general, just about anybody?from brokers to financial advisors?can offer such services. For many, wealth management is in fact just an extension of portfolio management. Even in the latter case, FE has discovered that there are several players operating without being registered with Sebi, although this is mandatory for portfolio managers. The regulator is supposed to carry out due diligence before offering them a certificate of registration. After this, however, there are no checks on what kind of advice is given out.
Quality players are currently using self- discipline to offer standardised services. This is insufficient. In the US, there are several certification programmes available for professionals. Even in China, the China Banking Regulatory Commission has put in place strong regulations covering product design, customer evaluation, marketing, disclosures, complaint management and even the management of staff.
In our country, the Association of Mutual Funds in India has introduced study materials and certification tests, with all employees and distributors now required to clear these tests. But such scattered moves will not suffice. India?s wealth management service providers have to come together and form a self-regulatory association. They have to do this before a major scam breaks and hurts the sector?s image in a big way. Or, even worse, before regulators decide to clamp down. An economic slowdown is a good time to work out these issues, preparing the industry to reap rewards when the tide turns.
akash.joshi@expressindia.com