A PROJECT REPORT ON

FUTURE OF WEALTH MANAGEMENT

SUBMITTED BY

VINOD SINGH RAWAT

Roll No: 1507

UNDER THE GUIDANCE OF

PROF. LAXMI PRABHA

A RESEARCH SUBMITTED IN PARTIAL FULFILMENT OF THE

REQUIREMENT FOR THE DEGREE IN MASTER OF MANAGEMENT
STUDIES PROGRAMME FROM THE UNIVERSITY OF MUMBAI

YEAR 2010-2011

SWAYAMSIDDHI COLLEGE OF MANAGEMENT & RESEARCH

BHIWANDI

1
[Approved by AICTE, Affiliated to University of Mumbai & Govt. of Maharashtra DTE Code –
MB 336]

(An ISO 9001-2000 Certified Institute)

Sonadevi Weight Bridge, Near Octroi Naka, Kalyan Road, Temghar, Bhiwandi, Dist.
Thane – 421 302

CERTIFICATE

This is to certify that Mr. Vinod Singh Rawat (Roll No. 1507) student of Second Year

Master of Management Studies (MMS/MBA) of SWAYAM SIDDHI COLLEGE OF

MANAGEMENT & RESEARCH has successfully completed the winter project work

titled “Future of Wealth Management” in partial fulfillment for the degree of Master

of Management Studies of University of Mumbai.

Date: 15/03/2011

Signature of the project guide Director

Prof. Laxmi Prabha Dr. HENRY BABU

2
 DECLARATION

I, Vinod Singh Rawat, student of MMS II(Finance), 2009-2011 studying at

Swayam Siddhi College of Management & Research, Bhiwandi, declares that
the project work entitled “Future of Wealth Management” submitted in
partial fulfillment of MMS program under the University of Mumbai.

This report neither full nor in past has ever been submitted for award of any
other degree of either Mumbai University or any other University.

Mr. Vinod Singh Rawat

1507, (2009-11)

Swayamsiddhi College of Management & Research

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 ACKNOWLEDGMENT

I wish to accord my sincere gratitude to the Swayamsiddhi College of Management &

Research for their support and cooperation.

I thank Prof. Laxmi Prabha for her support and guidance, without whom, the Project
would not have been possible.

Also, the support of my colleagues was indispensable as their points and approach
has helped me to achieve success in my project.

Vinod Singh Rawat

MMS-II

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 TABLE OF CONTENTS
Sr. No Particulars Pg. No

1 Executive Summary 6

2 Introduction 7

3 STATE OF THE WORLD’S WEALTH 8

4 OVERVIEW OF WORLD ECONOMY 9

5 2000-2010: India’s Dazzling Decade 10

6 2011: Hurdles to cross 13

7 Advantages & Disadvantages 20

8 Recent Trends in Wealth Management 21

9 Core elements of Wealth Management Services 24

10 Financial Planning 26

11 Portfolio Strategy Definition / Asset Allocation 28

12 Portfolio Management 33

13 Strategy Review And Alignment 35

14 Key Challenge Areas 36

15 Solution Framework 39

16 Case Studies 43

17 Conclusion 48

18 Bibliography 55

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 EXECUTIVE SUMMARY

Wealth management industry in India is one of the sunrise industries that have a
promising future. With the growing individual income levels and healthy spending
outlook prevailing among families, everyone is trying to balance their lifestyles as per
their income levels.

As corporate culture penetrating even in PSU banks and undertakings, it is evident

that the future of India lays in much more robust and dynamic managerial talent of
the country. The idea gains strength with government banks and PSU’s on a hiring
spree on day 1 of campus placements among top B-schools of India.

So with government tying hands with corporate India it is almost certain that there
will be disciplined increase in wealth creation for the nation. So the core purpose of
the paper is to understand the current outlook of wealth management in India and
roadmap into the future.

In the annual survey done by Cap Gemini, SA and Merrill Lynch it was found that
ranks of millionaires grew 6% in the previous year, because the number of richer
people grew in India & China where India is competing China. India & China posted
the biggest gain in millionaires advancing by 23% & 20% respectively.
When we are watching the world wide increase in number of millionaires the facts
collected by Cap Gemini, S.A. and Merrill Lynch survey report. India has 23%
growth in the last year. The biggest Asian economy China stands on second position
with 20%, west Asia 16%, United States 4% and United Kingdom (UK) 2%.

So we can understand that there are more opportunities in the wealth management
business in Asia especially in India.

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 INTRODUCTION

Wealth Management – Definitions

Wealth Management can be defined as;

“A professional service which is the combination of financial/investment advice,

accounting/tax services, and legal/estate planning for one fee.”

Wealth management is best conceptualized as a platform where a number of different

sets of services and products are provided. It’s a full-service model that can offer
advice on investment management, estate planning, retirement, tax, asset protection,
cash flow, and debt management.

Wealth Management or Investment Management is;

“The professional management of various securities (shares, bonds etc) and other
asset (e.g. real estate), to meet specified investment goals for the benefit of the
investors.”

Investors may be institutions (insurance companies, pension funds, corporations etc.)

or private investors (both directly via investment contracts and more commonly via
collective investment schemes e.g. Mutual Funds).

The term asset management is often used to refer to the investment management of
collective investments, whilst the more generic fund management may refer to all
forms of institutional investment as well as investment management for private
investors. Investment managers who specialize in advisory or discretionary
management on behalf of (normally wealthy) private investors may often refer to
their services as wealth management or portfolio management.
The provision of 'investment management services' includes elements of financial
analysis, asset selection, stock selection, plan implementation and ongoing
monitoring of investments.

“Wealth Management is also known as “Private Banking.”

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 STATE OF THE WORLD’S WEALTH

The world's population of high net worth individuals (HNWIs1) grew 17.1% to 10.0
million in 2009, returning to levels last seen in 2007 despite the contraction in world
gross domestic product (GDP). Global HNWI wealth similarly recovered, rising
18.9% to US$39.0 trillion, with HNWI wealth in Asia-Pacific and Latin America
actually surpassing levels last seen at the end of 2007.

For the first time ever, the size of the HNWI population in Asia-Pacific was as large
as that of Europe (at 3.0 million). This shift in the rankings occurred because HNWI
gains in Europe, while sizeable, were far less than those in Asia-Pacific, where the
region's economies saw continued robust growth in both economic and market drivers
of wealth.

The wealth of Asia-Pacific HNWIs stood at US$9.7 trillion by the end of 2009, up
30.9%, and above the US$9.5 trillion in wealth held by Europe's HNWIs. Among
Asia-Pacific markets, Hong Kong and India led the pack, rebounding from mammoth
declines in their HNWI bases and wealth in 2008 amid an outsized resurgence in their
stock markets.

The global HNWI population nevertheless remains highly concentrated. The U.S.,
Japan and Germany still accounted for 53.5% of the world's HNWI population at the
end of 2009, down only slightly from 54.0% in 2008. Australia became the tenth
largest home to HNWIs, after overtaking Brazil, due to a considerable rebound .

After losing 24.0% in 2008, Ultra-HNWIs2 saw wealth rebound 21.5% in 2009. At
the end of 2009, Ultra- HNWIs accounted for 35.5% of global HNWI wealth, up from
34.7%, while representing only 0.9% of the global HNWI population, the same as in
2008.

The Asia-Pacific HNWI population rose 25.8% overall to 3.0 million, catching up
with Europe for the first time, after falling 14.2% in 2008. Seven countries within the
region actually saw their HNWI populations recover beyond 2007 levels
Asia-Pacific HNWI wealth surged 30.9% to US$9.7 trillion, more than erasing 2008
losses and surpassing the US$9.5 trillion in wealth held by Europe's HNWIs
After falling 19.0% in 2008, the HNWI population in North America rebounded,
gaining 16.6% in 2009. HNWI wealth there rose 17.8% to US$10.7 trillion. North
America remains the single largest home to HNWIs, with its 3.1 million HNWIs
accounting for 31% of the global HNWI population.

