Abhijit Kargirwar, Head – HNI Sales and Wealth Management, Runwal Group
Wealth Management is basically an investment advice or assistance to manage a person’s financial life. These services are offered to clients in packages to provide benefits with two main goals, growth and safety of their existing investment.
Types of Wealth Management Service Providers
Currently in India there are majorly three types of wealth management service providers viz. Banks, Brokerage firms and Boutique advisory firms.
Banks – Banks are known to have larger investment distribution model which means that they do not concentrate on only one investment options but on a large investment portfolio. Further they also cater to mid-level segment clients apart from the HNWI’s.
Brokerage Firms – Brokerage firms focus on investing the customer’s money majorly in shares and IPO which are equity market products.
Boutique advisory firms – Boutique advisory firms are known to provide customized financial solutions to the clients which are majorly the ultra-HNWI’s (greater than USD 30 million) and HNWI’s (USD 1 million to 30 million).
According to a report, India – the Future of HNWIs to 2015: Burgeoning Wealth and Wealth Management Opportunities, India currently has the fourth-highest number of HNWIs in the Asia-Pacific region after Japan, China and Australia. Going forward, the number of Indian HNWIs is expected to grow by 85 percent to reach close to 465,000 individuals in 2015. HNWI wealth is expected to grow by 97 percent to US $2,134 billion by 2016.
The wealth management industry is growing rapidly mainly because of two reasons, one is changing regulatory environment and two; increasing competition. The growth rate has attracted big names wanting to set up their wealth management division in India in the last few years. Also among the existing business houses that have been into financial services are looking to expand their business lines into wealth management.
In the early period, wealth management in India had begun with banks providing insurance and mutual funds products to individuals. During that time the advisory services did not exist and institutions did not charge for the same. But with gradual regulatory changes the sector has found new sources of income.
Various financial institutions and banks are gradually eyeing ways to entice customers towards their wealth management services. This tendency is probably to continue, with India projected to become the third largest global economy by 2030. Majority of the organized players have focus majorly on the urban segment which means it has left one-fifth of the HNWI population of India untapped. The regulatory environment and tax structure changes will present a lot of opportunities for wealth managers to multiply their product offerings.
Size and Growth of Wealth Management in India
The size of the HNWI population of India is small compared to the other established markets but the HNWI wealth is estimated to grow by 97 percent to US $2,134 billion in 2015. According to research reports the wealthy households include 8 percent of but they account for 45 percent of the total wealth. There is a lot of scope for the sector to grow as only 20-25 percent from the HNWI population takes advice from the wealth managers. Considering the demographics the HNWI population is between the age-group of 30-55 years who are looking for wealth management services which leads to wealth accumulation, risk mitigation and product portfolio which gives them high returns.
Another fact is the decrease in the share of unorganized players in the market. By unorganized players we mean the small brokers, agents and advisers. This happened because the organized players have an increased presence and also income and profitability burdens have resulted in consolidation. As a resultant effect of this the liquid assets accessible for the organized players has increased which added to their growth in assets
Also it has been observed that there has been an inclination of wealth management firms in India to offer custom made services to the NRI clients since it is estimated to be huge at around 29 million all over the world.
Challenges to Wealth Management in India
• Regulatory environment
The regulatory environment is still evolving as there still is substantial vagueness in the jurisdiction of numerous regulators and it is one of the reasons for lack of experimentation. Also looking at the various products, the commodities, derivative and bond market is not as mature as the equity market in India.
• Entry blockades
Another challenge for potential wealth managers is setting up locations for which they have to pay a heavy property price. This factor of having physical locations cannot be avoided as wealth management as a service requires that physical presence to build client relationships.
• Finance literacy
The awareness about the financial products that are available is low among the target population. Also there is a sense of insecurity among the investors due to scams, harmful practices of some advisers and absence of investor protection environment. This has led to a very narrow minded view regarding investments which are long term.
• Sector reach
According to the statistics 20 percent of the HNWI population live outside the metros which are served by the unorganized players. Therefore for this sector to expand, its reach will play an important part in arresting the untapped wealth and transforming it to assets under management.
• Product and Service offerings
In order to succeed the product portfolio offered must be innovative in terms of meeting the diverse customer needs and match the standards of mature market players. Even innovating could pose a challenge in the obstructive regulatory environment coupled with preserving the product structure and pricing transparency.
Wealth management services are attracting more attention as the economy is moving towards higher income levels and saving patterns and is primed to bloom. But this could happen when they invest significantly in brand building to build trust, quality advisory, translucent and compliant wealth management system for the investors. Wealth management in India is still blossoming and this could be just the beginning of the best which this industry has not yet seen.