Technology can be fabulous than humans as your asset manager

Asset classes abound, investments have become diverse and complicated. A few progressive UHNIs have adopted the family office model. But most are still dependent on chartered accountants, bankers and investment advisors. Risks are many; solutions are available.

Chirag Nanavati Feb 21st 2018 A-A+

In 2017, Credit Suisse pegged India's total household wealth at $5 trillion. India’s richest 10 per cent hold nearly three-quarters of that, roughly $3.75 trillion. Only 20 per cent of this high net worth market is managed through Family Offices. Which begs the question; how do the rest of India's richest 10 per cent manage their wealth of $3 trillion?

Historically, wealthy Indians have relied on their business finance heads, combined with chartered accountants, bankers and investment advisors to invest, protect and grow their wealth. Before the nineties, investment options and asset classes were limited and therefore wealth management itself was much simpler.

Post liberalization, the Indian economy witnessed a plethora of new investment opportunities in the form of index, stock and commodity options and futures, along with currency derivatives. In addition, the Liberalized Remittances Scheme opened up a whole new investment galaxy by permitting international current and capital account transactions. As asset classes abounded and investments became increasingly diverse and complicated, a few progressive UHNIs adopted the family office model.

But the rest are still dependent on their business finance heads, chartered accountants, bankers and investment advisors. The biggest risks in this method of wealth management are:

•    People managing the wealth are not fiduciaries. In other words, they have alternative motives/responsibilities besides wealth management, and therefore their advice or recommendations may not always be in your best interests
•    Wealth owners do not have access to their own data, except what is provided to them

In this scenario, what should HNIs (high net worth individuals) do to keep a finger on the pulse of their wealth and ensure they aren't being taken for a ride? The solution is a combination of getting control of the data and getting the right information from it.

Most HNIs do not have the time or inclination to be hands on while managing their wealth. But, they can easily retain control over wealth data. They are savvy enough to spot anomalies and ask the right questions, provided they have the right information. Specialized wealth management technology gives them reliable, independent reports with actionable information and allows them to do just that.

The right information gives you the ability to ask the right questions and thereby retain control. So get a Chief Information Officer (CIO) for your wealth. But instead of a human being, employ technology to serve as your CIO.

Technology allows you to consolidate investment records for multiple asset classes and multiple entities onto a single platform. You own the data, and have access to it anytime and anywhere.

As the owner you assign selective rights to multiple entities, so that they can update, manage or access the data, secured by audit trails to record log-ins and changes. The consolidated view helps chartered accountants and finance managers to improve investment and tax planning. It also simplifies data gathering and reconciliation required to file returns.

Back-end software processes the data and provides you with actionable reports and analysis of investment and advisor performance. It simplifies the abundance of data and makes it comparable by calculating and displaying reports using the universally accepted financial metric of Internal Rate of Return (IRR).

Use the reports as a quick guide or cheat sheet to identify gaps in wealth management. With Period IRR you get a comparable metric of advisor performance, irrelevant of the duration or period of investment, and comparable across asset classes. Your software CIO's reports reveal which advisors/investments are outperforming their peers and which ones are causing a dip in your total returns.

Dashboards and macro reports explain the change in net worth by highlighting which asset classes appreciated/depreciated, and by how much. This is the information you require to review/rebalance your portfolio, to bring it in line with your desired allocation, and to move funds out of underperforming asset classes.

So the next time you conduct a wealth review or have a discussion with any investment advisor, don't rely solely on their presentations and statistics. Use technology as a CIO to empower you with actionable reports that help you retain control over your wealth.

The author is Managing Director, Asset Vantage

Disclaimer: This article is published as part of the IDG Contributor Network. The views expressed in this article are solely those of the contributing authors and not of IDG Media and its editor(s).