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Wealth management landscape and outlook in India: Takeaways from the global experience
Recent scenario in the Indian wealth management (WM) space

Fig 1: Indian HNI's 5 yr CAGR has been relatively strong

HNI Count (Th)
2006
2011
CAGR
India
100
126
5%
Asia Pacific
2,600
3,400
6%
Global
9,500
11,000
3%
HNI Wealth (US$Bn)
India
350
477
6%
Asia Pacific
8,420
10,700
5%
Global
37,200
42,000
2%

WM business has typically been an offshoot of the growth in discretionary income. With the rapid
growth in Indias GDP and income levels, its WM industry has become a hot-bed of activity. New
and existing players are competing in a yet nascent market. Indian HNI wealth and count has grown
at a CAGR of 5-6% from 2006 to 2011, similar to Asian markets but much higher than global rates

Nevertheless, a growth market has its set of challenges. Volatile markets since 2011 have played Source: Merrill Lynch-Capgemini Global & Asia Wealth reports
havoc with asset values. Clients focus is now shifting to low-risk products, with expectations of Economic and income growth boosted
higher service levels at competitive prices. This poses a challenge, as WM players need to reorient scope for WM, but volatile markets and
growth slowdown have posed challenges
their operating models to maintain their share in a competitive and evolving market

Size and structure of the WM market in India

As per Capgeminis report on Asian wealth, India had 126,000 HNIs with wealth of US$477bn in 2011 vs. 100,000 HNIs with US$350bn in 2006.
The growth trajectory during this period has been volatile. 2011 was especially harsh for India owing to macro concerns and economic
slowdown. On a YoY basis, Indias HNI count dipped from 153,000 to 126,000 and HNI wealth slid from US$582bn to US$477bn in 2011
Indias market is fragmented, with organized sector (independent firms, banks, brokers) battling unorganized sector (private advisors, CAs).
Celents research says a shift is seen towards organized sector as the market evolves, whose share is still just half that of unorganized players
Indias HNI count to total population grew from 0.007% to 0.011% from 2004 to 2011, with a high of 0.013% in 2010. However, it is still quite
small compared to major mature and emerging markets. This indicates healthy growth prospects as the ratio moves closer to global averages

Sudhir Dhar, Head of

HR, was awarded the
Most Powerful HR
Professionals of India
Award by the World
HRD Congress

India

China

Brazil

0.92%
1.17%

Mature
markets

0.69%
0.70%

0.85%
0.98%

2011

0.15%
0.30%

Emerging
markets

2004

0.05%
0.08%

PE business has been

strengthened with the
joining of Somak Ghosh
as Co-CEO, responsible
for growing the real
estate fund business

Fig 2: HNI count/population ratio in India is still much

lower than both mature markets and emerging peers

0.02%
0.04%

Conducted the 8th

Annual Motilal Oswal
Global Investor
Conference in Mumbai

Experience of a similarly evolving market like China shows that as Indias long-term economic story takes shape, the proportion of HNI Wealth
to GDP should rise. HNI wealth tends to grow proportionately higher than GDP as the discretionary income and savings grows in the economy

0.007%
0.011%

Business Updates:

Fig 3: Proportion of HNI wealth to GDP picks up with GDS% as the

market evolves (as seen in China, Korea); HNI wealth picks up when
growth in Per Capita GDP is higher (as seen in China and Indonesia);
Korea is a more mature market hence its HNI wealth is already sizable
Avg of HNI Wealth/GDP (2006-11)
Avg of GDS/GDP (2006-11)
48% 52%

21%

34% 34%

USA

UK

Germany

Source: Indexmundi.com; Merrill Lynch-Capgemini Global Wealth reports

India

17%

31% 34% 31%

China

Indonesia

11%
6%

15%

Korea

CAGR of HNI Wealth (2006-11)

CAGR of Per Capita GDP (2006-11)

Korea

India

9%

9%

7%
3%

China

Indonesia Korea

Fig 4: Emerging economies allocate a smaller proportion

of household personal financial assets towards equities
912

Others

Currency

42%

Insurance & Pension

Reserves
Mutual Funds

13%

Direct Equity

38,225

4,917
0%

10%

Deposits

12%

17%
2%

64%

30%

16%
6%
14%

7%
11%
10%
8%

13%

India

China

USA

26%

Source: FICCI_McKinsey report - Capital Markets 2020 - Going for 3x

Source: IMF data, Merrill Lynch-Capgemini Asia Pacific Wealth reports

Comparing Asias growth markets to USA shows that equity comprises a comparatively lesser
proportion of private financial wealth in Asia. It is instead dominated by insurance and deposits
Kotaks survey shows that while Indian HNIs spending habits were unchanged in 2011, their
investment decisions changed. Capital conservation, low-risk, discipline were the buzzwords
Safe, low-risk assets were in vogue & demand for equities was low. But despite the low demand,
many didnt withdraw their existing equity holdings as they viewed it as a long-term bet
Main focus has been on Tier I/II cities so far, while wealth pools outside them remain untapped

