Indian wealth management revolution gathers pace

The number of ultra-wealthy Indians is rising fast and international firms are flocking to the country to service them.

“No other country in Asia – apart from China – can match India’s growth potential in the wealth management space,” asserts Umang Papneja, India CEO of Julius Baer, the Swiss private bank with major international ambitions.

And he has numbers at his fingertips to back up these bold assertions, favouring data from real estate consultancy Knight Frank’s 2022 Global Wealth Report on ultra-high net worth individuals (UHNWIs) – those with investible assets of more than $30m, according to these property experts.

“Two years ago, India had around 13,000 of the ultra-wealthy,” he says, with that figure expected to grow to 19,000 by 2026. Mr Papneja cannot hide his enthusiasm. “These numbers show that, on average, three ultra-wealthy Indians are getting added in this country every single day,” he says.

In July, Julius Baer moved into a plush new office in Aerocity, New Delhi’s premier district known for its luxury hotel properties, high-end restaurants and close proximity to the city’s international airport. This office will play a crucial role in serving clients in the Delhi region and various locations across north India, says Julius Baer. The company already has offices in seven key Indian cities and plans to expand into three more.

India’s wealth is no longer concentrated only in Mumbai and Delhi, explains Mr Papneja. “Around 50 per cent of Indian wealth is in the top five cities while the next five cities account for more than 20 per cent. With a presence in 10 cities we will have access to 70 per cent of the market.”

But the fashion for favouring India as a hub for managing assets of wealthy clients is a new one. Until recently, sentiment was favouring the closure of wealth management facilities rather than their reinforcement.

As recently as 2021, Citibank announced plans to shut down its nearly 120-year-old consumer banking business in India, including its highly-regarded wealth management unit. Citi was not alone. It joined a long list of international players that have moved out of the Indian wealth market over the past couple of decades. This includes major names such as  Morgan Stanley, Royal Bank of Scotland (RBS), HSBC, UBS and BNP Paribas. Their reasons for exiting India’s wealth market range from a change in the financial institution’s global strategy to onerous local regulations that limited growth of international players.

Indian tide turning

But the tide appears to be turning, with much local speculation about a potential UBS plan to build on Credit Suisse’s existing Indian wealth business, following the UBS acquisition of its Swiss rival.

What happened in July this year was potentially even more significant, when HSBC launched its global private banking business in India, re-entering the space it had vacated eight years back.

“Our recent research suggests that India is the investment destination of the decade and beyond,” states Sandeep Batra, head of wealth and personal banking at HSBC India. In 2022, India overtook the UK to claim its place as the world’s fifth largest economy. The International Monetary Fund (IMF) predicts it will become the world’s third largest economy within four years, overtaking Japan and Germany in the process.

Wealth creation is a natural by-product of this growth. HSBC Global Research estimates the number of dollar millionaires in India – high-net worth individuals with investible assets of more than $1m – will surpass the 10m mark by 2035. An India onshore presence is essential for HSBC’s ambition to be the leading global private bank in Asia, believes Mr Batra.

Industrialist families

The growth of wealth higher up the scale is also impressive. Not only did the number of dollar billionaires in the country grew from 142 in 2022 to 157 in 2023 – according to a study published annually by Fortune India business magazine in collaboration with Waterfield Advisors, a boutique wealth management firm – but the sources of the growth are also broadening. India’s wealthiest segment, according to the research, was previously dominated by a handful of industrialist families such as the Tatas and Birlas. But in recent years, it has seen the entrance of many new-age entrepreneurs, showbiz, media and sports personalities. Doctors, lawyers and even salaried professionals – especially those who may have received stock options – are also represented.

Although the Fortune-Waterfield billionaire list is still heavily weighted towards old money, the new-style businesses are gradually entering the league tables. Eight names from the country’s booming IT sector now feature in the list, with seven billionaires representing India’s vibrant start-up ecosystem, where new-age entrepreneurs have made their fortunes through building a variety of successful tech-enabled businesses.

New age businesses

“India is home to over a 100 unicorns, valued at more than $1bn; however traditional business families still dominate the top of the wealth pyramid in the country because personal ownership drives personal wealth,” notes Yatin Shah, co-founder of 360 ONE, one of the country’s largest wealth management companies, overseeing $46.7bn, from a client list of close to 7000 families.

“Traditional businesses are usually closely held, with ownership remaining within the family. The market value of new age firms may be higher, but their ownership is usually spread across founders, employees and investors,” explains Mr Shah.

