A rapidly expanding HNWI/UHNWI base in India is set to completely transform Indian Wealth Management industry in the next few years and increasing scope of wealth management is creating new growth possibilities for trained and certified professionals in the field.
World Wealth report published by Capgemini and RBC Wealth Management recently says that India became home to 1.56 lakh millionaires in 2013, with 3000 more joining the elite club in 2013, making the country 16th most populous, in terms of population, of super-rich people worldwide !!!
The US topped the chart with 40,06,000 millionaires, followed by Japan (23,27,000) and Germany (11,30,000).
The report further added that robust growth is expected in most regions, with Asia-Pacific at the forefront with an anticipated 9.8 percent annual growth rate, positioning the region to be the largest HNWI market by population in 2014 and in wealth terms by 2015.
This is huge potential and naturally will attract new entrants to the industry. This also means that there is enough opportunity for each player on the table. However, 80:20 rule should apply here. 80% of the wealth will be managed/advised by 20% of the advisors.
Impact on the Private Banking Industry
The private banking industry is classified into 3 buckets – private banks on banking platforms (e.g., Kotak, Citibank, HSBC, DWS, Axis, HDFC, ICICI etc ), private banks sponsored by non-banks (IIFL, Motilal Oswal, Anand Rathi etc) and small boutique houses
These three buckets comprise the organized sector. There is a significantly large unorganized sector too, though this segment is shrinking with passing time. However, the client segment serviced by each player and the range of services provided varies significantly. Some are mere distributors while others offer more complex offerings such as estate planning and family office services. Basic offerings like asset allocation and financial planning, tax planning are now hygiene factors.
Comprehensive reporting, product due diligence and product pipeline, and family office services are most in demand and these have become the key differentiators.
In the last 6-7 years, we have seen emergence of family offices in India. It brings in a whole new dimension in terms of client servicing, reporting and offering unbiased advice. Family office offering has raised steep entry barriers for new advisors, making the existing client-private bank relationship stronger. We hope that this will lead to longer-term relationships as the client will ultimately consolidate their wealth within these family offices, who will act as gatekeepers. This process involves a high level of trust and confidentiality.
Another trend we clearly see is clients’ involvement in decision-making process, leading to a greater understanding of products. New-age clients are financially savvy and willing to experiment with new product types. This increasing scope of wealth management industry bodes well for advisors, and presents an opportunity for product innovation. In India, the current generation is well-read, educated abroad and has a keener understanding of capital markets. As a result, unlike say 15 years ago, today most of our clients understand what they are buying into and will often ask us for product simulation or reiterations or will ask for the global track record of similar products. This is a really big transformation taking place in India’s wealth management industry. This brings transparency and forces product manufacturers to innovate faster.
There are some things that are critical for a new entrant or a young player in the industry – understanding their client segment, revenue sources and cost structure. This will determine the kind of products and services to be offered and the kind of fee structure to opt for. Doing “exclusive” products can be a big value, can open doors to new clients and can also yield higher margins to the advisor. For services that are already available in the industry, one need not reinvest the wheel if a model for success has been established.
In conclusion, challenges for this industry are aplenty, especially as the industry evolves to the next level. These challenges are in the form of a new segment of HNIs with very different investing behaviour, offering best-in-class products and innovation, changing revenue sources and cost-income models, differentiated value propositions, as well as the role of ever-evolving technology.
Over time, the industry will evolve and overcome these challenges. The importance of advice will remain critical to success since at the core of wealth management lies the edge of knowledge translating to unbiased, quality advice.