Advisory-based services will be the future
Sabhyasachi Mukherjee Jan 03, 2016,
In India, wealth management largely tilts toward the High Networth Individuals (HNIs) and ultra HNIs. The mass affluent section by and large hails from the business or entrepreneurial backgrounds and also includes professionals. The positive impact of the 2014 election coupled with lower crude and commodity prices and downward spiraling inflation increased the investor confidence, which helped India move up to third place for ultra HNI wealth across Asia-Pacific, displacing Australia. Of the $7.4 trillion of HNI wealth added in Asia-Pacific since 2006, India and China accounted for an impressive 43 per cent. Continued growth is expected to result in India and China holding over 10 per cent global HNI wealth by 2017 (10.7 per cent), as per the Capgemini Report, 2015.
The first generation entrepreneurs have made significant contributions to the ultra HNI landscape and have effectively lowered the age group for the ultra HNI, being below 40 years. It is noted due to the large population and diverse demographic background in India, around 40 per cent of the ultra HNIs are based out of non-metros, residing in cities like Ahmedabad, Chandigarh and Bengaluru. It is also observed that philanthropy activities continue to be important for the HNIs along with children foreign education. The investments mainly revolve around real estates and low risk fixed income assets, though a considerable amount has recently moved to equity as an asset class. Availability of credit facility also scores high for the HNIs and they place high hope on their wealth management firms to make credit accessible to leverage business activities and investments.
Rigorous regulations
Being a client facing business, and to take benefit of the high prospects in the wealth management space, local players in India are planning to put in more branches and wealth managers. The Indian wealth management firms, which control around 75 per cent of the market in India, with their expansion plans will keep the global banks on edge, which are by now distressed with higher wages and a smaller client base and also struggle to put cost effective presence in smaller cities like Ahmedabad and Chandigarh.
The rigorous regulations for international wealth management firms deter them from investing into sectors such as real estate, where the rules are ambiguous compared with global standards. Regulatory restrictions and partial rupee convertibility add to the challenges for the foreign wealth management players and many have already opted to exit India’s wealth management space.
The challenge for the local wealth management firms are also steep, where it is seen that Indians by nature are more value-conscious, but tightfisted when it comes to paying fees, which has resulted in the fee-based model not picking up. Thus some biggest wealth management firms have continued with the commission structure and have stayed away from offering fee-based advisory services. The potential for advisory model is huge in India, where wealth managers are rewarded for recommending the best products to the client as per the risk profile.
The challenges faced by the industry are also mounting as the tightening by the regulators on the sale of third-party products and other savings instruments together with lower commissions, led to a fall in income for most wealth management firms. Thus, moving towards advisory-based services will be the future as we can see macroeconomic improvements in India, which will result in making money for the investors and collecting fees for the services rendered will be easier.
Any business in India requires persistence and patience, and the Indian wealth management industry is no exception. The local Indian wealth management firms are optimistic that it is only the tip of the iceberg that they have scratched and the business vertical will definitely grow by leaps and bounds. The foreign wealth management firms should stay put, as wealth management is the kind of business where continuous touch with the client is important, whether it is going good or bad. The firms looking to enter into the wealth management space will need to devote a great deal in brand-building exercises to convey their reliability and dependability. Hence, it is suggested that firms should take a long-term view while assessing the likely return on investment.
Focus on brand building
Considering the embryonic stage of the wealth management market in India, with a demographic and regulatory surroundings that is considerably diverse from developed countries in the world, we feel, wealth managers should focus on brand building and gaining the faith of the investors.
As the business of wealth management is heavily dependent on personalised services, the firms should implement policies to develop and improve the wealth managers’ productivity and retention. The wealth management firms should focus on precision of reporting and fulfillment of all regulatory norms together with targeting clientele with smart and segment-focused products. Technology plays a major role in the success of the wealth management firms. India’s wealthy are comparatively young, and hence the focus should be more on new technologies. Social-and mobile-enabling investing apps could be the key differentiators.
The wealth management industry in India is on the brink of major growth, given the positive macroeconomic factors and likely regulatory support for the sector. This provide immense expansion for the sector, which will compel speedy market development, together with an increase in the number of wealth management firms.
