Outsourcing investment management gains traction among multi family offices

By Morningstar |  03-02-22 | 
 

Rajat Dhar, Managing Partner, Finogent Advisory, talks about the evolving goals of high-net-worth individuals, the trends shaping the wealth management industry, and more. 

Tell us about your practice. What kind of services do you provide?

We are a premium multi-family office, addressing the needs of affluent and high-net-worth individuals (HNWI) in India and overseas. We are a niche multi-family office that manages clients’ financials across a broad spectrum of wealth assets, ranging from mutual funds, stocks to start-up investing, venture capital funding, global investing in six currencies, and 16 stock exchanges around the world among other alternate assets. On the broader level, we also provide estate planning, business franchising, and other allied services and opportunities across the globe.

How have the goals and aspirations of HNIs evolved over the past few years?

Their aspirations have changed over the past five years and predominantly over last the two years. We have seen HNIs and UHWIs becoming more explorative and more entrepreneurial in their approach towards investing, and therefore moving towards alternative assets, viz., pre-IPO investing, venture capital, start-up investing, and global investing. With more investible money at their hands, they are going beyond the obvious.

Globally, many advisers are outsourcing investment management. Do you see this trend coming in India?

Yes, gradually this trend is picking up in India. Technically, those distributors/advisers who are in single product sales might not follow this trend and may not be able to comprehend how outsourcing benefits them. However, for bigger multi-family offices, like us at Finogent Advisory LLP, this is the cornerstone of our strategic practice.

This enables us to have not only India’s but the world’s best fund managers/portfolio managers to provide portfolio management services to our clients. We as a multi-family office, manage relationships with clients and their responsibilities as a CFO.

We run an orchestra. For the best interest of the clients, we bring in the best of the portfolio managers, who are the known names in the field and have the legacy, research bandwidth, processes and capabilities deeply entrenched to serve best in their respective trade.

As an adviser, what are some of the most important things that an adviser can outsource, and which are the key strengths that they can focus on to grow their business?

Based on the scope of services a multi-family office offers to its clients, services that can well be outsourced would be portfolio management – each to a specific one. There would be different portfolio managers managing the PMS (mutual fund & stocks separately), Venture Capital funds for start-up investing, estate planning, tax planning, legal advisory, global citizenship plans, business set up/ franchising to name a few.

With such highly specialised jobs outsourced, the key strength of an adviser or a multi-family office head is to manage relationships and thus drive the range of services and the depth of each such engagement. Then the multi-family office typically runs the entire financial/asset management of the affluent or HNWI family like a corporation. Thus, the multi-family office is enabled to make more impact on the HNWI family’s wellbeing.

What major trends do you foresee in the wealth management/investment management industry in the next decade and how do you plan to leverage these opportunities as an adviser?

We are at the point of inflection and the name of game is the strategy that one implements. It is no longer the game of who is beating the rest in terms of returns, because the data and information have become commoditised and that it is how the wealth firms, family offices and the likes can leverage all tools that are at their disposal to create value for the investor/clients in the marketplace. Broader challenges that we see are:

  • Tokenisation: The first NFT (Non-Fungible Token) of a digital artwork sold for $69 million at one of the major auction houses Christie’s in March point to the fact that NFTs are very soon going to be part of the wealth management mainstream next year. Goldman Sachs has already declared that it would be adopting DAML, a development framework created by a blockchain startup Digital Asset to enable financial institutions to execute agreements on a blockchain. Tokenisation represents a vast commercial opportunity.
  • Neo Investor: This is the term we use to refer to the new affluent class of investors, who have different aspirations, different means and ways to consume wealth services, which is totally different from the ones consumed by their predecessors.
  • Virtual Reality & Augmented Reality: Virtual Reality and Augmented Reality is helping wealth management firms to make investments more intuitive for clients. Many firms are using this for training purposes and some for-client engagement, especially after this covid pandemic has forced virtual engagement to be adopted.
  • Dedicated & Super Teams: As the demands of customisation increase at the HNWI portfolio management, the wealth firms need to have dedicated teams that would take care of the wide range of cross-domain actionable. While they do this, the firms also need 5-6 people, super teams, at wirehouses to assist them with services.
  • Hybrid Mode: While nothing can beat the value that an adviser can bring on to the table for the affluent & the HNWI investor having the robo advisory back end brings more teeth to the result that an adviser can bring for the client/investor to address their needs.
  • Big Data: It is information warfare. The coming decade will belong to firms that are able to capture data – demographic, psychographic, financial, behavioural, social and professional. They can mine that to manage the portfolio and other aspects of the relationships. They will rule the game and their numbers would be on the speed dials of their clients. The big data is no longer limited to the stocks’ financial data or the historical clients’ statements but now has gone beyond that.
  • 360 degree: The Management by Objective that we study in our MBA courses is known as Goal-Based Advisory in the domain of Wealth Management. Therefore, an investor wants to achieve his multiple goals, even if they seem to be conflicting in nature through investment and funding strategies.
  • Democratising Investing: Now, retail investors also want access to more or less the same strategies like PMS, AIFs, Hedge Funds, etc. We have seen this resulting in the platforms such as SmallCase coming up to fill that gap since SEBI raised the bar for PMS to Rs 50 lakhs. So, wealth firms in order to protect the outflow of their assets to such platforms, have to re-think and re-orient their strategies for the same.
  • Succession Planning: There are two demographic trends happening. On one hand, there would be an older generation of agents/advisers aging and leaving the industry faster than before; and on the other hand, there would be a bigger and bigger transfer of wealth happening from current investors to the next generation. This would be upsetting many client adviser relationships.
  • Compliance: With each passing year we have seen higher and higher compliances coming into the picture. We believe what advisers communicate on social media will be regulated going ahead. This would lead to more overhead.
  • Competitive Landscape: While new firms will bring in new business models in the domain of wealth management; however, we would also see the larger financial war chest and the follow-up actions by the incumbents which would lead to higher competition for the same money at stake, thus driving down the margins.
  • Consolidation: The big will become bigger and the small will be burdened under compliances and continually rising costs where the latter would not have the scope for long-term profitable sustenance. Having said that, the key is consolidation, wherein multiple small/mid-sized firms come together and create a bigger entity, with each key person responsible for the different verticals and thus ensuring not only sustainability but also the growth of the enterprise.

There are many more trends and challenges in the wealth management domain. Finogent Advisory over the past three years has not only geared up for these trends but in various domains also started implementation and has been treading on a new path for more than a year now. However, much has to be done and we ensure that we leverage our partner, vendor engagements to better position ourselves to handle these trends and capitalise on the ecosystem and the capabilities of our partners to deliver value to our clients and investors at large.

What is your success mantra?  

Being paranoid! For a lack of a better word, I may say, is an attribute that has kept Finogent Advisory ahead of the game and surviving bigger sharks in the market. While this attribute ensures that we are not seated in comfort, strategically we have fought battles in trenches. Having said that in trenches, I mean that we have been a niche firm and personalisation has been the key to our success and reputation in the market. This has enabled us to manage the wealth of key persons, top management executives and families of Fortune 500 companies.

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