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 WORLD ECONOMY CONTRACTED IN 2009, BUT ASIA-PACIFIC KEPT
GROWING

World GDP contracted 2.0% in 20094, after growth of 1.8% in 2008, as the
fundamentals of the global economy were gripped by the effects of the global
financial crisis. In Western Europe, GDP shrank 4.1% in 2009, driven primarily by
Germany and the U.K. Eastern Europe and Latin America were also hit hard, and
GDP contracted by 3.7% and 2.3% respectively5. The GDP contraction in Europe
and Latin America was primarily due to the drop in exports and reduction in
industrial production (manufacturing, mining and utilities). However, economic
growth was evident in some parts of the world. GDP grew 4.5% in Asia-Pacific
excluding Japan, helped in particular by strong GDP growth of 8.7% in China and
6.8% in India6 .GDP also expanded by 1.4% in the Middle East and North Africa7.
Governments around the world stepped up efforts to stimulate economic recovery and
support the financial system. Governments implemented a wide array of measures to
try and keep their economies from sliding into recession as financial conditions
remained challenging. Those efforts included fiscal stimulus by many nations, but
most sizably by the U.S. and China.

Key drivers of wealth experienced strong gains. Many of the world's stock markets
recovered, and global market capitalization grew to US$47.9 trillion in 2009 from
US$32.6 trillion in 2008, up nearly 47%. Commodities prices dropped early in the
year, but rebounded sharply to end the year up nearly 19%. Hedge funds were also
able to recoup many of their 2008 losses.

The global economic recovery remains nascent. World GDP growth is likely to be
positive in 2010-11 and is expected to be led by Asia-Pacific excluding Japan.
However, sustained economic recovery is contingent upon the timely withdrawal of
government stimulus along with the return of growth in private consumption.

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 2000-2010: India’s Dazzling Decade

The 2000-2010 decade was a dazzling one for India. During this decade,
India’s nominal GDP nearly trebled from less than US$0.5b to US$1.3t,
and per capita GDP rose 2.5x from US$427 to US$1,058. Robust
economic growth created a huge opportunity for the Indian corporate
sector, and the decade saw the emergence of several Indian global-size
companies and mid-size challengers across sectors. The stock markets too
responded well, delivering 18% CAGR returns, the second best performing
emerging market. Market cap expanded 14x over the decade, improving
India’s global rank from 17 to 8.

Introducing FY13 estimates: FY10-13 Sensex EPS CAGR of 22%

Based on a bottom-up PAT aggregation of Sensex constituents, we arrive
at FY13E Sensex EPS of Rs1,492, up 18% YoY. FY10-13E EPS CAGR at
22% is marginally lower than the FY10-12E EPS CAGR of 24%, but does
not materially alter our hypothesis that Indian corporate sector earnings
have entered into a new growth cycle following a two-year growth holiday.

Macro economy
Over 2000-10, India’s nominal GDP nearly trebled from less than US$0.5b to
US$1.3t, and per capita GDP rose 2.5times from US$427 to US$1,058. India’s real
GDP clocked a robust CAGR of 7.2%, led by service sector (up from 49% of GDP to
57% over the decade).

• Growth in large part was internally financed, with savings and investment rate
increasing from ~24% to over 34% over the decade. Investments played a key role
as a growth driver while government spend ensured resilience during crisis years.
Share of infrastructure rose from 4.5% of GDP to 7.5%.

• Inflation for the decade averaged at just 5.3%, the lowest since 1970s. This was
despite the monetary policy challenges presented by huge and volatile capital
flows.

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• The decade saw a dramatic improvement in government finances led by fiscal
legislation. Combined (center + states) fiscal deficit more than halved from 9.9%
of GDP in FY02 to 4.1% in FY08. This gave the government some leeway to
impart fiscal stimulus to mitigate the impact of 2008 global crisis.

• Merchandise trade (imports+exports) as percentage of GDP nearly doubled

from 22% to 40%. Imports grew faster than exports and trade deficit increased
nearly 10x. However, surge in invisibles and capital flows resulted in overall BoP
surplus for most years. India’s forex reserves expanded ~7x to US$280b. The rupee
appreciated in nominal terms for much of the decade, but REER was largely stable

Corporate sector: Bold new face of India Include

• The past decade witnessed the emergence of several global size world-class Indian
transnationals, which now have global ambitions, including Infosys, TCS, Wipro,
Tata Steel, Tata Motors, Bharti, etc.

• Several mid-size companies have successfully challenged the leadership position

of incumbent players and garnered meaningful market shares e.g. HDFC Bank has
transformed the way in which banking is performed while JSW Steel has emerged
the largest domestic private steel producer.

• Increased per capita income, higher discretionary spending, growing aspirations of

the Indian consuming class, growth of retail credit, etc has led to the emergence of
several new businesses - Wireless (Bharti / Vodafone), IT (Infosys, TCS, Wipro),
NBFCs / Insurance, Real Estate (DLF, Unitech), Infrastructure (GMR, Mundra
Port, IRB).

• Stock markets: Among best performing global markets with 18% return CAGR.
The Sensex delivered a return CAGR of 18%; India was among the best
performing

• Global markets during the decade. Indian market cap clocked 27% CAGR to
US$1.6t, improving its global rank to 8 from 17 in December 2003.

• FII holding in Sensex companies increased by 5pp to 19% while DII holdings
have dropped by ~4pp to 13%. The total value of FII holding in Indian markets

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 (excluding GDRs/ADRs) is US$231b against cumulative nominal net inflows of
US$102b.

• The number of companies with market cap exceeding US$1b increased from 28 to
207, while the number of companies with market cap exceeding US$25b increased
from none as late as 2003 to 13 by 2010.

• The 10th largest market cap company in December 2010 (ICICI Bank at US$29b)
is almost 2.5x the largest market cap company in December 2000 (Wipro at
US$12b). Six of the top-10 market cap companies in December 2000 were not
among the top- 10 in 2010.

• In 2010, market cap of the largest company (Reliance Industries) was higher than
the market cap of the entire Sensex in 2000.

• In 2000, the Consumer sector had the biggest weight in Sensex at 26%, which has
dropped to 7% in 2010. The weight of Financials, in contrast, has increased from
6% in 2000 to 17% in 2010.

• Currently, Sensex one-year forward P/E at 17x is at 17% premium to the decadal
average of ~14.5x.

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 2011: Hurdles to cross

The 2000-2010 decade was a dazzling one for India, with nominal GDP nearly
trebling and per capita GDP rising 2.5x. Robust economic growth created a huge
opportunity for the Indian corporate sector. The stock markets too responded well,
delivering 18% CAGR returns, among the best performing global markets. Fresh
from a dazzling decade, the Indian economy and the stock markets face key
challenges in 2011: sustained rise in oil prices, industrial growth headwinds, and
stressed liquidity.

We introduce FY13 estimates, which suggest Sensex EPS CAGR of 22% over FY10-
13, confirming that corporate sector earnings are in a new growth cycle. However, if
the current trend of rising commodity prices persists, the PAT mix will tilt in favor of
global cyclicals rather than domestic plays.

Oil & Gas (ex RMs) PAT up 62% YoY and Metals PAT up 35% YoY, higher than
aggregate PAT growth of 24% YoY. Expect sectors dependent on domestic markets
to be affected by current headwinds. Global commodities and export-oriented sectors
are better placed in near term.

Fresh from a dazzling decade, the Indian economy and in turn the stock markets face
key challenges in 2011. Sustained rise in oil prices will fuel inflation and also worsen
current account deficit. Industrial growth is facing headwinds by way of
environmental issues, resource crunch, infrastructure deficit, and political/corporate
governance. Stressed liquidity caused by lagging deposit growth is pushing up rates.
Expect sectors dependent on domestic markets to be affected more. Global
commodities and export-oriented sectors are better placed in the near term.

Hurdle #1: Oil and commodity prices are a key concern

Prices of oil and other international commodities are on an uptrend due to reasons
ranging from rising consumption in emerging market economies to high global
liquidity. Indian economy remains highly vulnerable to rising crude oil prices. If
current prices prevail for the rest of FY11, gross annual under-recoveries of the oil
sector will mount to Rs685b, almost 50% higher than Rs460b in FY10. In the absence
of price protection, a 10% increase in international oil prices would have a 1% direct
impact on overall inflation and another 60bp indirect impact within 3-6 months. It

13
would also increase India’s current account deficit by US$8b (over FY11E US$40b),
as oil imports constitute ~30% of India’s total imports.

