The wealth industry needs to think beyond IRR

The Indian wealth management industry is relatively young, having started in ~2005. While its assets under management are growing, the number of investors and investment advisers / distributors, add up to around 230k — still very low, even compared to the number of tax filers and insurance agents respectively. A lot of this low growth in people acting as wealth intermediaries is because of the ban on upfront commissions for mutual funds, imposed in 2009, combined with a mandatory direct version for mutual funds. 

This regulatory constraint on business models has led to chronic under-investment in the wealth businesses, such as in technology and training. However, as the cost of technology has fallen, there is now an opportunity to harness it in various parts of the industry. And it’s better done by a few players who can then pass on the economies of scale to individual practitioners. 

This was the thesis that Parag Kasliwal had when he, along with co-founders, set up BeyondIRR in 2022. Beyond IRR is a B2B SaaS platform for the broadly-defined ‘wealth management industry’. While it started with the aim of serving the private wealth management sector, it has now pivoted to focus on the smaller mutual fund distributor segment.

We speak to Parag in the latest episode of From Scratch:

Technology-led product function

BeyondIRR’s technology platform is backed by a repository of research on the whole range of financial products, as well as on markets — such that it can match the product function of large wealth management firms. The platform helps practitioners with:

• Client acquisition, by doing a portfolio review and providing insights into investor portfolios. It also generates institutional-quality, practitioner-branded investment proposal presentations in minutes.
• Client engagement, by providing talking points about markets and products. 
• Client retention, by automating monitoring, reviews and rebalancing.

Parag believes that these features will help practitioners build trust with prospects.

At an annual fee of about 6 thousand rupees (~72 USD) per login, the basic platform should appeal to individual mutual fund distributors, making them much more productive.

Separately, the firm is also sourcing investment opportunities in the alternative asset classes, such as:

• P2P lending, fractional real estate, bonds and fixed deposits, to cater to the affluent segment
• Pre-IPO equities and startup VC investments, to cater to the HNI segment

Embedded finance option

The firm has started speaking with banks and fintechs in the payments and lending space, that may want to leverage their huge client bases. The plug-and-play nature of the platform will allow these institutions to offer a wider range of financial products and services.

Regulations may finally help small practitioners

As Kasliwal reiterated, the wealth industry has been lamenting the onerous regulations that banned upfront commissions. While larger wealth management firms have seen valuations soar, as evidenced by the investments made by private equity firms, smaller mutual fund distributor practitioners had not been able to build valuation due to the lack of a corporate structure. However, since the recording of this episode, the regulations have eased on allowing the transfer of trail commissions. This small change could lead to unlocking value as individual practitioners can now look to building a long-term book of assets under management with the intention of selling the practice. The launch of technology platforms such as Beyond IRR could help individual practitioners compete with larger wealth management firms. 

Hopefully, we will see more interest in people taking up wealth management as a profession.