A new era of wealth management in India

India is currently in a new financial epoch, and its narrative of wealth management is undergoing a huge shift. Over the past decade, the allocation of household savings to financial assets has surged from 48% in FY13 to over 60% in FY23. This change signals a fundamental reconfiguration of how wealth is perceived, managed, and ultimately deployed, by Indian households.

With millions of households transitioning from traditional savings to actively engaging in equities and investment vehicles, high-net-worth individuals (HNWIs) find themselves at the center of this evolution. This wave of financialisation brings unprecedented opportunities for new and alternative wealth distribution models, where the intersection of technology and personalised service is redefining client relationships.

The evolving financial environment

The total financial wealth under management in India today has surpassed $3T and is projected to grow at an annual rate of 11-12% over the next five years. 

However, this wealth is disproportionately concentrated, with approximately 220,000 households — about 0.07% of India’s 330 million households — accounting for nearly 40% of this wealth. This concentration presents a dual challenge and opportunity: how to effectively service this affluent segment while expanding reach to new investors, particularly HNWIs.

As traditional banking frameworks face pressures to adapt, alternative wealth management approaches are emerging.

Relationship Manager (RM)-led and Independent Financial Advisor (IFA)-led models are gaining prominence as they provide pathways to address the complex needs of HNWIs and tap into the growing segment of affluent clients.

The case for RM-led and IFA-led models

Among the myriad of models available, RM-led wealth distribution stands out to us as particularly compelling. This model relies on dedicated Relationship Managers who deliver personalised, ongoing advisory services tailored to individual client needs, risk appetites, and financial goals. This bespoke approach builds trust and fosters deeper client relationships, essential in a domain where investment decisions can materially influence wealth accumulation. 

In parallel, IFA-led models present a close compelling alternative by providing independent advice devoid of the inherent biases associated with bank-affiliated advisors. IFAs can offer a diverse range of products and services that allow clients to select strategies that align closely with their financial ambitions. This flexibility is especially appealing to clients who seek tailored solutions over standardised offerings.

Bridging technology and expertise

As wealth management evolves, the integration of technology with human expertise is becoming increasingly critical. The proliferation of digital platforms has altered client interactions with financial advisors. Wealth management firms that leverage technology to provide efficient, user-friendly interfaces can enhance the client experience while maintaining the personalised touch that builds trust.

Consider the application of advanced analytics and machine learning in portfolio management. These technologies enable firms to offer real-time insights, risk assessments, and performance tracking, allowing clients to make informed decisions quickly. By marrying technology with human insights, wealth managers can create more holistic financial strategies that resonate with clients' evolving needs.

Firms that adeptly integrate these elements stand to gain a competitive edge. Technology enhances scalability and efficiency, while human advisors contribute the nuanced insights that drive client satisfaction and retention. This hybrid approach ensures that clients receive the best of both worlds: personalised service coupled with the benefits of advanced tech solutions.

A regulatory shift towards advisory services

The Indian regulatory environment is also evolving to endorse a more advisory-led wealth management model with several building blocks put in place over the last decade. Reforms have introduced direct plans for mutual funds, portfolio management services and alternative investment vehicles, eliminated upfront commissions and allowed advisors to charge fees based on percentage of clients assets under advisory. This alignment of wealth advisors’ financial goals with those of their clients cultivates a more transparent, ethical, and efficient market environment. 

Globally, the trend is decidedly toward advisory-focused models, as evidenced by the rising number of Registered Investment Advisors (RIAs) in developed markets. India is witnessing similar movements, where regulatory changes encourage a transition to advisory-based compensation structures. The successful firms of the future will be those that adapt to these evolving regulations and leverage them to build robust, client-centric business models.

The growing affluent population

The wealth management market is concentrated at the upper echelons of the financial wealth pyramid with significant growth observed among HNWIs and Ultra-High-Net-Worth Individuals (UHNWIs). The HNI population in India is projected to expand rapidly, driven by economic growth and increasing affluence. Interestingly, India now ranks among the top nations for HNIs and UHNWIs, with three cities appearing in the list of the fastest-growing UHNI hubs globally.

Despite this robust growth, a sizable portion of the affluent population remains underserved. An estimated 30-40% of this demographic currently eschews professional financial advice. Among those who do seek guidance, nearly 40% rely on their bank’s RMs who may lack the requisite sophistication or independence to provide comprehensive and independent advice. ‍

This disconnect creates fertile ground for wealth management firms that can deliver high-caliber, personalised services to these individuals.

The path forward

The ongoing financialisation of savings presents immense opportunities for wealth management in India. The strategic direction for wealth management firms is unequivocal: prioritising RM-led and IFA-led distribution models will be crucial for effectively engaging HNWIs. Emphasising sophisticated, personalised services that leverage technology to enhance client interactions will set firms apart amidst competition.

Also targeting newly-minted HNIs, who increasingly seek for bespoke advice, can unlock new avenues for growth. Firms that invest in building strong relationships and delivering customised financial solutions will likely excel in capturing this emerging demographic.

A new chapter in wealth management in India

Ultimately, the story of India’s wealth management evolution goes beyond numbers and strategies as it centers on the aspirations of individuals and families navigating an increasingly complex financial environment and the professionals guiding them through it.

As we stand on the cusp of this new chapter, the fusion of technology and human expertise will redefine the wealth management experience. For India’s 1.4 billion citizens, the future promises growth, security, and the realisation of financial aspirations.

In this unfolding narrative, those prepared to adapt and innovate will not only lead the way but will also shape the future of wealth management in India. The stakes are high, and the rewards for those who navigate this landscape effectively will be profound.