Hurdle #2: Industrial growth facing headwinds

IIP data has been volatile in recent months; there is no discernible trend. NHAI
awards have slowed down. SBI has cut its disbursement growth guidance for FY11
from ~22% to 18-20%. Environment issues have also impacted projects in metals,
hydro power, etc. Resource crunch (largely for coal), infrastructure deficiency, and
widespread corruption in the political, bureaucratic and corporate circles are all
adding up to make India’s business landscape murkier.

Hurdle #3: Liquidity situation has expectedly remained stressed in 3QFY11

During the last quarter, deposit growth (~15%) has significantly lagged credit growth
(~23%). This funding gap is the primary reason for the liquidity stress, further
aggravated by higher currency holding by the public and huge cash balances held by
the government with RBI. Sustained period of liquidity shortage may hamper
industrial growth; there is negative correlation between money market rates and
industrial production. The sustained liquidity stress has also permeated to the other
segments of the financial sector, pushing up rates in the credit market and yields of
government securities.

Investment strategy: Export-oriented sectors better placed in near term

We believe the above challenges are likely to impact the performance of several
sectors, particularly those dependent on domestic markets. We expect rising input
costs, fuel prices and interest rates to impact discretionary consumption spends
including Autos. Utilities will be impacted by resource crunch, environmental issues
and tight liquidity, as will Infrastructure projects. Financials will get impacted by
tight liquidity hurting margins, especially for those without a low-cost deposit
franchise. In this backdrop, export-oriented sectors like Technology, Pharmas, Global
Commodities would continue to outperform.

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Hurdle #1: Oil and commodity price increases return to haunt

Prices of oil and other international commodities are on an uptrend due to reasons
ranging from rising consumption in emerging market economies to high global
liquidity. While Indian consumers enjoy some price protection, this comes at a cost to
the fiscal deficit and financial health of oil companies. In the absence of price
protection, a 10% increase in international oil prices would result in a 1% increase in
overall inflation through direct impact. Indirect impact could take inflation up by
another 60bp within 3-6 months. It would also increase India’s current account deficit
by US$8b as oil imports constitute ~30% of India’s total imports.

International commodity price trend indicates clear headwind .

Global commodity prices are on a clear uptrend. Rising consumption in emerging
economies, better than expected economic data in advanced countries, decline in the
dollar and rising global liquidity have all contributed to this trend. Definitely the first
and also the second now appear to fuel a sustained rise in commodity prices. This
reverses the gains accrued to India so far in controlling inflation, that of sobering
international prices.

Oil prices impact India directly, more so because of increased energy intensity of the
economy as well as high import dependence. The administered price mechanism
(APM) provided a degree of resilience to domestic oil prices from international
fluctuations - within the broader energy group, the APM basket was much less
volatile throughout the recent booms and busts.

Shielding domestic prices has fiscal and financial health consequences

While APM enabled stability in domestic oil prices, this came at a heavy cost to the
fiscal deficit and the health of the oil companies. During the peak year of FY08, the
government’s oil subsidy burden was of the order of Rs713b, a magnitude similar to
the cost of implementing a food security bill or the entire spending in roads/bridges
and telecom investment for that year. Despite deregulation of petrol prices, for FY11,
the fiscal burden is expected to be as high as Rs364b. As an almost equivalent part of
the burden is shared by oil companies (both upstream and downstream),
hike/decontrol in oil prices is a necessity from the point of the government’s fiscal
health and the oil companies’ financial health .

Impact of oil price hike on inflation and current account deficit

15
Domestic oil price hike/decontrol is bound to have a direct and indirect impact on
inflation.

We estimate that the direct impact of a 10% (~US$10/bbl) increase in international

oil prices (if fully passed on by domestic oil companies) would be a 1% jump in
headline WPI inflation. The indirect impact of knock-on effect on commodity prices
spread over 3-6 months could be another 60bp increase. The impact would be
considerably lower if there is only partial pass through of international price changes.

As oil constitutes a sizable portion (~30%) of total imports, it has implications for the
current account balance. We estimate that a US$5/bbl increase in oil price would lead
to a US$4b increase in current account deficit for the year. The estimated US$40b
current account deficit for FY11 will increase to US$52b if oil price rises from
US$85/bbl to US$100/bbl.

Hurdle #2: Industrial growth facing headwinds

There are initial signs of headwinds to industrial growth. IIP data has been volatile in
recent months; there is no discernible trend. NHAI awards have slowed down, with
project awards of 3,500-4,000km till date v/s the target to award 18,000km in FY11.
SBI has cut its disbursement growth guidance for FY11 from ~22% to 18-20%.

Doing business in India may well be getting more difficult and complex. A spate of
recent corruption cases has already engulfed many of India’s high profile names.
Meanwhile, there are other challenges in India’s business landscape:
(1) environmental clampdown, (2) bureaucratic hurdles, and (3) infrastructure deficit.
Resource crunch (largely for coal) is also a reality and increased reliance on imports
results in exposure to availability and pricing risks in addition to widening current
account deficit. Banking, real estate and telecom sectors are already under the
scanner. Metals / mining and infrastructure sectors are also facing strong headwinds.
We believe that E&C companies could face headwinds in order intakes, as projects
get deferred. The financial sector could have asset quality issues, given that project
economics are impacted by resource deficiencies. Power utilities will be impacted by
coal shortage, impacting project returns. Resource plays like Coal India, Sesa Goa,
and Tata Steel stand to gain.
IIP growth has been volatile; interpretation difficult
IIP growth rates in FY11 YTD have been volatile - 4.4% in September 2010 and
16.6% in April 2010. This makes interpretation of the data challenging and trend

16
analysis does not address the fundamental question - has industrial momentum picked
up in a sustainable manner? Recent instances and ground reality checks indicate that
several headwinds are building up:

• SBI has cut its disbursement growth guidance for FY11 from ~22% to 18-20%. 
Coal linkage committee meetings have been postponed for a long time, and this is
impacting new project pipeline.
• Coal India’s production could be lower by 16m tonnes in FY11 (down 4%) and
39m tonnes in FY12 (down 8%), given the strict implementation of environment
norms. Environment issues have also impacted projects in metals, hydro power,
etc.
• L&T could miss its guidance of 25% growth in order intake for FY11, given
project deferments, increased competitive intensity, etc.

Resource deficiency: implications for the investment chain

The business environment in India is already reeling under severe resource crunch,
the most prominent being shortfall in coal availability, infrastructure constraints, etc.
Recent classification of coal producing areas as ‘Go’ and ‘No Go’ areas,
implementation of Comprehensive Environment Pollution Index, etc have further
constrained availability.

Coal India’s actual production shortfall in FY12 could be lower by 73m tonnes (14%
of targeted production), 39m tonnes over and above the 34m tonnes shortfall already
indicated in the mid-term appraisal of the Eleventh Plan. Incremental captive blocks
will now be awarded to the private sector on bidding basis. Imposition of mining tax
will also impact profitability of mining operations. Recently, Planning Commission
estimated possible coal imports of 100m tonnes+ in FY12 for the power sector,
representing ~20% of total fuel basket as compared to 38m tonnes (~9% of the fuel
basket) in FY10. Coal imports will contribute ~46% of India’s incremental coal
requirements till FY15. This exposes the country to risks in terms of pricing and
availability of imported coal in addition to widening current account deficit.

These deficiencies will have implications on the investment chain. The Twelfth Plan
(FY13-17) coal linkage committee meeting has been postponed several times. The
current logjam needs to be addressed, as existing capacities already under
construction face shortfalls.

There are other pressure points including land acquisition, constraints in evacuation
infrastructure, etc. Infrastructure deficiency is well known and the situation is

17
becoming worse, reaching a stage where growth could be meaningfully impacted.
NHAI awards have witnessed a meaningful slowdown, with project awards of 3,500-
4,000km till date, v/ s a target to award 16,000km+ in FY11.