Fig 5: Indian HNI Wealth have generally moved in a higher

proportion YoY with growth shifts in Household Financial Savings
Growth in Household Financial Savings

Growth in HNI Wealth

71%

46%
20%

15%

14%
-8%

-2% -25%
2007

2008

2009

-10% -16%

2010

2011

Source: RBI, Economic Survey, Times of India, ML-Capgemini Asia Wealth reports

Entrepreneurs, Professionals led the recent growth in Indian HNIs, as economic growth helped business owners/workforce enhance incomes

2%

0.66%
0.62%

16%
15%

27%
14%
5%
Pretax
Profit
Margin

YoY AUM
growth

Rev per
Client
Assets

Pretax
Profit
Margin

Source: ML-Capgemini Asia Wealth reports, Own analysis

Fig 7: Operational efficiency in terms of cost control has picked

up globally across all major cost heads since the last 3 years
2011

Total Cost
to Rev%

Staff, Accnt,
Ops and IT
Sales and
Marktg Costs Costs to Rev% Front-end
to Rev %
Costs to Rev%

Source: Boston Consulting Group Wealth reports

15%

2010

39%
37%

2009

15%
15%

Demand for low-yield products, high compliance, advisor & technology costs put profit pressures.
Firms are now focusing on operational efficiencies. Costs as a percent of revenues improved
globally across major cost heads in the last 3 years. A BCG report on global wealth also shows
client assets/RM improved as firms let go of non-performers and used performance-driven sales

Rev per
Client
Assets

Asia Pacific
ex Japan

41%

http://www.motilaloswal.com/F
inancial-Services/InvestorRelations/Presentation/

YoY AUM
growth

2011

13%

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Shift towards fee-model as it ensures sale of appropriate products and client stickiness.
Commission-model led to churning and mis-selling, which failed to achieve investment objectives.
With the preference for low-yield products, revenues in commission-based markets are hit. On
the contrary, an Accenture wealth survey shows revenue/AUM grew globally in 2011. Since larger
WM assets are in USA which is a largely fee-based market, it indicates revenues held firm there.
Comparing North America brokers and Asia Pacific ex-Japan shows a largely fee-based market
like America maintained its revenues and profitability, despite the dip in AUM growth in 2011

13%
14%

Corporate Presentation:

North America
Brokers

0.62%
0.76%

on +91 22 3982 5510

2009

Recent economic realities in mature markets warranted demand for safer, simpler products. A
PWC survey on US wealth shows clients are now cautious, less trusting, demand better service
and transparency in pricing, risks & investments. An Accenture report on global wealth showed as
clients became more knowledgeable, they took more self-directed decisions in vanilla products

9%
9%
9%

Aiyer

Fig 6: Growth trends show fee-based markets like North America

fared better than commission-based markets like Asia in terms of
maintaining revenues and profits, despite the dip in AUM growth

13%

; or call Sourajit

Contrary to expectations, global billionaire count actually increased last year. Forbes Billionaires
List of 2012 scored an all-time high of 1,226. US saw additions, due to innovations, strong brands
and US market upswing. Amongst BRICs, only Brazil saw an uptick, while India and China saw dips

1%

or sourajit.aiyer@motilaloswal.com

78%

investorrelations@motilaloswal.com

Clients now often question what is the

real value that advisors bring for them

77%
75%

Recent trends seen globally

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Other Costs
to Rev%

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Firms are also focusing on sticky products that are difficult to replicate or shift, like funds of High-margin fees, cost control and a
leading managers, specialist investment products and tax related investments
more segmented client approach are
A more segmented client approach is gaining precedence, as client retention becomes an issue. increasingly the focus of global WM firms
With volatile markets impacting investments, client dissatisfaction rose. Firms are using client
insights to customize solutions & deliver a relevant value proposition to each target client group
Heightened competition intensified the hunt for quality advisors with strong relationships.
Given its impact on staff costs, firms are also developing fresh advisors, who come at lower costs.
A US firm is recruiting advisors from the same universities as its target clients, to use networking
US business models are using new service formats like contact centers to offer cost-effective
personalized service, and free the bandwidth of high-cost advisors for advice and acquisitions

