Pravish Halkhoree, Wealth Management Lead, SBM Bank shares some insights of the wealth management industry. “Over the past years, there has been a growing demand for wealth management services”, he says to investor’s Mag. He argues that the industry will continue evolving in light of recent trends in financial markets in the tech world.
Featured in Investor’s Mag, 19th Edition, Dec 21 – March 22
What is the state of the wealth management industry today?
The wealth management industry has been booming despite the various challenges brought about by the 2008 Global Financial Crisis and the COVID-19 pandemic’s ensuing economic recession. As a matter of fact, the market capitalisation of the S&P 500 has increased to around USD 54 trillion in November 2021, from just USD 9 trillion in 2008. The industry has also witnessed increased competition, financial conditions favouring risk-on assets in global capital markets, technological disruption and the rise of alternative forms of investments such as cryptocurrencies.
What exactly is wealth management?
Very often, people tend to mix up the terms asset management and wealth management. Asset management is a component of wealth management and involves managing a specifically designated portion of a person’s wealth. Wealth management, on the other hand, takes a more holistic approach in the preservation and growth of a person’s wealth through the offering of other services such as estate planning and tax advisory. Over the past years, there has been a growing demand for wealth management services, especially by High-Net-Worth Clients who are more concerned with the preservation and growth of their wealth for their current and future generations. Consequently, new businesses have emerged to adapt to this need. This has, in turn, created new business opportunities allowing for strategic diversification of revenue sources for financial services corporates. Going forward, with increasing competition, clients will continue to expect a sophisticated level of service. In this vein, a one-stop shop with an open architecture platform for investment solutions, coupled with other financial and non-financial services, will be almost ubiquitous in order to provide wealth management services to clients in a cost-effective and efficient manner.
What is the outlook for wealth management in the coming years?
Since the 2008 Global Financial Crisis, we have been living in a world of easy financial conditions against the backdrop of a low interest-rate environment. This has supported the bull market in global equity markets despite the sharp drawdown in March 2020. The S&P 500 has actually clocked multiple record highs in 2021 alone.
However, concerns of rising inflation could entail headwinds for the performance of financial markets in the future. The pandemic-induced restrictions, coupled with disruptions in the US labour market, have resulted in global supply-chains disruptions that are exacerbating the inflation problem.
Going into the year 2022, inflation will remain a key risk that could affect the policy response of global central banks and governments. With monetary policy tightening by major central banks being a likely scenario, the wealth management industry should brace itself for volatility but should also not lose sight of the strategic and tactical investment opportunities. Building up cash may not be wise as cash is guaranteed to lose you money in real terms (adjusting for inflation). On a related note, wealth managers should certainly expect to keep providing a higher level of assurance to clients regarding their assets and/or wealth under management, in line with their fiduciary duties.
Despite many inherent forms of disruptive innovation shaping the industry, the goal will always remain the same: world-class wealth management servicesPravish Halkhoree | Wealth Management Lead | SBM Bank (Mauritius) Ltd
How will technology transform human interaction in wealth management?
Over the past decade, the wealth management industry has faced innovations ascribed to the growing use of technology in our day-to-day lives. Given that almost everything is available at our fingertips through smartphones and tablets, the wealth management industry has adapted accordingly. For instance, SBM Private Wealth has launched an online client portal that allows clients under investment mandate to access and view their investment portfolios at their own convenience.
SBM Capital Markets has, more recently, launched an online trading portal, which allows clients to get hands-on experience with their investing and trading journey. Across the industry, the COVID-19 pandemic accelerated the path towards digitalisation as we learn to adapt to the new normal. For instance, during the strict lockdowns in 2020, digital channels were the main point of liaison between clients and wealth managers, and helped ensure business continuity despite sanitary restrictions. Going forward, digitalisation will likely remain an integral component of wealth management, especially since it provides strong flexibility for clients.
Finally, how does wealth management adapt with the exciting new world of cryptos & AI and robotic advisory?
Besides transforming human interaction, technology has also enabled new forms of investments and trading. Cryptocurrencies are the latest frenzy, with Bitcoin notably reaching new highs in 2021.
Non-Fungible Tokens, which also deploy Blockchain technology, have emerged in parallel. There are indeed myriad possibilities where Blockchain technology could result in further disruptive innovation within financial services. While the allure of “fast cash” is highly tempting, it must be highlighted that these emerging forms of investments are generally not recommended for most clients, given their above-average volatility and sharp downside risks. As wealth managers, we must stick to the basics of client profiling while enhancing our understanding beyond financial services in order to assess the suitability of technology-enabled investments for our clients. It is inevitable, therefore, that the wealth management industry will require a broader set of skills transcending accounting and finance from its human capital.
It is clear that the wealth management industry will continue evolving, especially in light of recent trends in financial markets and in the technological world. We must clearly remain dynamic in our profession and stay abreast of developments in areas such as FinTech and DeFi in order to hone our skills and enhance our capabilities. While the means will always keep changing, the goal, however, will arguably remain the same: demonstrating world-class excellence in the provision of services to our clients at all times.