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Swiss private banking group Julius Baer's India MD & CEO Atul Singh speaks about operating the business in the tighter regulatory environment
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Swiss private banking group Julius Baer completed the transfer of Merrill Lynch’s international wealth management business in India about 14 months ago. Atul Singh, managing director and chief executive officer, India, Julius Baer was the erstwile head for the India wealth business with Merril Lynch as well. Singh oversaw the transition of the business and now manages one of the few foreign owned private banking set-ups still remaining in the country. Several foreign private banks have packed their bags and moved out of the Indian market in recent years. Singh spoke to Mint about why Julius Baer, with a focus on servicing and advising high net worth clients and a presence in global wealth management, is different. He also spoke about operating the business in the tighter regulatory environment. Edited excerpts:
It’s been a year of operations as Julius Baer (India). What’s has changed for the organisation and the clients?
Julius Baer, at its size, is probably the only pure-play private bank. This means there is no question of relative focus and that’s starkly different from being part of a universal commercial bank. In the last 1 year, this has played out well for us thanks to the parentage and the focus. We have been able to expand our offering significantly and also build capabilities that got missed earlier. While we have always been client centric, in a universal banking structure there were constraints. Private banking business has its own risks (type of clients, products offered and so on) and these are better understood when this is the only business. As a result, the willingness to take some calculated risks is a lot higher. This also helps to equip advisers with the ability to better engage with clients.
Many foreign banks have exited this business in India over last few years. How did your business fare last year?
Foreign firms’ failure to build a successful private banking business in India is not because of any structural fault in the market. Many of these foreign banks were distracted by their issues elsewhere or their other businesses. Risks were taken in other businesses or there were fines to be paid in other geographies. As a result, the relative focus and the critical conviction to grow the India business was lacking. It is not a foreign owned phenomenon; it is about where the management is focused. If your sole focus is the market and clients, you will be able to build the business.
In the last year we have been focused fully on the service, the economic environment and delivering to client needs. We are able to offer comprehensive services, thanks to the open architecture in context to products. Once you do that you are also able to adapt to local needs of the clients.
This is enabled by empowering the team, reducing turnaround time for launching new products and even incorporating ability to create products that are unique for Indian markets and its high net-worth clients. We have over 135 employees in India, including advisors. We transferred over $6 billion of client assets last year and have been growing the franchise.
The regulator has proposed stringent investment advisory guidelines. Do you stand to lose revenue in this anticipated transition? How significant is your fee-based advisory business?
The fundamental shift underpinning the regulatory changes is regulation of advice. Till 2013, there was no licence required for providing investment advice. We are advisors and this is beneficial. The new proposals can drive out lot of the unscrupulous elements in the industry. We may have to tweak our business model and policies if the proposals are implemented, but the underlining principles around transparency, disclosures and so on are practices that we already follow.
This is a slow transition, which has been prompted by the regulator, but eventually costs will get absorbed by clients as advisory fee. We have always had a fee-based proposition and now the penetration of that will go up with lot more focus from the regulator. Clients will understand the need to pay for advice and the right advice. Like in many other developed markets, increasingly with the advent of advisory fee, execution will get dis-intermediated, which won’t happen overnight.
The regulatory action is more focused on mutual funds but guidelines are applicable to all advisors. Compensation linked to other products, like portfolio management service (PMS) and alternate investment fund (AIF) haven’t been addressed. Is there a conflict in product distribution?
Sebi has always kept the interest of small investors in mind. This is evident from the slew of changes targeted at the mutual fund industry in the last few months. Mutual fund as a product class is perfect for small investors as it is simple to understand, transparent and offers a wide choice. Hence, it is not surprising that the recent advisory consultation paper attempts to bring the process of advice on mutual funds under greater scrutiny.
The framework around mutual funds, could be one of the drivers to the increased PMS and AIF sales that we are witnessing in the industry. A large part of that is also driven by distributors rather than advisers, who may have been selling mutual funds before but now are focusing on AIF and PMS. PMS is not necessarily a replacement of mutual funds. PMS and AIF are also heavily regulated and have high entry barriers for the investor in the form of minimum ticket size, high risks and limited market players offering these products. As a result, only sophisticated investors capable of comprehending the complexity involved in these products invest in them.
On compensation linked to these products, one way to do this is to incorporate a hybrid pricing structure where MFs and stocks are in a advice based (fee linked) portfolio and some bespoke products can be out of that advisory portfolio. With this hybrid strategy of charging fee based part of the portfolio separate from the commission embedded products can be a way to deal with any conflict. It is not just PMS or AIF but structured products too. This way of operation is common in other developed markets.
As an organisation what are the milestones for the next 3-5 years?
With some luck and a lot of hard work we were able to transfer close to 100% of the erstwhile Merrill Lynch assets to Julius Baer. It was a hard 3-year journey but we were able to come out of that with nearly all our clients on board. That was thanks to the nearly 100% transition of employees.
Now the aspiration is to grow from here and the opportunities in India are exciting.
It is not about mindless growth though; it needs to be thought through. There are structural challenges in our business for growth. For one, quality and availability of qualified people is a challenge. If one wants to double the business, it is difficult because the talent is not available. In the past, global firms have been guilty of getting excited about the secular growth in India without considering some of the structural issues.
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