Doing business in India: New challenges

Doing business in India may well be getting more difficult and complex. The recent
spate of high profile corruption cases involved senior cabinet ministers, chief
ministers, leading businesses, bankers and public figures spanning across sports,
defense, telecom, banking, real estate, media and public relations, and indeed, the
government. Undeniably, an environment of uncertainty has been created by these
revelations that have a bearing on the investment climate.

Meanwhile, there are other challenges in India’s business landscape

(1) environmental clampdown,
(2) bureaucratic hurdles, and
(3) infrastructure deficit. Banking, real estate and telecom sectors are already
under the scanner. Metals / mining and infrastructure sectors also face strong
headwinds

Hurdle #3: Stressed liquidity for prolonged period

Lower growth in bank deposits than in bank loans has created a structural liquidity
shortage that has been accentuated by high currency demand from the public and cash
balances by the government. A reversion of inflation worries could propel RBI to
raise policy rates by 50bp in 2011. A cut in CRR to enhance structural liquidity may
go in parallel. However, if liquidity shortage persists, it could start hurting growth
and industrial production, as short- term rates percolate towards the longer end of the
market. RBI would need to step up its open market and foreign exchange operations
in case capital flow falls short of requirement.

Banking sector funding gap has created a structural liquidity shortage

The liquidity situation has expectedly remained stressed in 3QFY11. While the basic
funding gap of deposit growth (~15%) falling behind credit growth (~23%) is the
primary reason for the liquidity stress, the situation is aggravated by higher currency
holding by the public and huge cash balances held by the government with RBI.
Money market rates have breached the corridor for a large part of the quarter while
recourse to LAF window remained in the range of Rs1.2t-1.5t in recent times, far
above the comfort levels of +/- 1% of NDTL (broadly deposits) announced by RBI.
RBI has initiated a series of measures including infusion of primary liquidity through
open market operations.

18
Inflation worries coming back, led by increases in food and oil prices
Inflationary impulses have surfaced again in December 2010, with a reversal of the
sobering trend in primary articles (mainly food) and fuel & energy group. With
unseasonal rains spoiling crops in some parts of the country and oil prices firming up,
inflation would remain a worry in 2011. We expect RBI to increase LAF rates by
50bp to be effected during the relatively lean season of April-August. An outside
chance of 25bp hike in remaining FY11 has become a possibility on the back of
sudden firming of primary commodities inflation. The extent of excess capital flows
would continue to determine the broad liquidity situation, but so far the signal that
has emanated indicates that RBI would be ready to provide genuine liquidity needs
but at higher rates.

Prolonged liquidity stress to hurt growth Sustained period of liquidity shortage may
hamper industrial growth; there is negative correlation between money market rates
and industrial production. The sustained liquidity stress has also permeated in the
other segments of the financial sector, pushing up rates in the credit market and the
yields of government securities

19
 ADVANTAGES AND DISADVANTAGES

ADVANTAGES:

1) Helpful In Tax Planning : The wealth management professional always shows

the good path to the customers and provide the service of tax planning. How to
minimize the tax and save more money?

2) Helpful In Selection of Investment Strategy: Another advantage from the

customer point of view is with the help of WM Professional the customer can easily
know the investment strategy and analyze risk and return.

3) Helpful In Estate Management: With the help of wealth management

professional we can also manage our estate. Estate management is a task to provide
objective administration of our funds tailored to aim in responsible distribution and
protection of our overall estate.

4) Helpful in forward looking: We can say planning, that recognizes as our estate
grows and changes occurs we require some team of professionals who help us in
future planning.

5) Helpful for Indian Economy: Banks which are engaged in business of WM

earning revenues from the foreign countries i.e. outsourcing for economy

LIMITATIONS

1. WM Reduces The Scope Of Management: Though we all know that

management has existence at all levels of life and society but the term wealth
management only related with the higher level means rich people, and is not
having any plans and provisions for poor and lower and middle level of society.

2. Chances of Fraud: Another demerit or limitation of the WM concept is it is not

showing the actual position. The customer doesn't know about the things going on
with using his wealth and there may be chances of forgery and fraud with
customers.
3. Actual Picture VS Inflation: What is the actual position of market we don't know
because every thing is done by some WM professionals. So we can not assume
our position in the market that also results in inflation because economy is

20
unknown about the actual state. There may be chance that the customers are in
risk but they are showing the false return and vice-versa.
Recent Trends in Wealth Management

Predictive Marketing
To grow the wealth management business profitably, wealth
managers must have CRM capabilities that are highly analytical
in using customer data to draw sophisticated insight and
predictions around profiling and targeting profitable customer
propositions. Wealth managers need to customize offerings and
deliver value within efficient service models that balance costly
resources against a high quality customer experience. Feedback
on marketing campaigns, customer interactions, and customer
transaction insights is crucial to the continual improvement of the
success of the CRM analytics and predictive trending forecast.

Centralization
Going forward, wealth managers will need to institutionalize their
knowledge about customers and their needs to allow for more
timely advice, more consistency of client servicing across
advisors, and a better customer experience in each of the access
21
 channels. More institutionalized customer information will also
support the replacement of existing high-cost,
decentralized delivery models with lower-cost centralized virtual models, thereby
making more personal service available to more customers at a lower cost.

Real Time
As wealthy customers demand more frequent and a higher quality of guidance from
their financial advisors, and become more active in the investment processes and
performance measurement of their portfolios, the need for real-time access to
information becomes critical. Strong data management with highly integrated feeds
from internal and external data sources will be essential for the real-time wealth
management platform. Real-time securities pricing information greatly enhances the
effectiveness and value of risk metrics and supports more informed, and better timed
investment decisions.

Outsourcing
The cost of developing and maintaining wealth management platforms and operations
is a significant component of the overall cost base of the wealth manager. In addition,
there are many wealth managers who are looking to develop integrated platforms
with the characteristics described above. Integrated platforms with sophisticated
wealth management functionality would take many years to set up, and require an
enormous investment, along with the cost of maintaining them. Therefore, many
wealth managers are more aggressively outsourcing large portions of their middle and
back office technology and processes such as securities processing, settlement, trust
accounting, reconciliation, and performance reporting. ASP models are also
providing similar support in a more standardized model to smaller wealth managers.

Web Services
Wealth managers and wealth management servicing providers are making their
platforms available to the wealthy end users and Independent Financial Advisors
(IFAs) through private-labelled hosted web services applications that allow an
investor to directly collaborate with an advisor. For example, advisors can use a third
party secure publishing platform which handles a variety of document formats such
as HTML, Word, Excel and PDF, and is integrated with the wealth management
processing platform.

22
 Core Elements of Wealth Management Services

In most basic sense, wealth management services involve fiduciary responsibilities in

providing professional investment advice and investment management services to
Institutions, funds (Pension/mutual/Hedge), corporations, trusts as well as HNWIs. In
the present context of our discussion, we would keep our focus limited to HNWIs.

Some of analogous terms used for wealth management could be considered as

Portfolio Management, Investment Management and many times Fund Management
or Asset Management.

Depending on the mandate of the services given to the Wealth Manager, wealth
management services could be packaged at various levels:

a) Advisory: Wealth manger’s role is limited to the extent of providing guidance

on investment / financial planning and tax advisory, based on client profile.
Investment decisions are solely taken by the client, as per his /her own
judgment.

b) Investment Processing (transaction oriented): Client engages wealth

manager to execute specific transaction or set of transactions. Investment
planning, decision and further management remain vested with the client.

c) Custody, Safekeeping and Asset Servicing: Client is responsible for

investment planning, decision and execution. Wealth manager is entrusted with
management, administration and oversight of investment process.

d) End-to-end Investment Lifecycle Management: Wealth manager owns the

whole gamut of investment planning, decision, execution and management, on
behalf of the client. He is mandated to make financial planning, implement
investment decisions and manage the investment throughout its life.

23
Wealth management services comprises of following key function areas:

a) Financial Planning

b) Portfolio Strategy Definition/ Asset Allocation / Strategy Implementation

c) Portfolio Management – Administration, Performance Evaluation and

Analytics

d) Strategy Review and Modification

Detail description on each of these areas has been presented in the succeeding
sections.

