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Inheritors: old money, new mantra

Young inheritors and their inclinations are going to play a major role in shaping financial products and services over the next few decades

Photo: iStockphoto
Photo: iStockphoto

Globally, much has been written about young people currently in the age group of 20-35 and it is universally acknowledged that they are very different from people born in the 1960s and early 1970s.

In India, a young and vibrant country and economy, the youth has been influencing culture and consumption for quite a while now. Young Indians are increasingly aligned with global ideas, mindset and trends. This is the first generation to have grown up with cable TV and the internet. With easy access to information, they truly believe that technology will revolutionize the country and their faith is well placed for the most part. 

Young Indians and, by extension, young investors are already changing the face of financial services. The younger lot is more demanding, especially about speed and convenience, and financial services have moulded themselves to their predilections. Among these young investors, billionaire inheritors constitute a small but powerful section—they tend to be trendsetters. The inheritors are typically tech-savvy, globally aware, and most are quite hands-on about their own portfolios. However, they have the unique advantage of building on their parents’ experience of investments and market cyclicality. Additionally, they are able to use a network of like-minded professionals and business leaders for a deeper understanding of specific industries and companies.

This is why they typically have a wider portfolio—which could include private equity or start-ups. Along with a traditional portfolio (equity, real estate, debt, gold), young billionaire inheritors tend to dabble in alternative investments and global portfolios as well. This is also where good wealth managers add maximum value, for most of them have a long-standing relationship with the inheritor’s family and can provide incisive and pertinent advice about investment and risk appetite.

Young inheritors are quick learners, and tend to engage more readily with digital platforms. When it comes to financial planning, considering they have firm belief in modern technology, they are more open to (sometimes, even prefer) technology-assisted financial advice. Globally, they are increasingly trying out services such as robo-advisers.

An entire crop of financial-planning start-ups has grown around this segment. Even traditional financial channels are working with newer technologies to attract younger investors. 

Billionaires usually have a more professional approach to their portfolios, especially since the size of these can be so large that it begins to generate returns that regular businesses would. The professional approach helps them build in discipline. They are more dynamic about their allocations—as their monitoring and reviewing process is increasingly analytical and data-driven; this is where they tend to heavily leverage technology.

The current young generation could be a little more conservative than the previous one, chiefly because of seeing spectacular economic and market volatility that constrained their asset values and earnings, but the fact is, allocation to risk versus non-risk asset classes varies across risk profiles. While each firm has its own unique strategy, we follow a three-pronged asset-allocation approach. First, the “scientific approach" towards risk-profiling—arriving at a suitable risk profile based on psychometric testing, with regular follow-up tests to ensure consistency and remove situational bias. Second, the “capital protection mandate"—defining target portfolio maturity or a time horizon at the inception, assuming a rate of return for the specified time horizon, and arriving at strategic asset allocation. Third, the “safety-pot" approach—carving out non-risk capital from the portfolio at inception, which usually constitutes high credit quality and relatively risk-free assets with varying degree of liquidity. The residual portfolio is then invested in growth assets (typically, equity- and real-estate-oriented investments).

Young inheritors and their inclinations are going to play an intense role in shaping financial products and services over the next few decades. For now, they seem to show a marked fondness for a convenience- and technology-based approach (handling and tracking their own portfolios through apps, net-banking). As these investors mature, they may once again veer towards slightly more traditional financial advice (more interpersonal, less hands-on, or more manager-dependent). However, it is more likely that traditional firms will keep upping their game, offering a pragmatic combination of technology-backed products with an interpersonal approach tailored to individual tastes.These young inheritors deserve the close attention of the wealth-management industry, with solutions increasingly customized to their preferences.

Jaideep Hansraj, chief executive officer, wealth management and priority banking,Kotak Mahindra Bank Ltd

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