Challenges to Wealth Manager in India

Regulation of FDI and foreign exchange

The Reserve Bank of India (RBI) controls all foreign exchange inflows and outflows, directly or through the banking system. Foreign direct investment (FDI) in India was historically heavily regulated, it is now more liberalised. However there are detailed compliance requirements for remittance of capital into India and for repatriation of profits to a parent outside India. Remitting money into or out of India through banking channels also requires a substantial amount of paperwork. Similarly, taking a loan from an overseas parent company falls under the External Commercial Borrowing (ECB) guidelines which restrict certain sectors from borrowing and place limits on amounts, interest rates, agreements, etc.

Complex taxation systems

India has both direct and indirect taxation in the form of income tax (IT) and goods and services tax (GST). The latter replaces many taxes, including service tax, value added tax, central sales tax and others. Both IT and GST systems are moving towards greater online reporting, however both require in-depth analysis and interpretation of tax law. There are also several monthly, quarterly and annual tax compliances for companies of all sizes. In addition to this, tax scrutiny/assessment or tax audit can often be a lengthy, time-consuming process, with extraneous factors influencing outcomes at times.

Complex legal systems and slow-moving judiciary

A relic of the British era, India’s legal system is complicated and often archaic. There are several legacy laws that continue to apply to companies and individuals. All businesses require multiple registrations and certificates and manufacturing entities face the highest compliance burden. Labour laws are strict, however most small to medium sized companies do not have strong unions. Delays in court cases can stretch to decades and it is quite ordinary for all directors of a company to received personal notices in litigations against the company.

Differences in market

In size and scope, India is an extremely complex marketplace. For consumer brands in particular, it can be overwhelming to formulate a strategy. This is because of the multitude of regional languages, the varied income ranges of consumers, the difficulty of setting up a distribution network and so on. Local competition usually exists and has the first mover advantage. There is also a thriving and fragmented unorganised sector which cannot be analysed and competed with.

Wealth Management Services Used

• Independent financial advisers are more widely being used than firms that position themselves as wealth managers.
• Younger potential clients use a wealth management service as a one-stop shop.
• Poor service and poor communication are the key reasons for dissatisfaction with a wealth manager.

Investment Preferences

• Potential clients in both age groups favour an advisory portfolio management approach where every investment transaction is first approved by the client. So discretionary mandates are declining and Clients are increasingly becoming more active in the investment decision making process.
• Overall, clients want to focus on core asset classes such as equities and bonds, with less interest in non-core instruments. Younger clients show marginally more interest in specialist areas such as emerging markets.
• Clients are increasingly going for a customized portfolio creation than just investing in model portfolios.

Client-led not sales-led proposition: wealth managers need to show how they differ from other intermediaries. Primarily this requires a business structure that enables the Wealth Management Organizations to focus on quality of client advice, not volume of product sales.