To effectively make benefit of the current situations, the wealth management firms must adhere to a tailored move by taking into consideration the detailed characteristic of the Indian market in general, and their individual clients in particular. Thus a strong and cost-effective business model focused on enhanced transparency and compliance, together with proficient technology solutions should form the core for the wealth management services.
(The author is based in Mumbai, and is the Head of Personal Investment Consulting at India Infoline)
The first generation entrepreneurs have made significant contributions to the ultra HNI landscape and have effectively lowered the age group for the ultra HNI, being below 40 years. It is noted due to the large population and diverse demographic background in India, around 40 per cent of the ultra HNIs are based out of non-metros, residing in cities like Ahmedabad, Chandigarh and Bengaluru. It is also observed that philanthropy activities continue to be important for the HNIs along with children foreign education. The investments mainly revolve around real estates and low risk fixed income assets, though a considerable amount has recently moved to equity as an asset class. Availability of credit facility also scores high for the HNIs and they place high hope on their wealth management firms to make credit accessible to leverage business activities and investments.
Rigorous regulations
Being a client facing business, and to take benefit of the high prospects in the wealth management space, local players in India are planning to put in more branches and wealth managers. The Indian wealth management firms, which control around 75 per cent of the market in India, with their expansion plans will keep the global banks on edge, which are by now distressed with higher wages and a smaller client base and also struggle to put cost effective presence in smaller cities like Ahmedabad and Chandigarh.
The rigorous regulations for international wealth management firms deter them from investing into sectors such as real estate, where the rules are ambiguous compared with global standards. Regulatory restrictions and partial rupee convertibility add to the challenges for the foreign wealth management players and many have already opted to exit India’s wealth management space.
The challenge for the local wealth management firms are also steep, where it is seen that Indians by nature are more value-conscious, but tightfisted when it comes to paying fees, which has resulted in the fee-based model not picking up. Thus some biggest wealth management firms have continued with the commission structure and have stayed away from offering fee-based advisory services. The potential for advisory model is huge in India, where wealth managers are rewarded for recommending the best products to the client as per the risk profile.
The challenges faced by the industry are also mounting as the tightening by the regulators on the sale of third-party products and other savings instruments together with lower commissions, led to a fall in income for most wealth management firms. Thus, moving towards advisory-based services will be the future as we can see macroeconomic improvements in India, which will result in making money for the investors and collecting fees for the services rendered will be easier.
Any business in India requires persistence and patience, and the Indian wealth management industry is no exception. The local Indian wealth management firms are optimistic that it is only the tip of the iceberg that they have scratched and the business vertical will definitely grow by leaps and bounds. The foreign wealth management firms should stay put, as wealth management is the kind of business where continuous touch with the client is important, whether it is going good or bad. The firms looking to enter into the wealth management space will need to devote a great deal in brand-building exercises to convey their reliability and dependability. Hence, it is suggested that firms should take a long-term view while assessing the likely return on investment.
Focus on brand building
Considering the embryonic stage of the wealth management market in India, with a demographic and regulatory surroundings that is considerably diverse from developed countries in the world, we feel, wealth managers should focus on brand building and gaining the faith of the investors.
As the business of wealth management is heavily dependent on personalised services, the firms should implement policies to develop and improve the wealth managers’ productivity and retention. The wealth management firms should focus on precision of reporting and fulfillment of all regulatory norms together with targeting clientele with smart and segment-focused products. Technology plays a major role in the success of the wealth management firms. India’s wealthy are comparatively young, and hence the focus should be more on new technologies. Social-and mobile-enabling investing apps could be the key differentiators.
The wealth management industry in India is on the brink of major growth, given the positive macroeconomic factors and likely regulatory support for the sector. This provide immense expansion for the sector, which will compel speedy market development, together with an increase in the number of wealth management firms.
To effectively make benefit of the current situations, the wealth management firms must adhere to a tailored move by taking into consideration the detailed characteristic of the Indian market in general, and their individual clients in particular. Thus a strong and cost-effective business model focused on enhanced transparency and compliance, together with proficient technology solutions should form the core for the wealth management services.
(The author is based in Mumbai, and is the Head of Personal Investment Consulting at India Infoline)
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