With the brokerage division now operational under the new set-up and the business picking up, the last couple of weeks were primarily focused on the Wealth Management division and the preparation of the overall strategy for EIB.
The Wealth Management sector in Kenya is dominated by a handful of companies and the products landscape at the moment mainly consists of unit trust funds and managed accounts. This unsophisticated market however generates eye watering returns of 10 – 20% even for low/medium risk strategies like Money Market and Balanced Funds. The sustainability and reasons for these numbers can be debated, but in the meanwhile I sigh every time I think about what if I could put…
Given the generally high minimum subscriptions, the existence of upfront charges and redemption fees, high management and transaction based charges, etc., the unit trust funds as well as managed accounts remain primarily suitable for the medium and high income customer segments. EIB’s long term objective is however to create a product offering which will increase the wealth management inclusion for low income customers which are a big part of the Group’s 9m clients. This would allow them to achieve returns significantly better than the interest on deposits (which is one the few investment options these customers have) at affordable cost. Developing such product offering is not an easy thing though and administration if you don’t have own portfolio management capabilities in house and have to rely on service providers charging market rates…
A key insight which became apparent when calculating the business case and is closely related to the above was that even though EIB has the potential to tap the enormous clients base, the scale required in order to be profitable has to be really significant. The overall success of the business will depend on how well and quickly the new division will manage to engage the clients which in turn will would require education, training and buy-in from the staff in the branches whose main activity in the past was deposit taking and granting of loans.
So the journey for EIB starts with the launch of two unit trust funds which will be managed by external fund managers. We spend significant time talking to the key players on the market, understanding their capabilities and comparing bids. After some set-backs with the negotiations, we now have an agreement and are proceeding with all set-up activities. Exciting, but sadly, the few months regulatory approval timeframe will not allow me to see the launch of the funds completely through.
In parallel, we continue working on the overall strategy for EIB for the next 3 years across all business lines and are in the process of preparing for a few days offsite next week where the EIB team will have the chance to see a consolidated view and to challenge and refine the proposals – looking forward to this and also some free time in Naivasha (a beautiful lake one hour drive from Nairobi).