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Wealth management products the right fit for emerging middle class
Looking up: Citibank Indonesia and Manulife Aset Manajemen Indonesia hold a 2015 market outlook event discussing prospects for Surabaya as a hub of international trade and services
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span class="inline inline-center">Looking up: Citibank Indonesia and Manulife Aset Manajemen Indonesia hold a 2015 market outlook event discussing prospects for Surabaya as a hub of international trade and services. Courtesy of Citibank
The nation's middle class is growing ' and so is their appetite for ways to manage their wealth.
The growth of the middle class segment and the increasing number of high net worth individuals in Indonesia are spurring demand for wealth management products in the country's banking sector.
According to Standard Chartered economist Eric Sugandi, economic growth, albeit experiencing a slowdown, serves to boost the emergence of the middle class among the country's 240 million population.
'In fact, many people in this income category are starting to get interested in growing their wealth by means of various investment products available in the capital market.'
Data from Standard Chartered shows Indonesia's middle class population ' which it defines as those earning in the range of US$2 to $20 a day ' has continued to rise. In 2010, the bank recorded a total of 131 million people who qualified by its definition. In early 2015, the number grew to 149 million, with predictions it will soar to 171 million in 2020.
Eric said Bank Indonesia's attractive interest rate, which currently stands at 7.5 percent, also motivates people to invest in banking products with the promise of profitable results.
'Although the current BI rate has resulted in a slowdown in credit growth, in the context of wealth management, the interest rate is very ideal.'
Financial literacy lacking
The increasing middle class population, unfortunately, is not followed by the growth of financial literacy, Eric asserted.
'A lot of members of the Indonesian middle class have insufficient financial literacy, particularly in relation to the capital market. This is demonstrated by the fact that many Indonesians have yet to venture into the capital market, rendering the field an uncharted territory for them. Most capital market investors are the affluent.'
The bank's data for 2015 reveals the number of affluent individuals in Indonesia numbered less than 1 million.
The Financial Services Authority (OJK) disclosed in 2013 that investors in Indonesia accounted for only 0.2 percent of the country's total population, the lowest in the region.
Furthermore, in comparison to other Asian countries, Indonesia also has the lowest number of publicly listed companies, the authority found. Its date indicated the Indonesia Stock Exchange listed only 479 companies as of November 2013, preceded by Thailand with 577 companies.
The OJK has also stressed the importance of local investors because they protect Indonesia from negative sentiment among foreign investors.
Among factors contributing to a paucity of local investors is the reluctance of the middle class to invest in risky capital ventures, Eric asserted.
'The majority of the Indonesian middle class still relies on time deposits as a choice of investment instrument. Only when the middle class starts to earn a bigger chunk of disposable income and has sufficient financial literacy do they start to consider investing their money in riskier capital market investments [like mutual funds or shares].'
His assertion implies that the current presence of wealth management products on the market offers potential to grow their wealth, because these products provide various types of lucrative investment instruments and advisory services.
Wealth management advisory services are important because they help new capital investors gain better insight into the products before picking the best investment type for them, he added.
In general, wealth management services target the affluent, or the middle-upper socioeconomic bracket. Banks use different yardsticks to define their target market.
Citibank, for example, comes with Citigold wealth management service targeting the affluent, defined as individuals with minimum investible assets of $100,000.
The service offers a round-the-clock consultation service with the bank's relationship managers, allowing customers to constantly monitor the market trends and potential effects on the profitability of their investments.
'Basically, our relationship managers assist customers in growing their money through the most suitable investment instrument by understanding three things: their financial goals, time horizon and risk appetite,' Citibank wealth management head and senior vice president Ivan Jaya said.
Meanwhile, Bank Internasional Indonesia (BII) provides a wealth management service called the BII Platinum Access.
The service offers customers educational seminars with competent speakers from their respective fields as well as personal consultations with the bank's financial planners to help them determine the instrument and direction of their capital market investments, explained Stefanus Willy Sukianto, BII wealth management, segment strategy and e-channel division head.
A customer needs to have a minimum average deposit of Rp 1 billion to apply for the service. The money has to be invested in the form of a third-party fund.
More banks are now outdoing each other presenting their wealth management services. PaninBank is one example. The bank offers a similar service called the Panin Asset Management, recommended for those interested in mutual funds.
Strict regulation needed
In line with the growth of affluent people interested to grow their money in the capital market, Eric said that OJK needed to devise a strict regulation to protect capital market investors.
'I have to acknowledge that there are a lot of fraudulent investments out there. If the wealth management service providers and the customers have a lack of understanding in the capital market, they might become the victim of fraudulent investments . Therefore, the OJK needs to devise a mechanism that governs the regulation in order to protect investors.' (Sebastian Partogi)
