Competition in the Indian wealth management industry is heating up. In the early days, it was banks and brokers such as HSBC, Citi, Kotak, ICICI and Merrill Lynch that extended their traditional offerings to provide wealth management services. They were then joined by global wealth management specialists such as Credit Suisse, UBS and Barclays Wealth. Now, a new breed of firms – homegrown financial institutions – are making a strong play.
Last year, investment management and brokerage firm, Ambit Capital launched its wealth division, hiring Sutapa Banerjee, who was handling ABN Amro’s private banking business in India. Notably, Ambit does not have any prior experience in the wealth management sector. Neither does Avendus Capital, another Indian financial services firm that started offering private wealth management (PWM) services only a month ago. Avendus has also hired an industry veteran, Nikhil Kapadia, who had successfully built Deutsche Bank’s Private Wealth India onshore practice, as the chief executive officer of its PWM unit.
“The wealth management market is the fastest growing segment in the Indian financial services industry. It is expanding in terms of sheer number of people and the assets under management,” remarks Joydeep Sengupta, director at consulting firm McKinsey in India. He estimates the wealth segment is growing in excess of 20 per cent annually in terms of revenue streams.
According to the 2010 Merrill Lynch-Capgemini World Wealth Report, India's population of high net worth individuals (HNWs) with minimum investable assets of $1m grew by as much as 51 per cent to 1,26,700 by the end of 2009, compared to just 84,000 in 2008. While it is not difficult to see why the industry is attracting new players, some of them with no history in wealth management, the question is how will they fare in a crowded marketplace?
According to Mr Kapadia of Avendus, “people” are their biggest strength. “We think people make a brand. We score over others because of the talent we have been able to attract.” The 14 member team at Avendus has come from big names in the industry such as Deutsche Bank, Fidelity and Morgan Stanley and has several years of experience.
Mr Kapadia says customers have a strong sense of disillusionment against their existing wealth advisers, having suffered during the credit crisis because of the malpractices endemic to the industry. Wealth management firms mis-sold products, there was lack of transparency and advisers churned portfolios purely to earn commissions. As a result of this mistrust, he says, wealth management customers are not necessarily gravitating towards the big players in the industry. Instead, they are looking for high quality advice. Avendus’ focus, says Mr Kapadia, is to provide “customer-centric solutions” with high quality advice that will help their customers “create” wealth. The firm is targeting the ultra HNW with an investible surplus upwards of $5m.
Foreign wealth management firms, he says, are at a disadvantage in India because they do not necessarily understand the complexities of the Indian market. Also, they are not very agile since most of their decisions are driven by regional headquarters located outside India which makes the entire decision making process rather slow.
Sutapa Banerjee, head of wealth management at Ambit, says the industry lacks firms that can provide professional end-to-end services. Ambit, she says, is filling this gap. Using the complementary expertise within other units of Ambit Capital, they claim to provide “holistic end-to-end services” including wealth management, wealth protection and services to help pass on wealth to the next generation.
“After 2008, brand value has gone through a big change. The financial crisis caused a lot of damage to brands of big banks,” she says. “So today, large is not necessarily good. While an institution is required to offer services, the main requirement is for credibility.” The Ambit team, she says, has a minimum of eight to 10 years of industry experience and an established track record.
McKinsey’s Mr Sengupta dismisses the arguments against foreign players. That brand is no longer their strength, he says, is wishful thinking on the part of the new entrants into the wealth management arena. “Public memory is very short. Look around us. Those firms that were derided only a few months back are still getting business.”
Mr Sengupta in fact opines that foreign banks will in due course dominate India’s wealth management arena. He believes their strengths of brand, experience and processes will help them overcome the disadvantage of not having enough capacity on the ground in the country.
Despite the crowded marketplace, Mr Sengupta does not envisage a shake-out taking place in the near-to-medium term. “There is room for a lot of players since India is a growth market.” He believes India will evolve into the European model of wealth management consisting of universal banks and lots of boutique players.