Client profiling &

Financial Planning assessment of
investment
objectives
Defining Portfolio
Management Strategies
Portfolio
Strategy &
Modeling Portfolio Modeling,
determination of the
constituents and allocation of

Strategy impln., Implementation, Rebalancing &

& Review divestment of assets

Managing transactions processes, benefit

Portfolio Mgmt/
processing, Tax management, Accounting,
Admin
client reporting, Fees/Charges, etc.

Investment Performance
-Return (absolute/trend)

24
 -Tax impact
-Transactions cost

Financial Planning

 Client Profiling:

Client profiling takes in account multitude of behavioral, demographic and

investment characteristics of a client that would determine each client’s wealth
management requirements.

Some of key characteristics to be evaluated for defining client’s investment objective

are:
- Current and future Income level

- Family and life events

- Risk appetite / tolerance

- Taxability status

- Investment horizon

- Asset Preference /restriction

- Cash flow expectations

- Religious belief (non investment in sin sector like - alcohol, tobacco, gambling
firms, or compliant with Sharia laws)

- Behavioural History (Pattern of past investment decisions)

- Level of client’s engagement in investment management (active / passive)

- Present investment holding and asset mix

25
Investment Objective:

Based on the client profile, investment expectations and financial goals of the client
could be clearly outlined. Defining investment objectives helps to identify investment
options to be considered for evaluation.

Investment objective for most of the investors could be generally considered amongst
the following:

- Current Income

- Growth (Capital Appreciation)

- Tax Efficiency (Tax Harvesting)

- Capital Preservation (often preferred by elderly people to make sure they don’t
outlive their money.)

26
 Portfolio Strategy Definition / Asset Allocation

Asset allocation: The key to investing

In the process of personal financial planning an individual must select assets that will
generate adequate returns to meet the financial goals, and at the desired levels of risk.
This is known as asset allocation.

Though "asset allocation" decisions are critical to one's financial plan, it is one that
very few understand and consciously keep in mind when making an investment
decision. There are two questions to be answered in every asset allocation decision:
WHAT and HOW?

WHAT?

Asset allocation decision is about dividing the investments between asset classes such
as equities, cash and money markets equivalents, bonds, insurance, real estate,
derivatives. Commodities, antiques and art, international financial instruments.

The principal reason for diversifying investments across different asset classes is to
minimize the risk of a portfolio. It requires one to avoid investments whose returns
tend to move too closely with each other. Given this, the common flaw with investing
in "growth stocks", "value stocks", "small caps" and "mid caps" is that their returns
are all highly correlated, making them all members of the same asset class, "domestic
equities". Similarly, "RBI relief bonds" are just one type of all the fixed income
securities that are available to an individual, akin to Government of India securities
like treasury bills and bonds, corporate bonds, certificate of deposits etc. While all
these are fixed income instruments, they can still be divided into three asset classes
viz. cash and money market equivalents like commercial papers, treasury bills etc.,
inflation-indexed bonds (that provide protection against inflation) and investment
grade bonds (GOI as well as corporate bonds).

Another asset class that many do not consider is life insurance. It must be noted that
life insurance should be considered as a unique asset class in itself, given that it
creates an asset in case of an eventuality like death or disability of the individual.
This ensures that the goals are met for the individual if he/she is present or for
dependants in his/her absence.

27
HOW?

Once an individual has identified these asset classes, he/she needs to know how to
divide his/her investments in these asset classes. The key considerations in choosing
the asset classes are the level of return and the risk. Liquidity, transaction costs and
ease of investment are the other considerations. To keep it simple, some investors
may prefer to look at it as balancing the downside (protection against capital loss)
with upside (potential for high returns), which is not entirely correct but a useful way
to look at investments. For instance, bank deposits may seem to provide a complete
protection against capital loss. This is not true as in highly inflationary times, the
deposits made at lower rates may not provide returns adequate to even beat inflation.
This means that the capital value reduces in real terms even though in nominal terms
that is not the case.

Also, research has shown that in general, people are more sensitive to losses than they
are to gains of the same magnitude.

The factors that one should consider in choosing exposures to different asset classes
are as follows:
1. Risk Tolerance: The degree to which one can tolerate risk varies for different
people, and depends on the following:

• Stage in life: A younger person, having a safe livelihood and few dependents, has
time on his/her side can take more risk while choosing a portfolio.

• Net-worth: If one owns lot of assets and have few liabilities i.e. have a high net
worth one can afford to take more risk as one has a cushion of assets that can
safeguard one from short term losses occurring in due to market fluctuations.

• Experience with investments: If one has prior experience in investing in financial

markets and one is comfortable with short-term fluctuations then one can take more
risk and hence more exposure to equity/real estate.

2. Investment objective: This entails deciding the purpose for which the investments
are being made. Different objectives would demand that one tailor their investment
portfolio to meet these goals.

28
Objectives could be:
• A person nearing his/her retirement would want a regular stream of income from the
investment, while preserving the capital value, and should hence choose a safer
portfolio.

• If one is looking at growth along with preservation of capital, and is investing for a
goal that is very important, such as saving for one's child's education, then one can
take some more risk in pursuit of higher returns, but not at such a high risk that it
might erode one's capital.

• If one is looking at high growth and investing for a goal that is not very important
then one can afford to take more risk.

3. Time Horizon: The time for which one would like to hold an investment also
impacts the level of risk that one can undertake. If the goal for which the investment
is being made is occurring after a long time, then one can pursue higher returns by
investing in a more risky portfolio as over the period of time the risk reduces.
However if one needs the money in the near future then one must invest in a safer
portfolio.
For instance based on historic data for SENSEX, the chance that an individual would
suffer capital loss over a 10-year period is 1.5%. Once an individual has decided on
his/her asset allocation, the next step many ask is which securities within those asset
classes one should select, and whether one should change the allocation from time to
time based on market conditions.

Research studies conducted from time to time have shown that over a longer period
of time (about ten years), one attains very little or nothing by market timing and
security selection as far as portfolio management is concerned.

An investor must maintain discipline while managing these investments. Once he/she
has determined the asset allocation, he /she should implement it using funds rather
that direct purchase in the markets as it may be inefficient even when an individual
has the access and ability to do so. Thereafter he/she should not succumb to the
temporary blips in performance of various asset classes, and should instead use the
concept like Rupee Cost Averaging.

29
Asset Allocation Clock

Different asset classes tend to outperform during the various stages of the classic
business cycle. Allocating your assets according to these phases is referred to as using
the asset allocation clock

Oversimplifying, growth stocks do well during the early portion of the growth phase
of the business cycle. Commodities then tend to outperform as the business cycle
matures and commodity prices zoom up due to inflation. Money market funds tend to
outperform as a recession starts to kick in. Bonds do well as inflation evaporates and
becomes disinflation or even a little deflation. This model is not guaranteed to work
and every business cycle has its own quirky characteristics, but does help to explain
some of the investment and speculative behavior we see in the markets.

This model has been identified and developed by Merill Lynch. This model lays
down that various asset classes perform well in different stages of the economy. This
cycle repeats itself over a period of time. This cycle is affected by the government
policies global demand and supply models and the stage in economic growth.

30
Defining Portfolio Strategies and Portfolio Modeling
After establishing investment objectives, a broad framework for harnessing possible
investment opportunities is formulated. This framework would factor for risk-return
trade-off of considered options, investment horizon and provide a clear blueprint for
investment direction.

Investment strategy helps in forming broad level envisioning of asset class

(Securities, Forex, Commodity, Real State, Reference and Indices, Art/Antique and
Lifestyle Assets (Car, Boat, Aircraft), market, geography, sector and industry. Each
of these asset classes is to be comprehensively evaluated for inclusion in portfolio
model, in view of defined investment objectives.

While defining the strategy, consideration of client preference or avoidance for

specific asset class, risk tolerance, religious beliefs is the key element, which would
come into picture. Thus, for a client with a belief of avoidance of investment in sin
industries (alcohol, tobacco, gambling etc.) is to be duly taken care of. Likewise, for a
client looking for Sharia- compliant investment, strategy formulation should consider
investment options meeting with the client expectations.

Determination of Portfolio Constituents and Allocation of Assets

Guided with the investment strategy, constituents in portfolio model are determined,
which would directly and efficiently contribute towards client’s investment
objectives. Thus, a broad level investment guidance of – “investment in fixed income
in emerging market” would further determine classification within Fixed Income
such as Govt. or corporate bonds, fixed or variable rate bonds, Long or short maturity
bonds, Deep discounted or Par bonds, Asset backed or other debt variants.

