Hemant Mishra/Mint
Hemant Mishra/Mint

What works for retail investors may not do so for HNIs

The more critical part is to let the investor decide what is the model relevant to them

Satya Bansal, chief executive officer—India, Barclays (wealth and investment management), is very optimistic about the opportunities that India offers in the wealth management and private banking space. Private banking, once a booming industry segment, has run into trouble after the financial crisis that started in 2008 with many operators now downsizing business. Bansal talks about the challenging environment indicating that the industry may be moving towards consolidation. He also talks about Barclays’ wealth division, things that they got right and the main challenges at present.

Which segment of the wealth management market do you cater to?

We started wealth and private banking business in 2007 and despite the challenges faced in 2008, we created a strong platform and a team. We were able to leverage the strengths of our investment banking franchise for this business too. As a result, sizeable portion of our clients come from both top- and mid-level business families. In the next 6-12 months, we plan to increase our team by another 15-20%. Right now we have a total team size of 120 people in private banking, with around 1,000 client families.

How tough is the business environment now?

Globally the trend in the private banking/wealth management business is towards consolidation. Those who did not come with a long-term view are moving away and that’s visible now. Since 2005, Barclays has been looking at opportunities to grow the private banking business not just here but also globally. A global footprint is helping us cater to client requirements better. More specifically in India, signs of consolidation are clearly visible—margins are down, yield on assets is shrinking and cost of operations is reasonably high. We feel that non-serious operators, which are essentially those with non-critical size of business or number of clients, would face some challenges and thereby create a need for consolidation in the industry. India has a lot of opportunity in this space and there is a lot that can happen given the low penetration of the business as there is a big gap between what is being covered and what can be tapped.

In India, private banking solutions are still very simplistic. How are you able to distinguish your services from simple distribution?

We cater specifically to client’s needs which means it’s not just about taking a product to the client, it has to be led by advice. We try to understand the clients risk appetite and also their investment philosophy from a behavioural perspective. Things such as what level of volatility is comfortable for a client, or whether or not they believe in the skill of fund managers for alpha generation, are they going to be hands on involved in the portfolio or not are considered before suggesting investments. So, it’s not just the financial need and risk appetite but also the behaviour that governs these choices. Firstly, it’s important to see how to create a portfolio and secondly, it has to be understood that wealth management is a journey and not an event.

Our overall model is more than investments—it’s about private investment banking for the HNI (high net worth individual) client. We look at the needs around a client’s business. For example, if a client has a need to enter a new industry or co-invest with another client, we evaluate how we can help them in such a scenario. This model suits us best. Needs of the Indian family-owned businesses are changing and their personal investment and business is co-mingled and so we have to cater to both.

How do you manage and equip individual advisers? What is your main revenue stream?

To run an effective advice-led model, firstly we need to have a team of senior level client advisers. The average industry experience of our advisers is 12 years and they are better able to relate to business families. The intellectual capital for these advisers is also important, to ensure that we have an in-house investment solutions team. We focused on building a very strong investment solutions team which covers business and financial investments. Today we have 40 advisers and 30 people helping them building solutions. This makes all the difference in how you engage with the client and what you deliver.

In terms of services, we have to align our interest with the client. We would like to have more advice-led and performance-led fees. However, since we are in early stages of the market evolution and since many clients haven’t seen such a model, it takes time for them to convert to this model. Right now we are both on advisory fee and commission. Fee-based models are the way to go, but it needs a deeper understanding. Fee charged on the entire portfolio helps bring about asset neutrality. So, the idea is that clients can invest in any asset as long as it helps achieve the objective.

What is your biggest challenge?

The foremost challenge is attracting good talent; the local talent pool is very limited. Secondly, the industry is still evolving, which means clients still evaluate performance for individual assets rather than looking at the overall portfolio risk and return. This is a better barometer for performance evaluation.

The new investment adviser guidelines seek to distinguish between fees and commission. Once that happens, what is the incentive for, say, a distributor bank to even think about charging fees?

Whether a private bank earns fees based on advice or commission, it is disclosed to the client. It is not really a question of whether or not the client will pay. It’s just a perception built up in the market that it’s okay to pay commission and not fees. The transition to advisory fees will happen over a period of time and we will fall in line with global best practices over a period of time. The more critical part is to let the investor decide what is the model relevant to them, for example, what is suitable for retail investors may not be so for HNIs.