Although assets may still be low compared to other developing markets, there is a growing financialisation of wealth in India, which is attracting these banks and wealth firms. Traditionally, most Indians have preferred to invest in real estate and gold, but money is now flowing into different financial assets from mutual funds and PMS (portfolio management services) funds to AIFs (alternative investment funds). There is also a rise in passive investing.

At Waterfield, which advises 250 client  families, around 30-40 per cent of equity allocations are in the form of  passive investments, such as  exchange traded funds (ETFs) and index products. Investment into AIFs has grown from a mere 1 per cent to almost 12 per cent of client portfolios in the past 12 years.

Global diversification

Rich Indians are also seeking to diversify their portfolios globally. The richest Indian, Mukesh Ambani, chairman of Reliance Industries, is reported to be opening his first family office outside the country in Singapore.

Opportunities to diversify overseas for Indian-based tycoons are currently limited, due to regulatory restrictions on investments into offshore markets, both at individual and family level. But an innovative new route is currently in the works, according to Waterfield Advisors. This is aimed at creating a ‘Family Investment Fund at Gift City’, that would allow a family to take $10m out of India over a minimum period of three years. This project, believe wealth firms, could potentially help ease the demand to invest overseas.

Inaugurated in 2015, with ambitions of becoming an international financial hub along the lines of the Dubai International Finance Centre, India’s Gift City (Gujarat International Finance Tech-City), is still a work-in-progress.

A key concern is the absence of a social infrastructure and a vibrant ecosystem associated with an international financial centre. But industry voices are far from negative about the initiative. The view of Arjun Chowdhry, group executive for affluent banking, NRI, cards and payments at Axis Bank, which acquired Citi’s consumer banking business in India, is typically optimistic.

“This is a platform for the future, where customers can avail of the same opportunities without having to move their monies to locations like Singapore, the Channel Islands, or any others,” says Mr Chowdhry. Oisharya Das, CEO of Kotak Private Banking, the private banking arm of leading Indian lender, Kotak Mahindra Bank, is slightly more cautious, however. “Gift City is an excellent initiative. Early signals look promising,” she says.

Talent shortage

But one natural fallout of India’s burgeoning wealth management sector, where new players are entering the market and existing players are expanding operations, is a scarcity of talent. Pankaj Walia, head of private banking at  Standard Chartered for India, says his bank has hired 12 senior bankers over the last year. “Talent becomes extremely important when you are managing a private banking client, because there is a certain level of experience and expectation from a client perspective,” he says, underscoring the need for well-trained staff.

Regulation too has created a unique challenge in the wealth management space. In order to streamline the industry and stop mis-selling of products by distributors motivated by commissions offered by product manufacturers, the regulator has mandated that only registered investment advisers (RIAs) can offer investment advice.

However, with RIA guidelines being too stringent for some advisers, many players have exited the advisory field. Today there are close to 122,000 distributors, compared to only 934 RIAs in the country.

“The Indian wealth management industry is heavily weighted towards distribution,” says Soumya Rajan of Waterfield Advisors, which she says, is among the few firms that have adopted a pure-play advisory approach.

Pure distribution model

HDFC Bank, India’s second largest bank, is one of several large players to take the decision to focus solely on distribution, rather than offering independent advice to clients. “We follow a pure distributor model,” says Rakesh Singh, head of private banking at HDFC Bank.

“We don’t do advisory business at all. We are completely ‘open architecture’, which means we put a full gamut of products right in front of you from large cap funds to Reits [Real Estate Investment Trusts] to PMS and AIFs. Depending on your risk acceptance we can suggest products for portfolio construction.”

Talking about the potential in India for advisory offerings, he comments that advisory and banking services consume a lot of time for wealth bankers, without adequate compensation. “We don’t see an environment where clients may be willing to pay a commensurate fee for the efforts in providing such services and hence, the distributor or PMS model works better,” concludes Mr Singh.

While wealth management in India has traditionally been a high-touch business, digital expectations are evolving. “From onboarding to execution to reports, one needs to provide an end-to-end digital solution. It is not only just for millennials any more, but for all age groups that are more active on digital platforms, with Covid accelerating this,” states Kotak’s Ms Das. She adds that it is critical to have both a digital and physical model.

This hybrid model is also emphasised by Mr Chowdhry of Axis Bank. Unlike the Indian mass consumer segment, where most business is carried out by app today, with nobody to see face to face, India’s wealth market requires a “mixed delivery”, says Mr Chowdhry. He is advocating a hybrid model of touch and technology.

Digital is here to stay, says Mr Chowdhry. “Almost every wealth manager today not only has an app but they have one app  which allows you to look at your portfolio, execute transactions, transfer money – and they are  looking at enhancing it even further,” he adds. “Technologies like Generative AI will be transformative in the coming days for the wealth industry in India.”