Return profile, risk sensitivity and co-relation of constituents within portfolio model
would help to determine the size (weightage) of each individual constituent in the
portfolio.

Strategy Implementation

Having decided the portfolio constituents and its composition, transactions to acquire
specific instruments and identified asset class is initiated. As acquisition cost would
be having bearing on overall performance of the portfolio, many times process of
asset acquisition may be spread over a period of time to take care of market
movement and acquire the asset at favourable price range.

31
 Portfolio Management

PORTFOLIO CONSTRUCTION PROCESS

PORTFOLIO
INVESTMENT
DESIGN
STRATEGY

INVESTMENT
NEEDS/OBJEC IMPLEMENTAT
TIVES/RISK ION
TOLERANCE

PORTFOLIO INVESTMENT
REPORTING MONITORING

Portfolio Administration

Portfolio Administration involves handling of investment processes and asset

servicing. This would also require tax management, portfolio accounting, fee
administration, client reporting, document management and general administration
relating with portfolio and client.

This function would involve back office administration and custodial services to
manage transaction processes (trading and settlement) - interfacing with
brokers/dealers/agents, Fund managers, Custodians, Cash Agent and many other
market intermediaries.

Investment Selection

Investment selections are rigorously researched by a solid research team before they
are considered for authorization. The investment selection process:

• Research by Industry experts

32
• Use specialist external research as required

• Investments are authorised by in-house Investment Committee

Investment Implementation

Investment implementation is undertaken on a regular basis and entails:

• Access to deal flow - initial public offerings and placements

• Access to mergers/acquisitions, purchase plans, etc

• Staged implementation of strategy - entering the market slowly and systematically

Investment Monitoring

Daily monitoring of the portfolio/s is made possible by the use of real time market
data by in house team who access specialty external research as required and other
resources available.
Investment monitoring entails:
• Real time market data
• Input from Broker Panel
• Risk Management Guidelines
• Daily, weekly and monthly reviews
• Exceptions reporting
• Face-to-face meetings with fund managers and market analysts
• Quarterly re-balancing

Performance Evaluation and Analytics

Performance evaluation of the portfolio is an ongoing process. Portfolio return is

continuously monitored and analyzed with respect to defined portfolio objectives.
Analysis dimension could be varied – simple and complex. These may include -
absolute return, relative return (in comparison to chosen benchmark), trend, pattern,
cost impact, tax impact, concentration, lost opportunity and other form of sensitivity
and what-if analysis.

Any deviation of portfolio performance observed during performance evaluation

would lead to strategy review and any possible alignment of portfolio strategy.

33
 Strategy Review and Alignment

Recalibration of Portfolio Strategy

Based on performance evaluation and future outlook of the investment, portfolio

strategy is evaluated on periodic basis. To keep it aligned with the defined investment
objectives, portfolio strategy is suitably re-calibrated from time to time. Many times,
review of portfolio strategy would be necessitated due to change in client profile or
expectations.

Rebalancing, Reallocation and Divestment of Assets

Any re-calibration of strategy and consequent change in portfolio model would

require rebalancing of the assets in portfolio. This would be achieved through
rebalancing the asset (divesting over-allocated part and acquiring under allocated),
relocation (from one sector the other or from one instrument to other instrument in
the same class) or complete divestment.

Key Challenge Areas

34
While immense business potentiality of this emerging sector is a driving point for
most of the firms, they face many challenges in formulating winning services offering
meeting the client needs. In the following section, we would briefly take a look on the
key challenges area in the present context.

Highly Personalized and Customized Services: Unlike other stream of financial

services, mostly being transactional /commoditized in nature, wealth management
services require client specific solution and service offering. No one solution exactly
meets the needs of other client. In a situation of highly personalized and customized
nature of service offering, developing any form of generic service model does not
support growth of the business.

Personal relationship driving the business

To meet client expectation of personal attention, mode of communication in wealth
management services tends to be highly personalized. Thus, the conventional grids of
communication, such as call centre, data centre does not fit well. Success of wealth
management services heavily draws on personal interaction with the dedicated
relationship manager, who takes care of whole investment management lifecycle for
bunch of clients on one-to-one basis. This essentially requires service firm to invest
heavily in human processes to groom and retain a team on competent relationship
managers with cross functional skills.

Evolving Client Profile

The biggest challenge in providing wealth management service offering is to factor
and reckon the evolving nature of client profile, in terms of investment objective,
time horizon, risk appetite and so on.
Thus, a service model developed for a particular client cannot remain static over a
period of time. Any service model has to be flexible enough to consider the dynamic
nature of client profile and expectations arising out of it.

Client Involvement Level

The conventional adage – the more money you have, more effort is needed to manage
it – proves to be otherwise in case of HNWIs. Generally, client involvement in
managing the finance remains on the lower side. This brings onus of managing the
whole gamut of investment and due performance single-handedly on the shoulders of
investment manager.

35
Passion Investment (Philanthropy and Social Responsibility)
In the recent years a trend has been observed that bulk of investments by HNWIs has
been directed towards passion investments (art, antique, jewellery, coins, unique
assets, luxury), philanthropy and social/community causes.

As per World Wealth report, 11% of HNW investors worldwide contributed to

philanthropic causes with a contribution over 7% of their wealth in year 2006. Ultra-
HNWIs contribution was even more - 17% of Ultra-HNW investors that gave to
philanthropy contributed over 10% of their wealth. In total, this equates to more than
US$285 billion globally. Against this backdrop, new breed of HNWIs expect to
strategically manage the wealth and personal resources allocated to philanthropy
purpose, in order to maximize its impact. This demands a relationship manager not
just to be a passive financial advisor rather a passionate partner sharing interest and
inclination of the associated client.

Limited Leveraging Capabilities of Technology (as an enabler)

In the recent times, we have witnessed technology a key enabler to help business to
expand its market reach with reduced cost of services offering. Online banking and
online trading/brokerage services are the best examples in this regard. Technology
leveraging has helped services firm to achieve universal proliferation of market with
substantially reducing transaction cost.

As business rules and service definitions to guide the applications tends to be quite
composite in wealth management services, leveraging the capabilities of technology
to meet the business requirement may not be highly feasible in the initial years.

Technical Architecture and Technology Investment

As business architecture is still evolving, a proven basis of resilient technical
architecture and framework to support the emerging business greatly remains
missing. In absence of this framework, any investment commitment towards
application development / system implementation would be fraught with severe risk.

Intricate Knowledge of Cross-functional Domain

By very nature of wealth management, it not just involves matters of plain vanilla
finance but has intricate relationship with many elements of domestic / international
law, taxation and regulatory norms. In order to provide sound investment guidance, a
relationship manager is required to have intricate knowledge of domestic/cross-
border finance, accounting, legal and taxation subjects.

The rising competition

36
The results of the economic boom have now started showing up in semi-urban and
lesser developed cities as well. These pockets also present increasing growth
opportunities to the industry. Anyways with increasing competition, tapping the
earlier untapped markets is now a matter of compulsion rather than choice! New
players have been granted licenses, few more are in the pipeline and the
competition’s just getting hotter. It may well become a survival of the fittest.

Growth versus Governance- A right mix

An increasing responsibility is being placed on the Managers to ensure that the
operations of the Portfolio Management Schemes are managed to the full benefit of
the investors. As the number of players in the market increases, competition may
force companies to comply not only with the laid down regulations and concentrate
more on growth but endeavor in creating excellence in governance as well. In this
challenging environment, the debate of growth versus governance is surely set to
assume greater significance.

Solution Framework

37
Generic services offering model is going to draw big blank in case of wealth
management services. A HNWI client expects exclusiveness in services in a normal
manner. In highly competitive market, key to success for a firm lies in offering
exclusiveness in services delivery (high quality services on most personalized basis),
going beyond the client expectations.

A solution framework with considered inclusion of following key elements would

help firms in meeting and exceeding client needs towards sustainable business
growth.

