The Wealth Management industry has experienced robust growth in the recent years, it’s backed by India’s increasing affluent segment that has created a sizeable customer base for investment advisory services. Our culture of saving and investing has further fuelled the demand. Mass affluent and High net worth Individuals (HNIs) are increasingly moving away from traditional asset classes such as Fixed Deposits, Real Estate and Gold to focus on equities. They have allocated more than half of their wealth to risk-on assets such as equities, mutual funds, and ETFs. Also, post COVID there was a broad-based revival of investor risk appetite, coupled with modestly higher stock market valuations which has tilted most portfolios in the direction of capital markets. Within the equity world, traditionally clients have been largely interested in mutual fund investments and doing direct equity trading themselves. More recently, wealthier clients are looking more to alternative asset classes, including AIF’s (Alternative Investment Funds). In just 10 years, according to the Securities and Exchange Board of India, this market has already raised 80 billion USD in AUM in India. There is a surge in demand for financial expertise to help manage the money and the recent shift in investors’ mindset. It has set India on a steep growth trajectory which will alter the local wealth management market as needs and demands change.
Challenges
I feel the biggest challenge is lack of innovative products that wealth managers have at their disposal. India is expected to grow by around 7% in 2023 and is on track to become a $5-trillion economy by 2027-28, the third largest in the world. Deeply entrepreneurial, nearly three individuals each day join the ultra-high-net-worth (UHNW) club with a net worth of more than $30 million. With so much wealth to be advised on, as an advisor our offerings are still dominated by Mutual Funds, PMS and AIFs. To HNIs these avenues are at times seen as boring or not exciting enough in country that is coming of age and is full of new growth opportunities. The new asset classes like Start-ups, SMEs and Private Credit are very attractive but I feel the current financial vehicles that are designed to tap into these investments are still the same as they were a decade ago. In developed financial markets of US, Singapore and Dubai instruments such as Structured Notes, Leveraged Bond Baskets, ETFs, Universal Insurance, Market linked Debentures are very prevalent. They enable advisors to get creative and the good ones can really show their talent by using these tools to generate superior return. New products also foster inclusion, as asset manufactures find ways to provide capital to more businesses. Investor are linked to them through transfer of capital and these companies come in the fold of our financial system. Whereas lack of innovation does not promote competition and it becomes difficult to differentiate yourself because everyone is essentially pitching the same thing.
Opportunities
The mass affluent and UHNI space is experiencing a transformative phase marked by several key drivers like inter-generational wealth transfer, increased interest in complex products such as international investments and increase in risk-appetite. We expect this segment to grow at ~15% over the medium term. For Wealth advisors, diverse offerings, enhanced services and the ability to generate alpha beyond the traditional avenues will be the differentiator. If I can provide a risk-taking client with a simple, easy to understand financial instrument that invests in SMEs or Start-ups then I will win him over. Or if I can create a structured note that is capital protected and provides an upside on equities then I have everyone’s attention. The demand is there, investors are now smart enough to take calculated risks and understand the complexities that come along with customised products. This unravels a host of new opportunities where we will see new Asset Management companies coming up to provide new instruments to capture client’s imagination and get them excited.
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Future – Master of one.
Another shift we have seen recently is that investors now appreciate specialisation. I remember when I started out in 2005, there was a commonly used phrase ‘One Stop Shop’. Financial services companies wanted to be the one stop for all clients. We were doing broking, wealth, insurance, lending, Demat services, Mutual Funds, Institution work and were willing to add more services to our kitty to show the robustness of our company. Last decade saw an opposite trend, big companies have become bigger by focusing on key verticals like Zerodha with broking, IIFL with wealth, Waterfield with Family offices and so on. A major factor was the money management became a serious business. If I sold my start-up for a fortune, then I would rather go to someone whose only job is to manage fortunes and is not distracted with other complimentary services. They can seek outside experts for opinion and be one point of contact for me, but I would appreciate if one advisor is not trying to be an equity expert and an insurance agent at the same time. Also, as India has grown in numbers each sub-industry has become a primary industry in itself. This a big sign of a country that is on a path to become a major economy. 15 years ago , wealth management was not a prime industry like insurance or broking but today almost all banks have a separate Wealth division.
It is a great time to be part of this industry, as the sector matures, customisation on the product side and specialisation in service offerings can a massive game changer for any player. It’s a competitive landscape like any other and strategic innovation instead of meeting evolving requirements through incremental additions will ensure growth and success.
Kush Gupta, Director at SKG– Investments & Advisory
