Navigating through tumultuous WM landscape in India
30 September 2011
The Indian wealth management market is dominated by domestic wealth management providers in the mass affluent segment, while international firms and private banks are strong players in the high and ultra-high net worth segment. Insurance providers are dominant players in the mass market. Brokerages and retail banks have started separate wealth management businesses and they are gaining strong ground in high affluent segments. Another characteristic of the Indian wealth management market is the large share of the business captured by unorganized players. The size of this business is estimated to be about twice the size of the business of organized players. The unorganized segment mainly comprises of private financial advisors and chartered accountants who provide personalized financial advisory such as tax and investment advisory. Increased penetration of the organized players is slowly drawing the clients away from the unorganized players. However, the picture is not all hunky dory for wealth management providers, as the industry is beset with several challenges. Rising competition and resulting downward pressure on advisory fees, along with a large chunk of ‘invisible’ wealth are some of the reasons why private banks and wealth management providers are not able to monetize the opportunity easily. By ‘invisible’ wealth, we refer to wealth that is hidden away in tax havens and black money which has become a topic for heated public debate in the country today. Also, not to forget the negative investor sentiment caused by a series of scams and the slide in equity markets, which has made the challenge greater. Lack of product variety is also a matter of concern. Alternative investment vehicles such as hedge funds and private equity provide limited options for investment, and regulatory constraints on overseas investments have resulted in poor product variety comprising mostly of vanilla products. The Indian market is still nascent for exotic investments such as art and luxury goods. Also, the affinity of wealthy individuals towards investments in gold and real estate which do not require the specialized services of a wealth manager further contributes to target segment shrinkage. There is a gradual shift to advisory based feel model from transaction based fee models, with regulators stepping in protect investor interests. While it seeks to remedy conflict-of-interest between wealth managers and their clients, it also exerts downward pressure on fees. We might eventually see smaller players being forced out of the business. Large players would have to stay invested for sufficient length of time before returns start trickling in. Therefore, large banks and brokerages which have high reach and who can monetize the potential for cross-selling banking/mutual fund products would be placed at an advantage in capturing this market.