Point of View - Wipro Banking and Financial Services

CHANGING NATUREOF THE WEALTH MANAGEMENT INDUSTRYChallenges and opportunities for wealth advisors

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Author: Dr. Ashok Hegde, Global Head of Financial Services,Business Analyst Practice, Wipro Technologies

In the years leading up to 2007, wealth management firms in the US positive outcome of these investments lulled the investors into

had seen a rapid expansion of the HNI segment, which grew at 8.4 believing that high returns was the new normal. But, that was not to be.

percent CAGR compared to 7 percent CAGR in other matured The economic downturn exposed the frailty of investing in asset

economies. This was facilitated by a series of economic factors that classes about which only limited market information was available.

included sustained buoyancy in the capital markets, pervasive wealth A very large number of investors bore the brunt of rapid capital

distribution, and a boom in the housing market, all of which erosion, there-by considerably weakening their confidence in return

contributed toward keeping investor confidence high. But the sub- enhancers. Contraction of the housing market and rising

prime crisis in the US and the global economic slowdown that unemployment levels in the US did little to shore up the overall

followed appeared to have taken the wind out of the sails of the investor confidence.

wealth management industry, mandating fresh thinking on how the Investors have since been rather reluctant to repose their trust in HNIs could be brought into the fold. wealth advisors, which has caused a steep dip in the yields of wealth

The 'crisis of confidence', as Nobel Laureate and economist Paul management firms. Nonetheless, key wealth management service

Krugman would put it, can be overcome with fresh growth strategies. providers are now focusing upon new strategies to leverage growth

In the realm of wealth management, firms would need to come up opportunities in the future. The key questions being addressed are:

with new investment options that will induce the HNIs to return Ÿ How to bridge the investor 'trust deficit'?enhancers and not lean too heavily on capital-protected investment

Ÿ How best can wealth advisors approach potential clients and what vehicles.

would be the key differentiators?Return enhancers had become the preferred option for a wide cross-

Ÿ What kind of infrastructure, support logistics and IT applications section of investors in the period up to 2007, with a new range of

are required to support the new strategies?high risk, high return asset classes beckoning investments. The initial

Changing Nature of the Wealth Management Industry

The global wealth management industry is confronted with new challenges that find their roots in the economic

slowdown in the US and the upheaval of several European economies. The grim economic scenario, particularly in the

North countries, has influenced a significant number of high-net-worth individuals (HNIs) globally to opt for low risk,

low margin investments to the detriment of the wealth management industry. The negative economic newsflow has

visibly shrunk the inflow of new money into investible asset classes, although emerging economies

like India and China have provided key support for the global economic resurgence.

For wealth management firms, the high watermark achieved in 2007 will continue to be the aspirational goal. However,

the economic landscape is vastly different now, and any effort to retrace the growth path should require a dramatic

shift in strategy.

Key Challenges high risk, high return asset classes beckoning investments. The initial

positive outcome of these investments lulled the investors into

believing that high returns was the new normal. But, that was not to be. In the years leading up to 2007, wealth management firms in the US

The economic downturn exposed the frailty of investing in asset had seen a rapid expansion of the HNI segment, which grew at 8.4

classes about which only limited market information was available. percent CAGR compared to 7 percent CAGR in other matured

A very large number of investors bore the brunt of rapid capital economies. This was facilitated by a series of economic factors that

erosion, there-by considerably weakening their confidence in return included sustained buoyancy in the capital markets, pervasive wealth

enhancers. Contraction of the housing market and rising distribution, and a boom in the housing market, all of which

unemployment levels in the US did little to shore up the overall contributed toward keeping investor confidence high. But the sub-

investor confidence. prime crisis in the US and the global economic slowdown that

followed appeared to have taken the wind out of the sails of the Investors have since been rather reluctant to repose their trust in wealth management industry, mandating fresh thinking on how the wealth advisors, which has caused a steep dip in the yields of wealth HNIs could be brought into the fold. management firms. Nonetheless, key wealth management service

providers are now focusing upon new strategies to leverage growth The 'crisis of confidence', as Nobel Laureate and economist Paul

opportunities in the future. The key questions being addressed are:Krugman would put it, can be overcome with fresh growth strategies.

In the realm of wealth management, firms would need to come up Ÿ How to bridge the investor 'trust deficit'?with new investment options that will induce the HNIs to return

Ÿ How best can wealth advisors approach potential clients and what enhancers and not lean too heavily on capital-protected investment would be the key differentiators?vehicles.

Ÿ What kind of infrastructure, support logistics and IT applications Return enhancers had become the preferred option for a wide cross- are required to support the new strategies?section of investors in the period up to 2007, with a new range of

Key Challenges

The ‘crisis of confidence’ can be overcome with fresh

growth strategies. In the realm of wealth

management, firms would need to come up with new

investment options that will induce the HNIs to

return to enhancers and not lean too heavily on

capital-protected investment vehicles.

