Wealth managers need to provide investment advice aligned with clients risk tolerance: Sebi

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Comprehensive certification programme in wealth management launched by NISM

With the expected increase in retail penetration, it is important to have wealth managers who can prescribe meaningful investment advice aligned to the clients’ risk tolerance, return expectation and financial needs, a Sebi official said on Thursday. Also, given the fiduciary responsibilities of a wealth manager, it becomes equally important for them to be grounded in ethical principles, such as client confidentiality, transparency and objectivity, S K Mohanty, Wholetime Member of Sebi and Director at NISM, said.

He made these remarks at the launch of comprehensive certification programme in wealth management by the National Institute of Securities Market (NISM), in collaboration with CRISIL. The programme is aimed at ensuring investors get quality advice to negotiate the maze of products. It will cover the entire lifecycle of wealth management, equipping participants with deep conceptual understanding, and ability to use that to serve clients effectively, and aims to build wealth management capacity at banks, NBFCs, mutual funds, brokerages and family wealth offices.

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While traditional curricula provide a good grasp of financial products, most are academic and follow global practices. On the other hand, the NISM and CRISIL certified wealth manager programme is tailored to directly address client-specific needs of building, growing and sustaining wealth aspects where traditional savings channels come up short because incomes and aspirations keep changing amid rising product complexity.

“With the expected increase in retail penetration, it is important that investor interests are protected,” Sebi’s Mohanty said at the virtual event. He, further, said “the need of the hour is to have wealth managers who can prescribe meaningful investment advice aligned to their clients’ risk tolerance, return expectation and financial needs”. According to him, it is very important for a wealth manager to handhold clients in identifying their financial goals and risk appetite, and then prescribe the right product.

They also need to engage clients through meaningful conversations as today conversation has become very “robotic and mechanical” and handle their objections effectively as investors have lot or expectations, Mohanty pointed out. Also, the rising importance of wealth management is also underscored by the increasing financialisation of household

Assets under management (AUM) of India’s mutual fund industry has increased to Rs 31 lakh crore in March 2021, up from Rs 12 lakh crore in same month 2016. This growth rides on strong participation of retail households especially through the Systematic Investment Plan route and persistent inflows to exchange-traded funds.

Making an investment choice between actively and passively managed funds, exchange traded funds, and opportunities abroad is not easy and requires expert advice. The emergence of alternative asset classes, including, but not limited to, real estate investment trusts (REITs), infrastructure investment trusts (InvITs), and commodities, along with rising lifestyle aspirations such as of foreign holidays and children’s education abroad mean competition for the share of wallet is increasing. Then there are double-income families, nuclear families, and non-resident Indian inward remittances.

All of these are driving demand for bespoke wealth management plans and products. So much so, wealth management is now a specialist skill that combines strong theoretical foundation and practical intelligence, according to CRISIL.

“The CRISIL-NISM programme will be the gold standard in wealth manager certification. It will help wealth managers sharpen their conceptual understanding, get a 360-degree view of the financial markets, credit conditions and economic environment, and gain insights on relevant trends across asset classes, thereby enabling stronger customer acquisition and retention,” Ashu Suyash, MD and CEO, CRISIL, said.

Investors, too, stand to gain as high-quality wealth managers emerging from this programme will be able to offer them right advice, thereby reducing the element of risk,Suyash said. For the industry, this will help drive sustainable flows, boosting its long-term resilience and contributing to growth

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