Fig 8: HNI wealth growth ratehas matched or exceeded GDP growth

whenever GDP growth picked up or market performance saw an uptick
10x

India: HNI Wealth

Growth/GDP Growth

5x

Global: HNI Wealth

Growth/GDP Growth

0x
2007

2008

-5x
India
Global

2009

2010

Market Cap Returns %

-64%
104%
-47%
47%

114%
20%

30%
17%

2011

-38%
-14%

Source: IMF data, RBI Handbook, WFE, ML-Capgemini Global and Asia Wealth reports

A Booz & Co survey showed HNI wealth growth matched GDP growth globally over the 2002-07
bull-run. The volatile period of 2007-11 reaffirms this trend of positive correlation between HNI
wealth and GDP growth. Also, during periods of economic growth and market upswing, the extent
of outperformance of HNI wealth vis a vis GDP growth was much higher, as compared to the
extent of decline during periods of downturns
Enhancing revenue with high-value products using a trusted advisor pitch. As per an Accenture
global wealth survey, the focus is to grow discretionary mandates (where clients delegates
decisions) as it has positive correlation with ROA. As per BCGs global wealth report, gross
revenue margin from discretionary mandates is ~2x that from execution-only mandates

Fig 9: Criticality of high-margin discretionary products is seen as higher

% of discretionary mandates in AUM boosted ROAs in mature markets
2009

Asia Pac ex Japan

2011

European Offshore North America Banks

87 94

73

84 90

65
36

45

15 16
2

Discrete%*

ROA%

Source: BCG Wealth reports

Discrete%*

ROA%

Discrete%*

ROA%

Discrete%* is Discretionary Mandates as % of AUM

Integrated firms like banks and brokers benefited from synergies gained from sharing of Fee-model firms stress in client pitches
that they get salaries, not commissions
infrastructure/fixed costs and existing client and distribution network for WM client acquisition
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opportunity and the
companys strategy

Few trends and challenges currently seen in India

WM market has seen healthy growth in India, given its economic
growth and rise in savings and discretionary income
Preference of households towards physical asset classes for
savings, rather than financial assets
Banks and brokers are utilizing their distribution channels.
Insurance firms are retraining their agents to sell wealth products.
Independent firms are focusing on product and customer niches

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HNIs are now adopting a long-term disciplined approach, rather

than short-term opportunistic one. With caution and capital
conservation in focus, HNIs are maintaining a close control over
their wealth decisions
Entrepreneurs and Professionals are the dominant sources of the
recent increase in HNI wealth in India, apart from Inheritors

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Bulk of the existing HNI wealth has come from primary business.
Kotaks wealth survey showed that many HNIs did not plough it
back into the primary business, due to subdued industrial climate

Clients awareness of WM is still low, hence its still a vanilla market

Product variety slow to pick up, especially in alternate products
Savings into physical savings has been a traditional practice. ~50% of
savings is in physical assets, higher than comparable nations
Heightened competition is impacting revenue and costs and putting
pricing pressure, making WM a volume game
Clients are cautious in selection their WM firm - based on advisor
capability, brand, reputation, service levels, word-of-mouth referral
Safe debt earns low yields, and demand for high-yield equities is low
Clients are more actively involved with advisors in products that
they understand, hence demand for justification of advice is higher
They may view products that they dont understand as complicated,
making it difficult for advisors to sell them
Most Professionals are first-time HNIs and dont enjoy strong
existing relationships. Hence, competition for this pie will be intense
as most firms are seeking to break into this untapped segment
As the industrial outlook improves and requires funding, a portion of
HNI client assets may get diverted to fuel the primary business

Based on the global experience, certain observations that may be useful for Indian WM firms
Cost effective operations, client segmentation, managing clients evolving expectations, using client insights to customize solutions and
deliver a relevant value proposition, referrals from clients, retention of quality advisors, expanded product suite, value-for-money pricing
and outsourcing of non-essential services will determine the next market leaders
Value proposition for each client segment
- A PWC report on global wealth says
understanding segment performance in
clients, products and costs is imminent
- Which segments are growing, profitable or
adding costs, where firms sales strengths lie,
product knowledge, client behavior insights
- Provide differentiated, yet cost-effective
services, with wide product bouquet,
personalized service formats and level of
analytical advice to each target client
segment and offer a unique value to each

Deliver an enhanced client experience

- Firms globally are implementing tools for
client reporting and analytics
- Advisors using interactive tools for scenario
based planning during client proposals.
- CRM and lead management tools in focus
- With many clients now opting for selfdirected decisions, Schwab, TD Waterhouse
have added Do it yourself tools
- Using contact centers for 24*7 access,
which is more cost-effective than pure
relationship management by advisors

