Investing Habits of High Net Individuals: Interview with Gathinji Kingóri, Head of Investment at Stanbic Bank

1. Who are considered as high net worth individuals in Kenya?

The broad definition of high net worth individuals is those that have investable assets of KES 100 Million (Equivalent of USD 1 million) and above. This assessment normally excludes the value of their residential home.

2. What is your take or analysis on trends on Kenya’s high net worth individuals and how will that change in the long-term?

In our experience as a bank, high net worth individuals continue to have a healthy appetite for new investment opportunities alongside an appreciation of what has worked for them in the past. In addition, we are seeing a greater appreciation for the benefits of diversification and this has led to investors allocating their resources to different buckets to spread risk.?

In the longer term, we can expect to see more of a migration to less traditional asset classes. These individuals will increasingly look to benefit from a wider range of asset classes that provide them with effective diversification across geographies. One can expect to see emerging alternative asset classes begin to gain more mainstream acceptance while the traditional financial markets themselves will grow to offer a more diverse range of financial instruments as one can begin to witness with the recent launch of the derivatives market at the Nairobi Securities Exchange.

3. What are the top picks of investments for these individuals in the country?

This will tend to vary by sector. Those in the business and entrepreneurship field will tend to gravitate towards investments in their business ventures with additional investment directed to associated real estate. Those in employment would normally look to real estate and land as investments that help to accumulate substantial value. Traditional sectors such as the stock and fixed income (bond) markets hold their appeal for others who value the liquidity these marketable assets afford.?

Their adoption, however, still lags business and real estate (land), but we are seeing more interest from the emerging high net worth group.?A general theme of the Kenyan economy is that the return on cash in the form of shorter-term money market instruments and longer-term bonds is quite attractive therefore money market funds that tap into this asset class are also quite popular now. Finally, we are also seeing investors look outside Kenya for investments that provide them with added diversification as mentioned above with an emphasis on currency diversification.?

4. As Kenya’s income levels are not high, what are the most optimum options for ordinary Kenyans to create sustainable wealth?

Shifting gears perhaps, the broader investing public needs convenient and rewarding investment avenues often with a focus on liquidity and security. Options that offer safety as well as a good return such as the local currency fixed income market (government bonds) have seen increasing take-up be it directly or through collective investments schemes that now count government securities as a significant portion of their holdings.

It is a now established view that the equity markets offer the highest return potential but unfortunately owing to structural issues in the local markets retail investors have tended to be reluctant participants as evidenced by the historical trends in local investor participation that regularly point to the dominant position of foreign investors in active trading. It is important to highlight that there are several ways to start investing that have a relatively low entry threshold.?

Not long ago the government through the Central Bank and NSE piloted an innovative fixed income solution called M-Akiba that had entry levels as low Kshs. 3,000.00. In a similar vein, the stock market and broader bond market are both open to all investors at relatively affordable entry levels. Collective investment vehicles such as money market funds and real estate investment trusts (REITs) are yet other examples of innovative solutions that unlock markets for investors regardless of their income levels.

By pooling your resources with other like-minded investors, you can gain access to investment opportunities that would have otherwise been out of reach while obtaining professional investment expertise through the managers of these schemes. As a universal financial services organization, Stanbic Bank directly and through its subsidiaries is committed to providing appropriate investment solutions to our clients.?

5. A lot has been said about Kenya’s saving culture and investment, do you foresee more Kenyans diversifying their assets and moving away from the norm?

The general conclusion across a wide range of income bands is that we have a poor savings culture. Investments are a function of savings, so it follows that if we are struggling to save, we probably don’t invest much either. There seems to be a growing realization amongst a section of the public that what worked in the past for previous generations e.g. Lifelong employment and adequate pensions may not be guaranteed now. Therefore, there is now a lot of interest in personal financial empowerment, entrepreneurship- the infamous side hustle, and other efforts aimed at ensuring a more secure financial future.?

This shift has had both good and bad effects with the latter manifesting in the so-called get rich quick culture in schemes that sometimes end up losing people money and jeopardizing their financial futures. The obvious benefit however is increased participation in the financial markets as evidenced by the proliferation in regulated investment vehicles and steady growth in industry assets under management; there is still however a long way to go. One critical aspect of this process of learning is starting young, through several initiatives including a Financial Fitness Academy for children that Stanbic bank run. We believe embedding a savings culture and teaching our young ones to learn to defer gratification is key. For those already on their wealth creation journey financial literacy remains key and we incorporate a range of financial literacy themes into the program to address topical issues like debt traps, and how to acquire financial assets without becoming ‘asset rich yet cash poor, to name but a few.

6. With the increase in automated trading systems, what has been the impact on investments?

Automation is about efficiency that creates opportunities to improve accessibility while controlling or even lowering costs. Automation has also allowed financial markets to function even with the disruptions occasioned by the pandemic.

At Stanbic Bank, for example, our business and operating model is built in a way that serves our clients more effectively and efficiently since we automated core functions in documentary trade finance. The solution allows the bank to leverage Artificial Intelligence (AI) driven Deep Learning and Natural Language Processing (NLP) Technology to accelerate documentary Trade Finance processes through digitalization and intelligent automation. In addition, it allows the bank to integrate real-time compliance, counter-fraud, trade-based money laundering, and vessel tracking checks with comprehensive audit trails, reporting, and analytics.?

More generally investors at all levels can now reach markets that were previously inaccessible thanks to electronic trading systems that allow for remote participation both locally and offshore. The combined impact of all the aforesaid measures is 24/7 access that offers clients convenience and ease of execution regardless of where they are located.

7. What is the role of financial institutions in promoting financial literacy to promote positive behavior in wealth and investment?

Financial institutions such as banks are both uniquely positioned to promote financial literacy as well as to benefit from higher literacy levels in the population. We play an important role in educating our clients and the public on the products and services we offer and how these can be utilized to meet individual objectives. We go even further by engaging the market on their areas of financial concern and sharing the benefit of our collective and long experience to improve their outcomes. Stanbic Bank runs a financial literacy program called the Financial Fitness Academy?.?

The program, targeted at all ages, is an initiative aimed at helping our clients and partners navigate personal financial journeys with the support of the various products our group offers. By asking participants in the program to consider how they make their money, how they spend it, how they save and invest it, how they give back to society, and how they plan and protect their financial future. As mentioned previously when the program is delivered to the young, the focus is on ingraining good money habits including an appreciation for the value of money and learning how to save. To conclude on this point, our regulator the Central Bank of Kenya has put forward a banking sector charter in which financial literacy is highlighted as a key area.?Stanbic Bank is actively playing its role in this regard.