Act 1: Build an 'Inside Out' View

Act 2: Build an 'Outside In' View

management industry has taken cognizance of the potential of social

media such as Twitter, Facebook, LinkedIn and others in reaching out Large wealth management service providers networked with to their target. audience. But there is a great opportunity to build a investment banking, private banking and commercial banking mechanism to harness the views of the investing class which can business lines have access to rich information sources. However, serve as insights for shaping the wealth management firm's service their efforts to connect the dots and convert data into meaningful offerings. This would be particularly relevant to firms that are information to service their investors are seen to be at best sketchy. positioning their products and services to the net-savvy, socially Their general inability to effectively mine the information source so networked HNI. Wealth advisors who have failed to comprehend as to create an 'inside out view' limits their potential to service the changing profile of HNIs are likely to fall behind in this clients and differentiate their offerings in the fiercely competitive increasingly tech-driven business environment.wealth management industry. For these firms, the solution lies in

Technology adoption will progressively assume great significance in harmonizing information sources and utilizing insights to create new

the wealth management domain. In the western markets, it will take offerings with compelling value propositions.

some time before new money will flow into asset classes other than

fixed income and capital protected investment vehicles. However,

firms that are willing to tap new opportunities in emerging Social networks have profoundly changed the way the new economies, as well as adopt relevant technologies, are likely to lead generation interacts with the external world. The wealth from the front in the markets of the future.

New StrategyThese questions are easy to comprehend but addressing them

would call for a well thought out strategic plan. Different wealth

management service providers are seen to adopt different strategies

to deal with the emerging economic realities. The following steps

could greatly enhance the effectiveness of their communication with

existing and prospective investors.

Act 2: Build an 'Outside In' View

Act 1: Build an 'Inside Out' View

Social networks have profoundly changed the way the new

generation interacts with the external world. The wealth

management industry has taken cognizance of the potential of social

media such as Twitter, Facebook, LinkedIn and others in reaching out

to their target. audience. But there is a great opportunity to build a

mechanism to harness the views of the investing class which can

serve as insights for shaping the wealth management firm's service

offerings. This would be particularly relevant to firms that are

positioning their products and services to the net-savvy, socially

networked HNI. Wealth advisors who have failed to comprehend Large wealth management service providers networked with the changing profile of HNIs are likely to fall behind in this investment banking, private banking and commercial banking increasingly tech-driven business environment.business lines have access to rich information sources. However,

their efforts to connect the dots and convert data into meaningful Technology adoption will progressively assume great significance in

information to service their investors are seen to be at best sketchy. the wealth management domain. In the western markets, it will take

Their general inability to effectively mine the information source so some time before new money will flow into asset classes other than

as to create an 'inside out view' limits their potential to service fixed income and capital protected investment vehicles. However,

clients and differentiate their offerings in the fiercely competitive firms that are willing to tap new opportunities in emerging

wealth management industry. For these firms, the solution lies in economies, as well as adopt relevant technologies, are likely to lead

harmonizing information sources and utilizing insights to create new from the front in the markets of the future.

offerings with compelling value propositions.

New StrategyThese questions are easy to comprehend but addressing them would call for a well thought out strategic plan. Different wealth management

service providers are seen to adopt different strategies to deal with the emerging economic realities. The following steps could greatly enhance

the effectiveness of their communication with existing and prospective investors.

About the Author

Dr. Ashok Hegde has 18+ years of experience in the banking and securities industry. His experience

includes providing high-end consulting services to global investment banks and investment

management firms. Ashok was extensively involved in systems development related to order

management, risk management and custody applications. He has managed business transformation

projects and engagements supporting outsourcing initiatives of large banks.

Ashok was Principal Advisor for risk system implementation for a large private bank. He has worked

with the equity research team of an international investment banking company covering the emerging

market desks.

Ashok has been associated with financial systems development for clients across geographies and

specialized in front and middle office application suits. He was Council Member for the Finance

Stability Stress Test Study of Reserve Bank of India.

At Wipro he is the Global Head of Financial Services, Business Analyst Practice. Ashok has an MBA in

Investment Banking and a Ph.D. in Economics.

About Wipro

Wipro Technologies, the global IT business of Wipro Limited (NYSE:WIT) is a leading Information Technology, Consulting and Outsourcing

company, that delivers solutions to enable its clients do business better. Wipro Technologies delivers winning business outcomes through its deep

industry experience and a 360 degree view of “Business through Technology”– helping clients create successful and adaptive businesses. A

company recognized globally for its comprehensive portfolio of services, a practitioner’s approach to delivering innovation and an organization

wide commitment to sustainability, Wipro Technologies has 120,000 employees and clients across 54 countries.

Wipro Banking and Financial Services

Wipro serves the top 10 Banks, top 4 Insurers, top 2 Brokerages and supports the top 5 Investment Bank's business transformation initiatives

across the globe. Wipro is the leader in BPO + IT integration initiatives and supports a banks' initiatives to bringing a change in the fixed cost

structure. Wipro's expertise and experience cut across front, middle and back office. Wipro's Banking and Financial Services has already

garnered more than $1bn in revenues and has 85+ customers spread across continents. To know more please write to: ashok.hegde@wipro.com

Dr. Ashok Hegde

IND/CREST/AUG2011/E71

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