Quality of Service Level:

Quality of service level provided by the service provider firm would the key
determinant of growth and success in client acquisition, client satisfaction and client
retention aspects.
In a sense, service offering could be developed in the form of partnership with the
client based on trust and integrity, where the relationship manager remains highly
responsive to client sensitivities and expectations.
Without over-emphasizing, a satisfied client would provide multitude of opportunities
of growth of business – through deepening the relationship, direct / indirect
referencing as well as cross selling of products. In the other situation of deficiency in
service level, he would not hesitate to move the business to another firm. This keeps
strong emphasis on continued engagement with the client on the aspects of client
expectation and servicing, rather than showing extra attention only during the period
of client acquisition.

Focused around client needs, a broad framework of service offering during whole
lifecycle of client investment management would be revolving around: Anticipate,
Analyze, Advice, Act and Monitor cycle.

MONITOR

ANTICIPATE ACT

ANALYSE ADVICE

Universal Service Offering

38
To meet the client needs in holistic manner, product and service offering range of the
firm should be wide enough to cover the investment spectrum across its lifecycle.
In an ideal situation, a client would expect to deal with a single firm to get complete
range of investment management services. However, for various business
considerations of the service provider firm, in many situations it may not be a viable
proposition to offer those services.
While universal service offering with assortment of services under single umbrella is
not attainable in-house, it could be achieved through active partnership and
affiliation. But, due consideration is required that quality of service level provided by
partners/affiliates does not get compromised in any manner. Any shortcoming in
service quality, even if caused by partner/affiliate’s services, would be ultimately
impairing client satisfaction towards the firm.

Investment in People Processes

As relationship manager remains the face of the firm to a client, success of the firm
would be greatly dependent on the skills, drive and enthusiasm of relationship
managers (to take an extra mile), while bonding and dealing with any of client issues.
This aspect is more challenging than as it appears. This necessitates transformation of
organizational philosophy towards its people and people processes contributing to
business success. Firms would be required to invest heavily in human processes to
attract, groom and retain a motivated team of relationship managers, who will make
the real difference between winning and losing the game.

Price not a True Differentiator

Pricing as a key differentiator to distinct the service offering from one firm to other
may not be highly relevant in case of wealth management services. Focused on
performance and quality of service, pricing in isolation will not make much meaning
to service seeking clients. Client would always value the pricing from the quality of
services received. He will certainly not mind paying extra, if he finds services offered
to him meeting and exceeding his expectations.

Unconventional Delivery Channel and Communication

Delivery channel for service content and mode of communication has to be greatly
customized – aligned with the client-desired vehicles. This would require a process of
continuous re-inventing and re-defining the grid of delivery and communication
channels to meet client expectations. Impact of technological advancements and its
interplay on service delivery and communication method would certainly be an
equally challenging aspect to be factored in, while designing such strategies.

Flexibility of Technical Architecture

39
While business potential appears to be quite high, existing business architecture still
does not provide any sound basis to formulate technical roadmap. Added to that,
dynamic characteristics of client profile bring an increased challenge in drawing a
firm implementation blueprint.
In the given situation, any big-bang commitment towards technical implementation
plan would not be a wise idea. A prudent approach would be to get started on
modular basis with progressive integration of functional components in order of its
functional significance. Gaining insight and confidence around the business
processes, this could be gradually scaled over the period of time.
To meet the information technology requirements, a firm has several alternatives (or
combination of alternatives) to consider:

c) Integrated solution approach: Developing in-house applications to meet end-to-

end new business requirements. These applications are based on existing technology
architecture of the firm and are closely integrated with the existing service models. It
would be a least preferred choice in the current situation, on count of cost, time, lack
of clarity and complexity of solution.

b) Service Bureau /ASP Model: A recent trend has been witnessed in the solution
provider’s landscape. Many of information technology service providers have come
out with novel solution for investment management / investment processing platform
in the form of service bureau / ASP. This platform provides integrated end-to-end
processing infrastructure and services including core of business processes of wealth
management.
On the part of a wealth management firm, paying agreed charges to service bureau
provider, option of service bureau completely eliminates the requirement of ongoing
resource commitment and cost of maintaining information technology infrastructure.
While total cost of owning may be the key motivating point for a wealth management
firm to adopt service bureau model, the key consideration of providing high quality of
service level with enhanced responsiveness may not be adequately answered. The
question remains to be answered is – what would be the key differentiator in service
offering of two wealth management firms operating from the same service bureau?

c) Stand-alone commercial software product/solutions: Pre-packaged solutions

that can be focused to specific part of services or provide comprehensive end-to-end
processing. These can be deployed independently or could be integrated with existing
systems. Cost, customization and integration difficulties would be the challenging
points.
A loosely oriented technical architecture with optionality and mix of Build – Buy –
Integrate components would be considered as a good beginning point. To provide

40
enough resilience and high business relevance, any of the considered option and
associated structure should keep due provisions for the following key elements:

- Considering the complexity of business processes and involved business rules, rule
based processing would be the core of processing.

- Client profile acquires many new dimensions with plethora of attributes. Client data
is required to be appropriately managed (aggregate / segregate) to build a profile
driven solution offering.

- Decision support and client oriented analytics acquire more importance.

- Applications should provide adequate flexibility to incorporate manual processing

interfaces.

CASE STUDY: ABN Amro Private Banking

41
Netherlands based Dutch Bank with Global presence. AUM - $500 bn (globally).

In India AUM - $800 mn

Private Banking operations since 1992. Threshold level – 2.5 cr

Services offered include Advisory on mutual funds, Direct Equity, Insurance, Real
Estate, Direct Debt, Tax planning, banking solutions, Alternative investments,
transaction execution platform and other structured products.

 Features of ABN – AMRO PB:

True Partnership Model’ of Private Banking

‘Self contained team approach’ to wealth management

Pricing – Nominal Upfront fees and then service based fees

Private clients wealth mgmt is based on the 4 pillars:

 Investment horizon

 Risk tolerance

 Liquidity needs

 Performance expectations

 Customer Segmentation at ABN – AMRO PB:

TRUE PARTNERSHIP MODEL OF WEALTH MANAGEMENT

42
 Understanding the investor’s profile

Legal Advisory Tax Consultation

Construction of Financial Plan

Direct Asset Allocation Equity

Debt Products

Security Selection Mutual

Insurance
Funds

Execution
Alternativ Property
e
Investmen

Monitoring and Performance

Evaluation

The ABN Amro Wealth Management Services follows the True Partnership model of
wealth management. The striking feature of this model is that it provides immense

43
flexibility to the service provider thus enabling it to provide customized services to its
individual as well as corporate clients.

This model lays down that the wealth management process should ideally follow the
following steps.

 Need Analysis: The first step in wealth management is the need analysis where the
service provider tries to understand the profile of the client i.e. it tries to find out the
immediate, short term and long term needs of the client. The service provider
analyses the income source, life style, savings habit, future financial commitments
etc.

 Construction of financial plan: The next logical step in wealth management

process is to construct a full fledged, relevant financial plan for the client. It is a joint
activity where the client and the wealth manager sit together and construct a financial
plan as per the future requirements of the client.

 Decide the proportion of various asset classes (allocation): To construct a financial

plan essentially means to decide the proportion of the asset classes in the portfolio of
the client. The asset allocation decision is based on various factors such as the income
of the client, his liquidity requirements, risk appetite, expected returns and expected
tax concessions.

 Execution of the financial plan: This is the most important step in the entire wealth
management process as the prime duty of the wealth manager is to exactly replicate
the financial plan in the paper in real life which is often a very difficult task.

 Monitoring and performance evaluation: The wealth manager has to keep on

monitoring the portfolio of the client. The wealth manager will be evaluated for
a) Protecting the wealth of the client
b) Increasing the wealth of the client.

The wealth management service is a continuous process. Its not a one time solution.
All the above mentioned steps have to be performed on a continuous basis to attain
both the objectives i.e. wealth protection and wealth maximization.

