Covid 19 has affected the world economy, and the world is now trying to catch up with this new pandemic. It will change the way we think, plan, and take advice for our future investments. From the past few months, the wealth management industry has faced large shifts due to the way the businesses are conducted in COVID 19 period. The markets turned extremely volatile and thus, this particular period was characterized by reports at two levels to ensure that business continued as usual and to manage distinct client expectations.
In markets, financial advisors offer portfolio management advice with services that include stocks, bonds, and other funds. These portfolios are advised and managed to a broad funding strategy and also include other non-security assets and financial services. Recently, a study was published by McKinsey & Company, Asia Accounts for $34 trillion of assets. And of these, only 15-20% are under advisory or managed accounts. This is expected to shift largely to close to 50% considering two main key factors:
- The first key factor is ‘Regulations by SEBI’, which was a game-changer for the wealth management industry. In 2013, the Securities Exchange Board of India (SEBI) declared some new investment advisor guidelines. With these guidelines, SEBI indicated to curb misspelling and address the misalignment of interests between investors and bankers. In 2020, the regulators refined these guidelines further, pushing wealth management firms to have specified lines between advisory and distribution, as distributors give advice and sell products that their clients need and distributors are paid in the form of commission, which is included in the product they sell. And on the other hand, the advisers offer advice and charge a fee instantly from the client.
- The second factor is ‘Client Behavior’. Investors or clients are now expecting more from wealth managers. They are seeking more transparent fee structures, the cost of investments that allows for the right financial instruments to be utilized in their portfolios.
In COVID 19 crises, the portfolios have to be better positioned to make better future investment plans and better profits, and strategic asset allocation will be the key to it. Investing in sound ESG (Environmental, Social, And Governance) standards will be the norm rather than the exception. 80% of global institutional investing is based on ESG, and we haven't seen this trend shift to individual investment decisions, especially in India. COVID 19 will accelerate that change with larger pools of capital, that can play a role in directing the way for responsible future investments.
The wealth management industry will also witness the rise in passive investments through exchange-traded funds and index funds. Another possible change will be the increased allocations to alternative investment, an asset class that will remain with high net-worth Individuals (HNI), as it requires clients to be comfortable with a certain portion of their portfolios remaining in liquid and long-term chances. Wealth management firms confronted two main challenges, engaging the investors on their portfolios and ensuring that their employees could work from home and clients could transact digitally. COVID 19 will rewrite how we build scale and the future investments are about how investors adopt the few technological changes.
When the COVID 19 situation settles, the nation will be looking for a better post-Covid time. The coming years will be extremely challenging for the wealth management industry, as it tries to adapt to the changing needs of investors. It will drive sustainable and responsible future investments by investors. The wealth management firms, and their investors need to start looking towards the chances and challenges that COVID 19 has presented now.
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Reference:
- www.mckinsey.com
- www.firna.org
- www.investor.gov
- www.moneycontrol.com
- www.investopedia.com