Wealth management is the Art of War – and like in all wars, there are the victors and the vanquished. Not everyone can be a hero like Jon Snow, battling the Night King and returning from the dead. Only Mr Buffett has that distinction. The rest of us are more like Night Walkers – more so today!
Now that I’ve GOT your attention ( pun intended), let me not digress further.
Wealth management today is redefined from those grandfathers days.It is no longer passive – i.e the fill shut and forget model doesn’t work anymore – not for Hero Honda and not for TISCO either. The days of easy money are gone- as evinced by the many debacles to have hit Indian markets and we are talking of just 2018 -the ILFS saga, the junior Ambani story, Yes Bank and the many marquee names that are being dragged through NCLT courts
Essentially Innovation is what is going to keep attracting money to assets today. The game of technology and product leapfrog is on. The winners go on to fame and fortune via acquisitions at astronomical valuations or possibly through IPOs. Their VC backers count their money and put their logo on their Successful Exits web page. The losers are forced to sell at bargain basement prices or close up shop altogether. Their VC’s write off their investments and hope their annual limited partnership fees keep flowing so they can make the payments on their fancy homes and Teslas
The years following the financial crisis have seen significant developments in the financial services sector. Global wealth managers now face the challenge of adapting to a market environment that is evolving quickly, if not revolutionizing. Client needs, shareholder expectations, stricter new regulations and milestone developments in technology are driving future business models and shaping their requirements. While we must wait to see the full impact of these changes, it is already clear that new industry structures will emerge in the coming years. Adapting early to the new reality will open the door to profitable future growth opportunities.
Today’s clients want their private wealth to be viewed and managed holistically. This does not stop at financial asset allocation but spans all assets, liabilities and life plans with the aim of delivering better approaches for after-tax wealth preservation, estate planning and longevity in performance. Moreover, the ultra-low interest rate environment has made clients more price-sensitive and they expect a new breed of support, which is advisory rather than product-driven. Regarding the demand for investment products, the combination of low-interest rates, high volatility and a loss of trust since the 2008 financial crisis has meant that conventional asset classes such as shares, bonds or money market investments are progressively giving way to alternative investments. In addition, investments in hedge funds or private equity funds are increasingly also being supplemented by direct real asset investments in real estate, infrastructure, loans, agriculture or co-investments with alternative funds.
Alternate assets like cryptocurrencies are another new fangled wave, which I confess I know squat about and like Buffett what I don’t understand I won’t invest or recommend – but to each their BIT !!
Another trend, as yet numerically less pronounced, is evident in the demand for “passion-based” investments, such as cars, artwork, wines, coins or ethically motivated investments in sustainability and social entrepreneurship.
HNWI+ are finding themselves confronted by an array of social and political problems that infringe on their private wealth or lifestyles. Central concerns include succession issues (family/business), potential rises in wealth taxes or growing state supervision and control. The expansion of the regulatory realm and concerns about retrospective legal uncertainty loom large for wealth managers. The natural consequence is caution and more careful consideration of how to allocate resources.
Today, we communicate with the latest apps around the globe or buy online based on artificial intelligence (AI) recommendations. Wealth management clients are demanding what is already a matter of fact in the retail industry: full use of digital infrastructure capabilities. Although some aspects of interaction with clients will remain at a personal level and within the traditional advisory process, clients and their advisors need to be able to opt for smart and purposeful technology-driven and sophisticated applications that assess and analyze the risk preference and investor profile of clients. The future business model will focus on the wealth manager’s technology and digital infrastructure and will become increasingly independent of the advisor. Consequently, infrastructure and technology-driven capabilities will be fundamental to a wealth manager’s activity in the future.
The rules of the game have changed: it is now up to wealth managers to adapt in a way that allows them to win in this rapidly transforming and chaotic market. Investment markets are remarkably adaptable, and sustaining a competitive edge is increasingly difficult. Success breeds imitation in the investment industry, and a herd of imitators can erode or erase the benefits of successful investment strategies.
Quantitative investment strategies gained popularity in the early part of the 2000s, but many “quants” ended up as part of a herd that invested in the same stocks. The quant boom ended badly with the “quant quake” of 2007, as the herd headed for the exits at the same time.
Popular trades have a way of becoming too popular, as investors burned by the technology bubble, the BRIC craze, and currency “carry” trades have discovered. Reversals of fortune can be particularly painful for investors who are among the last into a crowded trade! Following the herd can be a bad idea, and investors should do their homework before joining a crowded trade.
“Game of Thrones” provides an entertaining source of wisdom for investors. Disruptive technology, diversity and family succession planning are central to the struggle for supremacy in the fictional world of Westeros. Disruption is rampant in many industries, and for many companies, the threat from Amazon, Apple, Facebook and Google is as existential as the threat from a fire-breathing dragon. Challenges maintaining hereditary dynasties and controversy over diversity seem to be ripped from today’s headlines; consequently, the lessons from the show may offer real-world insight to investors.
So for good old fashioned wealth management advise – This is what I would tell Jon Snow J You’ve already died once, and my little birds are telling me you still haven’t protected your assets. You don’t have life insurance, you haven’t insured your castle at Winterfell, and your life expectancy isn’t what it once was in the Seven Kingdoms, Additionally, you’re spending a lot more time around dragons as of late….. so I recommend that you secure your long-term plans
To the Mother of Dragons, all I can say is don’t be complacent. The Iron Throne is not yet yours! Examples of complacency are easy to find. Many retail organizations shrugged off e-commerce threats, taxicab companies ignored the inroads made by ride-sharing companies such as Uber, and investment managers that charged high fees or sales loads were slow to react to the increased popularity of index and smart beta ETFs. Today, there are many company leaders who are complacent about the competitive environment, and risk being ambushed by disruptive competitors.