Case study: Motilal Oswal Financial Services Ltd

44
 MOFSL offers customized investment management services to its retail customers
 Includes planning, advisory, execution and monitoring of a range of investment
products
 The wealth management philosophy is executed through strategic focus on:
Increasing distribution reach in terms of number of outlets and number of customers.
Customer segmentation (HNI – “Purple”, Mass Affluent – “MOSt Select” and Mass
Retail)
Wide bouquet of product offering (Direct equity, PMS, Mutual funds, Private equity,
Commodities)
Representative office in Dubai to tap offshore business
 Products & services offered through physical as well online channels
 Empowered, robust franchisee model

PMS Assets Under Management (Rs in Million)

The AuM OF Motilal Oswal Wealth Management Services has increased from Rs
522 mn in 2004 to Rs. 8000 mn in 2008. This tremendous increase in the AuM is
because of the innovative and flexible service model followed by the company.
The service model adopted by MOFSL is called as The Private Client Servicing
Pyramid.

45
Striking features of client servicing pyramid adopted by MOFSL:
 Focus on advisory and product mix that leads to Client Profitability
 Multi-disciplinary approach involving various elements of investment banking
alongside private banking disciplines
 3D Focal engagement strategy thereby consolidating clients needs across personal,
family and business arena
 Diversified solution management to cater to unique needs of clients
 The Relationship Manager is the single touch point to the client who manages and
processes the operational, intellectual and product specific inputs relevant to the
client’s portfolio. This saves lot of paper work, time and other resources.

Conclusion

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The middle class should drive growth in India
The growth of the middle class and the economic growth of India are in a virtuous
cycle. Rising incomes lead to more consumption, which in turn leads to higher
economic growth, then more employment opportunities and subsequently higher
wages and the circle starts again.
Thus, as the middle class grows and continues to increase domestic demand, the
economy will also continue to grow. In terms of consumption, real private
consumption (including both households and private companies) accounts for
approximately 55% of GDP. The growth of the middle class will continue to increase
household consumption in the country. The middle class also demands better
healthcare and education. In addition to the benefit of strengthening human capital
and thus productivity, this also leads to more private expenditure on healthcare and
education and thus improvements in existing infrastructure. In fact, the CLSA survey
of middle income and upper-middle income behaviour showed that education was the
third largest household expenditure behind essentials such as rent/mortgage and
groceries. In terms of investment (already around 35% of GDP), the growth of the
middle class will also make an impact as it will force more business to expand or new
business to take root.
The middle class is also increasing its share of financial investments and thus
providing new sources of capital for companies. Although household savings and
investment rates as a % of GDP have remained relatively the same over the past
several years, investment in shares and bonds has risen over the past several years. As
the middle class recovers from the crisis, this trend should continue.
One key point to ensuring that the link between middle class growth and economic
growth continues to strengthen is providing the right education and skills to the
middle class and creating enough opportunities in society to absorb these employees.
Matching middle class skills with the demands of the growing economy.
One benefit of India’s strong economic growth is that the economy has the potential
to provide employment for the growing middle class. The boom in call centers and
other outsourcing industries helped many households to achieve higher incomes over
this past decade. However, one challenge is to continue increasing skills at all levels
of the income pyramid to ensure that the newly emerging middle class (or those on
the fringe of the middle class) are viable employees.
The second challenge, of a more general nature, is to increase the number of skilled
professionals in the workplace to change the structure of the economy to a higher-
skilled economy. Graduates often do not have the necessary skills to be effective in
the marketplace. For instance, the World Bank estimates that a threefold increase in
civil engineering graduates would be necessary to meet India’s large infrastructure
needs.

47
Sophisticated, discerning clients; complex services; and stiff competition are the
hallmarks of wealth management firms. The stakes are rising anew, as global
economic and demographic trends produce new growth opportunities, forcing firms
to search for go-to market strategies able to attract new client segments through
organic growth. In the process, firms are tackling an eternal dilemma
Wealth management firms in India inevitably encounter challenges .The
attractiveness of the Indian Wealth market is readily apparent but misperceptions
cloud many competitors understanding of their business. To operate more effectively
in an industry that will likely continue to experience rapid change and growing
competition, wealth managers need to understand the true economies of their business
.In short, they must examine their offerings critically to bridge the gaps.
A HNWI client expects exclusiveness in services in a normal manner. In highly
competitive market, key to success for a firm lies in offering exclusiveness in services
delivery (high quality services on most personalized basis), going beyond the client
expectations. Service offering developed in the form of partnership with the client
based on trust and integrity, with relationship manager remaining highly responsive
to client sensitivities and expectations becomes the winning point in client
acquisition, client retention and enhanced client satisfaction.
Continued engagement with the client throughout the relationship lifecycle would
greatly help in understanding dynamic client expectation and providing desired level
of services. A broad framework of service offering revolving around: Anticipate,
Analyze, Advice, Act and Monitor cycle, would provide a sound basis to cater
evolving client needs.
Organizational human process requires re-oriented strategy to attract, groom and
retain a motivated team of relationship managers with cross-functional expertise, who
will make the real difference in delivering the service content.
Considering the complexity of business rules and service definitions in the business
processes, leveraging the capabilities of technology to meet the business requirement
may not be highly feasible in the initial years. Further, in absence of proven business
architecture, basis for resilient technical architecture and framework to support the
emerging business still remains desired. This requires adopting a cautious approach
towards investment commitment in technical implementation.

Generic services offering model is going to draw big blank in case of wealth
management services. A HNWI client expects exclusiveness in services in a normal
manner. In highly competitive market, key to success for a firm lies in offering

48
exclusiveness in services delivery (high quality services on most personalized basis),
going beyond the client expectations.
Service offering developed in the form of partnership with the client based on trust
and integrity, with relationship manager remaining highly responsive to client
sensitivities and expectations becomes the winning point in client acquisition, client
retention and enhanced client satisfaction. Continued engagement with the client
throughout the relationship lifecycle would greatly help in
understanding dynamic client expectation and providing desired level of services. A
broad framework of service offering revolving around: Anticipate, Analyze, Advice,
Act and Monitor cycle, would provide a sound basis to cater evolving client needs.
Organizational human process requires re-oriented strategy to attract, groom and
retain a motivated team of relationship managers with cross-functional expertise, who
will make the real difference in delivering the service content.
Considering the complexity of business rules and service definitions in the business
processes, leveraging the capabilities of technology to meet the business requirement
may not be highly feasible in the initial years. Further, in absence of proven business
architecture, basis for resilient technical architecture and framework to support the
emerging business still remains desired. This requires adopting a cautious approach
towards investment commitment in technical implementation.
A loosely oriented technical architecture with optionality and mix of Build – Buy –
Integrate components would be considered as a good beginning point. Rule based
engine, profile driven solution offering, client oriented decision support and manual-
processing interface would be some of the key considerations in implementation plan.

49
The Indian wealth management industry is at a new stage. Providers, products,
channels, technology, regulation, and clients are coming together in the wealth
management space to capitalize on this tremendous growth opportunity.

50
The wealth management industry in India is experiencing an evolutionary phase of
development. With the liberalization of the Indian economy and subsequent growth
and prosperity across sectors, the wealth management industry is poised to gain
greater traction in an expanding market. In a new report, Overview of the Indian
Wealth Management Market, Celent examines how the wealth management
industry is enhancing its relevance in this dynamic marketplace.
According to the report, India is slated to become a US$1 trillion market (in assets
under management) for wealth management providers by 2012, with a target market
size of 42 million households.
The client segmentation schema promises growth across all the six categories:

• Ultra-high net worth, or Ultra-HNW (in excess of US$30 million), will have a
total population of 10,500 households by 2012.

• Super high net worth (between US$10 and $30 million) will have a total
population of 42,000 households by 2012.

• High net worth (between US$1 million and $10 million) will have a total
population of 320,000 by 2012.

• Super affluent (between US$125,000 and $1 million) will have a total population
of 350,000 households by 2012.

• Mass affluent (between US$25,000 and $125,000) will have a total population of
1.8 million households by 2012.

• Mass market (between US$5,000 and $25,000) will have a total population of 39
million households by 2012

51
Human Life Cycle – Disciplined
Planning

52
 Bibliography

www.bseindia.com

www.nseindia.com

www.indiawealthnews.com

www.wealthzone.in

www.mofsl.com

World Wealth Report 2010 by Capgemini and Merrill Lynch

Wealth Management – an introduction – ICFAI Press

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