Expand product suite, incl. 3rd party, so

that clients get access to best products
- An E&Y survey on US wealth estimates
most firms are focusing on expanded
open-architecture & annual product
reviews to maintain relevant products
- It helps cushion against value erosion in
any one asset & ensure net new inflows
- Most firms offer ETF, MF, PE and PMS
- May use innovative products to match
return expectations, which can capture
upside along with capital protection

Target untapped gaps in the market and gain

market share ahead of peers

New entrants building new relationships

may be better off targeting Professionals

- Ensure pricing is relevant, accurate and with

options so clients have a choice for services,
and ensure perceiving of value by the client
- Commoditize some services using set
processes, applications to scale up faster
- Bundle common products at a discount and
charge a premium for specialized services

- Their incomes are growing but may not

have existing relationships with WM firms
- Old Money UHNI clients typically have
existing relationships whom they trust
- Older firms can leverage existing clients for
referrals. In any case, the longetivity of the
relationship is only as strong as the results

Advisor productivity and cost/income

ratio efficiencies are in focus
- Targeting new advisors with strong client
relationships, remove those performing
below-par, creating incentive structures
- Keeping tight control over operational
costs, look at higher-margin products
and fee model to protect revenues, esp.
when AUM growth gets impacted

Way forward : What is required in India focus areas and challenges

India poses a good opportunity, as its expected growth in discretionary income and the longer, working life of its young population,
indicates opportunity for enhanced affluence and wealth
Focus areas:-

Potential challenges:-

Segmental focus and client discovery is critical. As per Accentures report on

global wealth, analyzing client insights, understanding their changing
demands, customizing solutions aligned to specific client needs are critical to
offer a unique value for each target segment and ensure relevance of
services as per expectations, achieve client satisfaction and retention

Focus on multiple segments may complicate their

operating model

Segment-based accurate pricing to ensure value for money. Pricing as per

the service, product and level of analytical involvement. Clients often mix
self-direction and dependence on advice in their decisions, hence pricing has
to be relevant for clients to perceive value

Internal allocation of costs as per segment to estimate

healthy margin for each segment and negotiate
accordingly for mutually beneficial fee rates

Replicate, scale and benchmark the successful tactics and practices of the
best advisors
Exclusivity as a value driver (exclusive funds, fund managers and products),
which cannot be commoditized and earn healthy margins

Hire and develop such advisors; Dearth of focused

certification/education programmes in this discipline
Ensure product architecture & sales capability supports
the access for such products

For services with cheaper alternatives, offer clients commoditized services at

competitive prices using technology or outsourcing

Managing transition process during outsourcing

Maintain client experience levels despite outsourcing

Earn higher margins or control operational costs in this volume game; just
adding clients without proportionate revenue flow will put profit pressures

Profit pressures and short-term capital demands

Sustaining operational cost controls
Poor investment performance impacts future wealth
Accessing the wealth pools in towns outside Tier I/II
Brand building outlays for new firms

Given the competition, the market may see a shake-down amongst players
Increase in Indian workers returning from overseas adding to wealth pool
Remittances from Indias overseas NRIs are significant and is a key target

Conclusion: The WM Opportunity in India

Despite recent economic headwinds, the Indian market offers a good scope for
growth, given its long-term economic prospects, positive demographics and
current low penetration. Using 5 year historical average of HNI wealth/GDP for
each year, combined with IMFs GDP projections, we roughly estimate HNI
wealth in India to grow to US$952bn by 2017, a 12% CAGR from 2011
However, evolving challenges exist. Companies need to understand the changing
client behavior, market dynamics and reorient their operating models to adapt to
new situations. Firms with the right strategy, product mix, value proposition and
service levels can gain retention, revenues and profitability. Value proposition for
client segments and advice-based sales will be critical. The need for advice has
never been greater, but the way it is delivered will be a challenge

Firms need to first identify where its strength lie and

develop into those target areas

Fig 10: Projected HNI Count & Wealth in India till 2017 based on IMF's
GDP & population estimates and 5 year historical average ratios of HNI
count/population and HNI wealth/GDP in each year from 2012-17
139,504
129,001

141,898

129,856

138,899

141,201
952

842

728
631

Projected HNI Count

Projected HNI Wealth (US$ Bn)

589

2012

2013

781

2014

2015

2016

2017

Source: IMF data, ML-Capgemini Asia Wealth reports

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