Short read: India’s Wealth Management Boom: Growing Riches, Short-Term Thinking, and the Search for Real Advice

The decade long structural trend of Indian households moving away from their historically preferred asset classes of real estate and gold to financial assets coupled with the stupendous and extended rally in the Indian stock market post Covid has triggered an unprecedented boom in its wealth management industry. Whilst the technology savvy younger generations have taken to stock trading to punting on options to starting mutual fund SIPs, the high-net worth segment is exploding even more. India’s business rich have historically been conservative with their investments having satiated their risk appetites with their business. But now a trend that Uday Kotak highlighted recently is playing out –  as the generation of entrepreneurs who benefited from India’s liberalization three decades ago handover the baton to the next generation, the latter seem to be happier cashing out and managing the family wealth than run the business. Furthermore, rich valuations in their stocks which they themselves can’t fathom is triggering stake sales in some, not to forget the new age entrepreneurs cashing out from the start up boom of the last decade. So, there’s plenty of wealth to be managed. Yet, as this very well-articulated piece argues, the supply side is simply not ready. Michael Stanhope the founder of Hubbis, a research and events outfit focused on the wealth industry, shares some interesting insights from his recent visit to India:

“…in their race to the top, many firms are displaying classic signs of short-termism—aggressively poaching talent, offering overinflated salaries, and making growth promises that border on fantastical.”

On the talent front, he notes: “Relationship managers are being offered packages that simply don’t add up. Not in the long term. Not even in the medium term. The strategy seems to be: “Win the talent at any cost. Cross your fingers that AUM follows.”

The deeper issue, however, isn’t just poaching or inflated pay. It’s capacity. By some estimates, there are fewer than 500 truly competent HNW advisers across the entire country. That’s a drop in the ocean given the scale of India’s wealth. And many of these professionals are getting old and nearing retirement. The next generation of advisers? Lack of numbers, under-trained, under-prepared, and under-incentivised to stick around.”

He questions if much of the industry is actually managing any wealth or just peddling products: “…many wealth firms in India remain stuck in a transactional mindset—still incentivised primarily to push products, rather than deliver comprehensive, fee-based advisory that truly puts the client’s needs first

What UHNW families want is nuanced, strategic guidance—around cross-border tax issues, generational transition, philanthropic planning, or protecting wealth amid a shifting risk appetite. But too often, what they get is yet another pitch for a private credit fund or a structured note.

… Speak to any serious UHNW client in India, and you’ll hear the same complaint: “Every private wealth manager claims to be different, but they’re really all the same. And they just sell me products”.

Wealth managers haven’t done a good enough job articulating their value proposition. Why should a client pay a fee—let alone a premium—when they can get a similar product elsewhere for less? And if a manager is different, why can’t they communicate that clearly?”

A classic capital cycle seems to be at play – with the demand side boom attracting plenty of PE/angel backed new outfits driving competitive intensity resulting in falling yields and rising costs driven by a severe shortage of talent. The author argues that despite this, long-term prospects for the industry are bright for those who are willing to do it right – by investing in nurturing talent, by pivoting to advice than transactions and articulating their value proposition to clients better for the fees charged.

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Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.