The Indian wealth management industry is growing at 30% per annum and is expected to have assets under management of $1 trillion in the next 5 years.
42 m households in India will avail services of money managers in 5 years
MUMBAI: The Indian wealth management industry is growing at 30% per annum and is expected to have assets under management (AUM) of $1 trillion in the next 5 years.
That’s approximately 42 million households covered by financial institutions, as against 13 million today, according to Celent, a Boston-based financial research and consulting firm.
Celent arrived at the $1 trillion mark by estimating that Indian financial institutions’ current share of 7% of total national disposable income, will grow to 18% by 2012. If this happens, then wealth management revenues are expected to account for 32-37% of the revenues of full service financial institutions in 5 years.
“The Indian wealth management business has moved from safeguarding wealth to growing wealth,” says the report. “There is momentum towards more sophisticated customer segmentation, products, and delivery channels,” it adds.
The providers of wealth management services in India segment the market into four broad categories: the mass market (investable surplus $5,000 to $25,000), the mass affluent ($25,000 to $1 million), the high net worth or HNW ($1 million to $30 million), and the ultra-high net worth or ultra-HNW (greater than $30 million).
Celent estimates that the lower rung of the pyramid, ie, the mass market and mass affluent will contribute to the chunk of the growth, growing at 27% and 30% respectively.
However, at the same time, AUM growth contribution will continue to be dominated by the ultra-HNW and HNW segments.
Celent also envisages the Indian wealth management sector, which can be bifurcated into the organised and the unorganised market, to see a tectonic shift. “A structural change is taking place; increased market penetration by organised players is drawing clients from the unorganised end of the market,” says the report.
The organised market is on the lines of wealth and private banking practices in developed economies. The unorganised market comprises independent wealth advisors and small brokers/agents who double as financial advisors. At present, players in the unorganised market have approximately 1.5 times the AUM of the organised sector. Besides, Celent estimates that enhanced product awareness and increased access to credible market information will result in clients in the HNW and ultra-HNW segment becoming more proactive in their portfolio management decisions.
“At present, 78% of all assets under management of the HNW and ultra-HNW segments fall under the discretionary scheme, where the wealth management vendor works independently to help the client realise the agreed-to gains within the constraints the client has set out,” says the report. But this is set to change, with a growing movement towards non-discretionary portfolio management schemes.
By 2017, Celent expects almost 35% of the assets managed through vendors to be through the non-discretionary scheme or a mix of the two, as opposed to 22% now. Product innovation, and the shift away from equity (currently 48% of total AUM is invested in equity) is also on the cards. “We should expect some very India specific innovations in the near future,” says Ravi Nawal, the author of the report.
sanat_vallikappen@dnaindia.net
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