India will have a record number of UHNWIs and HNWIs by 2028 and Indian WM firms are getting ready to service these unique customers:
Knight Frank’s ‘The Wealth Report 2024’, projects that the number of ultra-high-net-worth individuals, or UHNWIs, in India would go up to 19,908 by 2028, up from 13,263 in 2023, which is a substantial 50.1% increase and which Knight Frank itself sees as the highest growth rate in the world for UHNWIs over the next 5 years.
In India, a HNWI is one with liquid assets between US$1 million and roughly US$20 million, while UHNWI is one who possesses liquid assets exceeding US$20 million.
HSBC Global Research predicts that the number of HNWIs – with investible assets of more than $1 million – in the world to touch 10 million plus mark by 2035.
There are also other interesting findings in the Knight Frank report:
- 90% of Indian UHNWIs expect to see an increase in their wealth in 2024, with almost 63% expecting to see an increase of more than 10%.
- India’s super-rich invest 32% of their wealth in residential properties.
- The average age of HNWI and UHNWI investors is dropping.
- Investors are diversifying their portfolios beyond traditional asset classes, to those including equities, private credit and alternate asset classes.
Another key observation about UHNWIs in India is by India CEO of Swiss private bank Julius Baer, who says on average, 3 ultra-wealthy Indians are getting added every single day.
FAVORABLE DESTINATION
Global wealth managers reckon that India is now a favourable destination for global wealth managers to manage assets of the wealthy though just a couple of years ago, some of the major wealth management firms had indeed scaled down their operations or exited the country. For example, Citibank had decided to close down its wealth management unit. Firms like Morgan Stanley, Royal Bank of Scotland, HSBC, UBS and BNP Paribas have cut down their operations in this domain although they have been giving reasons such as changes in their strategies at the global level and some not very favourable local regulations,
However, the trend seems to be reversing. HSBC has already reopened its global private banking business in India, while UBS is considering an entry into the country through its recently acquired Credit Suisse unit here.
NEW INVESTMENT CLASSES
One noticeable factor about the wealthy in India in the very recent times is that unlike in the past when major investments by the wealthy were in the real estate, there has been significant interest in having financial assets like mutual funds, portfolio management services funds and alternative investment funds. Yet another asset class that is favoured is passive investments like ETFs and index products.
TALENT SHORTAGE
However, global wealth managers still feel India lacks the talent required for the new players entering the wealth management market and for those who are already there. Many wealth managers are of the view that talent is a key factor when handling UHNWIs because these clients expect certain level of excellence in the staff who will be interacting with them. More than the sale of products, it is the advisory role that the staff has to assume in most cases.
There is also a view that the SEBI regulation that only registered investment advisors (RIAs) can interact with prospective clients has been counter-productive to some extent. Many advisory firms have exited the domain, creating an imbalance of sort between advisory and distribution.
CHALLENGE OF DIGITIZATION
Another evolving scenario is the digitization of the banking and financial services. Wealth management has traditionally been a person-to-person business where personal relationships counted a lot. With banks becoming more and more digital and to some extent impersonal, there is a dilemma among the wealthy. Will the digital offer the same level of personal experiences they were hitherto getting?
Private banks are today busy enhancing the functionalities of the apps they have developed so that not just the clients who can not just obtain advice and complete the investments, but the wealth managers too can have a view of the portfolios for their efficient functioning. Evolving technologies like Generative AI are expected to change the whole face of wealth management business.
Ideally, a HNWI would want to have comprehensive investment management and financial planning expertise, while UHNWIs need all that plus more complex solutions, including detailed estate planning, perhaps advice on foundations and philanthropy and in the investment arena access to more private and alternative investment opportunities.
CAN INDIAN BANKS PERFORM?
Wealth management is very often defined as a knowledge business that involves customers with very specific short and long-term investment plans and cash flow requirements. These customers are at a higher pedestal, who want to be treated as valued and unique individuals, and they expect tailor-made investment propositions rather than the run-of-the-mill ones. They want to be advised rather than offered products. The relationship is essentially driven by personalization, readily available information and a great level of confidentiality. It is a relationship that is enduring and long-standing, Besides, each HNWI is unique.
One specific aspect of UHNWIs in India is that traditionally, they were highly successful, elderly, male entrepreneurs and business owners. But this perspective is changing because today younger entrepreneurs, including women, are part of this segment. Their wealth is generated from enterprises they have floated, most often in the technology and startup sectors. They also become richer through inheritance. This segment of customer has different expectations and preferences. They are also proficient in technology and adept at digital and they have highly personalized financial aims and values.
CALIBRE OF INDIAN FIRMS
Several studies support that India’s private banks and independent wealth firms are now in a position to meet the variety of expectations of the emerging HNWIs and UHNWIs. They have not just been able to address the question of personalization of products and services on offer but they have been able to have a variety of financial products and services that align with the unique goals and values of HNWIs/UHNWIs. A recent survey has found that nearly 36% of wealth management firms are focusing on enhancing customer experience through digital solutions. They have also been able to a great extent to meet the needs of the younger HNWIs and UHNWIs in terms of digital engagement, valuing seamless, tech-driven experiences that allow them to manage their wealth conveniently. Also, an increasing number of wealth management firms are prioritising investments in data analytics and AI so that the relationship managers and advisors are able to offer a better investment and advisory services.
These developments bring in an increasing level of competition in the country’s private banking and wealth management sector. Already established players, which include leading banks and private firms, are now able to consolidate their positions. And giving them competition are the foreign entities who have substantial cash backing to support their operations. There are also new entrants who are known for their innovative products and agile operations. The question that is relevant is how can each one be different so that they have a better offering.
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