The number of Indian ultra-high-net-worth individuals (UHNIs) having net assets of USD 30 million (about Rs 226 crore) and more has increased 11% last year on the back of buoyant equity markets and the digital revolution. India also ranked third in the billionaire population globally in 2021. Understanding this growing ultra-HNI segment in the wealth management landscape is very important, and this blog will give you an in-depth understanding of the UHNIs and evolving wealth management space.
Emkay Alpha Mavens is an informative series that brings out valuable insights on wealth management straight from experts in the industry. This blog is an excerpt from the 4th episode of Emkay Alpha Mavens S2 with Wealth management stalwart Ms. Soumya Rajan as the guest speaker. She shared some amazing points and perspectives about family offices & UHNIs in this episode.
The distinguished speakers of the panel discussion were Ms. Soumya Rajan, Founder, Waterfield Advisors, Mr. Vikas Sachdeva, CEO, Emkay Investment Managers, and Mr. Sachin Shah- Fund Manager, Emkay Investment.
Key aspects of the UHNIs covered in this webinar blog are -
- New Age Vs Vintage UHNI
- Catering to Women in Wealth
- UHNIs & Overseas Investment
- Skills for wealth managers to manage a global portfolio
- The value proposition of Wealth Advisory
- Family offices' wealth creation process
1. New Age Ultra HNIs (UHNIs) v/s Vintage UHNIs
Mr. Vikas started the discussion by asking Ms. Soumya about the difference between new-age UHNIs and Vintage UHNIs. Ms. Soumya, in her response, stated that new age UHNIs are like founders, who may have had a liquidity event, who has come recently into money and wealth and trying to figure out what happens to that wealth from this point on. However, vintage ultra HNIs, are more like family businesses and are multi-generational. The difference in both these types of UHNIs is how they approach wealth management and their idea about investment.
Ms. Soumya further went on to elaborate that as far as new age UHNIs or founders are concerned, they have just come into liquidity. They are keen to test everything since they've never had the experience of having money which they can invest. Hence, they talk to several wealth managers and try to understand the investment scenario and then zero down on whom they would like to work with. Vintage UHNIs have a higher risk appetite since they have been in business for very long and as the generation goes, the risk appetite varies.
Another way to differentiate between new age and vintage UHNIs is based on business risk and investment risk. Vintage UHNIs have high business risk and low investment risk. As the generation moves the business risk is comparatively lower since they do only want to ensure the business is afloat and they do not want to affect the business by taking any new initiatives. On the other hand, the investment risk varies from low to moderate. And when you move to the generation after this, the business risk is higher.
“This is because this generation realizes that they cannot remain without taking initiative or thinking innovatively for the business and if they do not do that the business can sink. Interestingly, the investment risk also increases,” stated Ms. Soumya. This is because the previous generations have saved capital and wealth and the current generation takes a higher risk when comes to investing and they are open to newer and different types of products.
With regard to new age UHNIs, they have just come into wealth and every single wealth manager keeps calling them and saying that they can manage their wealth and that they are the best in the business. However, Ms. Soumya Ranjan says that as a wealth manager “What I try to do with my clients is, I say, pause, do not be in a hurry to invest. Just understand what is out there. Feel comfortable with whomever you are going to work with and then take a decision.”
In further discussion on new-age UHNIs, Mr. Vikas stated that he had come across many new-age HNIs, especially founders who have created wealth from their startups, and who prefer to invest their wealth back into the startup more than looking at investing outside.
Mr. Vikas asked Ms. Soumya her view on the same.
Ms. Soumya agreed with that and stated that it is not uncommon to see founders or entrepreneurs investing back their wealth in their companies. Founders feel that it is the startup that helped to create wealth for them and they know how much it took them to bring the business this far and successful. Hence, for any founder, part of their wealth is earmarked yearly to invest back into the business. It also saves them from the hassles of raising external capital.
2. How do wealth managers approach women when it comes to investment and wealth management?
When asked by Mr. Sachin whether there were unique approaches to managing women HNIs’ wealth, Ms. Soumya stated that there are some unique facets when it comes to addressing women and wealth management. One is that the industry has not been good in terms of addressing women’s investment needs, although many wealth management companies do say that they have unique propositions for women, they do not deliver on them.
Also, there is a difference between financial independence and financial literacy. While women are financially independent it does not mean that they are financially literate. This issue is something that has not been addressed within the industry. While women earn high pay and earn wealth too, ultimately they are giving it to a third person to manage their funds. So, while they are financially independent, they are not necessarily financially illiterate
The second problem is networking. Many women entrepreneurs are hesitant to go all out to raise capital for the business. They are more restrictive and do not really go that extra mile to get investors to invest in their businesses. Women have to get out there in front of venture capital and private equity and pitch in their case otherwise. This to most women entrepreneurs is intimidating.
