S. Kumar/Mint
S. Kumar/Mint

There is still a considerable skew towards fixed income

This is driven mainly by a lack of conviction in equities

Shiv Gupta, managing director (private banking), RBS NV India, has been with the RBS Group for 11 years. Gupta oversees all aspects of RBS Private Banking’s business in India. RBS Private Banking is part of the RBS’ wealth management division. Gupta talks to us about how the wealth management landscape has changed globally post the 2008-09 crisis and what’s in store for RBS in India.

How have things changed since the financial crisis of 2008-09? Was it a defining moment for wealth management globally?

Treating that period as a seminal moment is right at many levels. A few things that happened then are defining how the industry is shaping up right now. Some of them are short-term effects and some have changed the shape of the future. Clients started engaging more (with advisers) and understanding risks better, they started taking more control of their investments. Since then it’s been a schizophrenic environment where you have seen periods of confidence followed by periods of uncertainty and this has carried on till now. To some extent, it has led to slight risk aversion. Put differently, it has created slight aversion to riskier asset classes.

Also, the entire regulatory landscape has been overhauled—this applies to the entire financial services sector but particularly to wealth management (globally). India is no different, we have seen changes being announced by the Reserve Bank of India (RBI) just a few days ago aimed at investor protection. In the longer term, it would be beneficial for the industry as a whole. I’d like to think the attention to comply with regulation is going to lead to the necessary re-shaping which is for the benefit of the industry. It has also led to consolidation.

Is it difficult to apply the principle of asset allocation given the current volatility in asset prices? Are the shifts in allocation more frequent?

To diversify across assets is a universal principle. If you try and view it in very short periods of time, you may end up getting varied results. I would argue that in times of volatility sticking to asset allocation works best. Asset allocation itself is an umbrella concept. What a client has will depend on his individual needs. It depends on the nature of the client and the level of engagement you have with them. For example, for discretionary mandates, where asset allocation is applied, clients won’t interfere because that’s the nature of the contract. If a client is in an advisory setting, then some tend to stick to the advice and some take their own decision, which may not fully comply with the recommendation. But the principal itself stays true, though client behaviour can change.

What are clients investing in now? Are they returning to equity?

There remains a considerable skew towards fixed income investing, driven mainly by a lack of conviction in equities as also the prevailing high nominal interest rates, despite negative real rates, which should ideally favour equities. Accordingly we are also seeing continued interest in real assets. For example, people are still looking at real estate opportunities albeit on a somewhat selective basis and favouring some sectors and geographies over others. Notwithstanding the above, our global view favours equities over fixed income where generally positive economic data from the US and receding event risk elsewhere combined with prevailing liquidity conditions have been helping markets remain elevated.

From an allocation perspective, we favour developed markets equities over emerging equities and closer home, we are neutral on India equities, but this is more a tactical reflection of the prevailing uncertainty rather than a view on the structural opportunity itself, because we do believe that the long term growth story remains intact.

The private banking industry focuses on investing and leverage. How much do you get involved in leverage for clients and has the need increased given the recent economic environment?

A well-constructed private banking platform comprises banking, investments, estate planning and credit as the fundamental pillars of its offering. Our clients generally tend to use leverage against their own assets to magnify investment returns, should they have the risk appetite for it, or to fulfil liquidity needs or some combination of both.

However, the need for leverage differs based on client circumstance and we have seen instances of increases in some areas accompanied by reductions in others. So at an aggregate level, we are unable to draw a meaningful conclusion on the trend.

Although not new, the private banking space in India is still developing. Where does RBS Private Banking fit in and how far do you want to grow?

Indeed the industry is not new but is young and fragmented. It is evolving and acquiring shape, wherein the proposed new regulations represent a step in the right direction. The economic and demographic opportunity is large but due to the market’s fragmented and “still-developing" nature, only a small proportion of wealth is captured by organized wealth managers. That said, there are signs that this is changing and this is borne out by our own experience over the past few years.

We see India, including the non-resident diaspora, as a very promising growth market in the long term and have been investing over the past few years in people, products and platforms to achieve scale. On the back of this, we have seen considerable growth in business.