Robo Advisory is the new buzz
Aditya Gadge, CEO of Association of International Wealth Management of India, discusses the current trends and future scenario of wealth management in India
Mehul Dani: How has the profile of Indian investors shifted in the last few years?
Aditya Gadge: The Indian wealth management client segment is today an interesting mix of business families, nextgeneration members of business families, first generation entrepreneurs, celebrities, top-end professionals, NRIs and institutional clients. They are becoming more and more global in their approach and have a plethora of investment opportunities. Founders of successful startups like Vijay Shekhar Sharma (Paytm), Sachin Bansal (Flipkart), Naveen Tiwari (InMobi), Kunal Bahl (Snapdeal), and many more like them are some of the most active angel investors in the country. With the real estate sector losing some of its sheen due to regulations and equities and metals not doing that well, the alternative investments sector is a huge attraction today.
What are the current trends in wealth management in India?
Slowly but steadily, wealth management is shifting towards family office model. Family offices are of 2 kinds: single family offices is a set-up / legal entity, established by an individual family which manages its wealth, succession planning, etc. Multi-family offices are private wealth management advisory firms that serve ultrahigh net worth investors. They are different from traditional wealth management shops in that they offer a total outsourced solution to managing the financial and investment side of an affluent individual or family.
An increasing number of prominent high net worth business families, celebrities and first generation entrepreneurs are adopting the family office model. Today, there are roughly 100 single family offices and about 25 multi-family offices functioning in India. AIWMI expects these numbers to grow more than 5 times within the next 2-3 years.
The practice of fee-based advisory has been growing significantly year on year, a pleasant change from the historical transaction based practice. There is interest in alternative investments and according to SEBI data, `481.39 billion was raised by SEBI registered alternative investment funds as of June 2017. In addition, growing interest in art, structured products, private equity, international real estate, REITs, bitcoins, etc, is opening up exciting new asset classes for the wealth management clients.
Also, many Indians are buying real estate outside India. UK was the most preferred destination followed by Dubai and the US. Within India, there is a shift from residential to commercial real estate.
Why is wealth management from smaller towns still a difficult task?
Financial literacy among the investors and professional standards among the advisors are challenges in smaller towns. We are actively working on skilling wealth advisors, educating investors through our financial literacy and inclusion initiatives. In January 2017, we launched an annual national initiative in partnership with National Institute of Securities Markets (NISM) called Financial Education Week covering more than 150 cities and villages and 5000 people. More than 700 financial experts had joined in as volunteers. In 2018, we are targeting more than 500 cities and an audience of 20,000+.
How is technology being used in the wealth management? How have the players gained by deploying analytics to increase business?
Technology is the real disrupter today. A lot of financial planning work is being done by digital platforms needing lesser human intervention. Robo advisory is fast becoming a big enabler for wealth management companies. Several firms have been setting up digital advisory platforms and replacing their current business models. Growing reach of fintech companies is expected to further carry wealth management solutions to different clients at considerably lower costs. Technology is the key for scaling up wealth management services to a bigger audience at a much lesser cost. Technology to a large extent will also curb the menace of mis-selling.
What is the short to medium term outlook for wealth management industry in general?
Indians are getting richer by the day. India is expected to be the 2nd biggest economy by 2050. The startup craze is adding many new names to the wealth list every year. A record `10 trillion worth of wealth is expected to be passed on to the next generation over the next 5 years. The gen-next clients are all well educated and well travelled and expect a certain standard of advice and services. This will require the industry to drastically change itself and become much more technology driven and professional. The need is for specialists and people who are tuned in to fast changing client profiles and aspirations.
Aditya Gadge estimates that a record `10 trillion worth of wealth will be passed on to the next generation over the next 5 years