Moreover, while most women save money and create wealth, most women look at their wealth for a purpose. Most women you will find look at their wealth trying to see what is that wealth doing for them - is it about educating their children, a family foundation, or just setting up their own business? Ms. Soumya state that “Each of these wealth decisions necessarily needs to have an outcome. It's not something that is just there just to be managed by a fund manager. It is more about what is that money going to be used for ultimately and in the interim how you are going to invest that.”
3. Some UHNIs families are now moving their wealth overseas.
Mr. Sachin asked Ms. Soumya what her take on UHNIs families moving a substantial part of the wealth abroad was. Ms. Soumya responded by saying, “I look at it far more simplistically which is really around the diversification of your investment portfolio. As an investor, you shouldn't have all your eggs in the India basket in the longer term. So, what you want is just the geographic diversification that happens. Therefore, it's important to be able to take that international exposure whether you do it through rupee-denominated products or whether you do it through LRS (Liberalised Remittance Scheme).”
Ms. Soumya further explained that the other point is really about the fact that when UHNI families were moving wealth out of India, many families felt that perhaps India was not up to par in some instances, whether it was with regard to the medical infrastructure or just basic infrastructure for them to lead a better quality of life.
As a result, they felt that they at least needed to have perhaps one leg outside of the country as well, which is one of the reasons why we've seen a lot of Indian families have become global Indian families, and also because they're now thinking about their businesses from the global lens. So, as fund managers, we will have to address, one, where we can through repeat products get international exposure and the other, is really to cater to clients who are global Indian clients.
4. Do Indian wealth managers or even fund managers have been able to upskill themselves to understand the global markets and invest there?
Mr. Sachin wanted to know, now that UHNI families are moving their wealth abroad, do wealth managers really have the requisite skills or experience to understand the global markets and invest there? Have we really made ourselves capable of doing that today?
Ms. Soumya said, “I believe that we need to upskill ourselves and that there are some wonderful investment professionals who truly understand global markets. Since much of what occurs in Indian markets is caused by developments in those markets, it is impossible for us to interpret India effectively if we don't comprehend that. I believe that they are more closely related than we realize, and if we don't understand both sides of the coin - global and India-, we won't be able to do justice to our wealth management. However, I'm glad to note that more investment professionals are now talking the language of not just India but outside India as well.”
5. How wealth advisory firms are different from wealth management firms?
Mr. Sachin asked Ms. Soumya, "Since you have been a pioneer in this business of wealth advisory, a lot of people out there are still not very clear about how wealthy advisory firms are different from wealth management firms. They're very curious to know the value proposition a firm like yours offers.
So, would you be able to elaborate a bit more?”
Ms. Soumya elucidated that as wealth managers we should be able to advise a client regardless of where the product does sit, and hence advisory journey is all about avoiding conflicts of interest with clients. For example, when working with standard chartered earlier and there were several products that standard chartered approved and I could only showcase and work with the client for a limited set of products, while there could be other great products that were sitting outside of Standard Chartered.
Further, she stated that the idea behind founding Waterfield was able to find the best product for clients in terms of wherever it is sitting, and as wealth advisors, we should be able to pull that product into the client’s portfolio regardless of where it is. So that ultimately it's a win-win for the client. The advisor knows exactly what the asset allocation is, knows what the financial objectives are, and can get different products and pull that into the client's portfolio.
But if you were to look at the advisory business model in more detail, what are we really trying to say we give to our clients? In such a case, access is what we're trying to say, and moving forward, how could we be judged? So, we ask ourselves, "Am I able to provide you access to a product which in the normal course you are not getting access to because it's not going through the distribution route?" The second question is really, "Am I able to get you that product at a lower cost of investment because I as a large capital allocator I'm in a position to negotiate the fees directly with the product manufacturer, and because there is no intermediary fee I'm actually in a position to give a better outcome to the client.”
Therefore, when you examine the advisory model, these are the two brand commitments that you have made to the client over time to say that there is access, yield, and return that is materializing for the client, but on the flip side, you are also stating that there is no conflict of interest when you are providing advice to the client.
6. Wealth creation process for family offices (Businesses)
Continuing the discussion further, Mr. Vikas asked Ms. Soumya about what are the top three things that family offices look at in terms of a wealth creation process.
Ms. Soumya in her response stated that much of what we do with them revolves around their financial plan and the outcomes they hope to achieve because, when it comes to wealth creation, you'll find that different families will have different pools of capital. One pool of capital will be geared toward work preservation, while another is really geared toward wealth creation, so one is to simply assist them in creating their financial plan.
The client is often the custodian of wealth during their lifetime for the next generation, so how you also have to think about the investments is much more long-term when we talk about multi-generational families. You must not really be looking at outcomes over the next three to five years, but rather outcomes over the next 20 to 30 years.
After the panel discussion, Ms. Soumya answered queries from the webinar attendees in a detailed manner. If you missed the opportunity to listen to the experts directly and are keen on understanding about UHNIs and wealth advisory services, check the appended video link below and get a detailed insight into the topic.
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