In the dynamic landscape of India's wealth management industry, significant growth and transformation are underway. Driven by shifting demographics, the transfer of generational wealth, and the increasing influence of millennial high-net-worth individuals, this sector is experiencing a paradigm shift.
As India emerges as a financial hotspot amid global volatility, this year brings forth familiar trends and new opportunities. Despite geopolitical tension, inflation, rising interest rates, and the possibility of a slowdown, India's robust domestic drivers and supportive budget lay a strong foundation for its performance in the coming year.
Against this backdrop, where the private sector thrives and individuals accumulate wealth sustainably, the wealth management industry is poised for remarkable changes. Let us delve into the trends that will shape the future of wealth management in India.
Focus on client-centricity
Client-centricity has always been a crucial aspect of successful wealth management. In 2023, we can expect an even greater emphasis on building strong ties with clients. Wealth management brands are expanding their market share by targeting new segments, such as the mass affluent and mid-market segments. This approach recognises the rising number of wealthy individuals in India and their growing awareness of sustainable wealth management practices.
Technology and digital solutions
Technology continues to play a pivotal role in shaping the evolution of wealth management. Wealth management firms are committed to investing in cutting-edge technology, with a particular emphasis on building comprehensive data platforms for effective wealth and asset management.
Adopting artificial intelligence and machine learning enables wealth managers to harness the power of data, extracting valuable insights into customer behaviour and preferences. This technology integration further enhances the client experience by facilitating seamless digital onboarding, optimising processes, and enabling customised portfolio management.
Moreover, the aftermath of the pandemic has accelerated the adoption of digital solutions in the wealth management industry. While these digital tools have been proven to enhance operational efficiency and offer a higher degree of personalisation, wealth managers recognise that they cannot replace the essential value provided by human expertise. Instead, these digital solutions are being developed as enablers, empowering wealth managers to deliver an elevated level of service and foster stronger relationships with their clients.
The focus is on leveraging technology to augment the capabilities of wealth managers, ultimately creating a harmonious blend of human insight and digital innovation to drive exceptional client outcomes. Emerging technologies like artificial intelligence are becoming increasingly relevant in the wealth management landscape.
Wealth boom in Tier 2 and Tier 3 cities
The financial landscape in India is experiencing a significant boom in Tier 2 and Tier 3 cities. This rise in wealth creation is not limited to metropolitan areas alone but extends to smaller cities. There are approximately 50-60 locations across the country where wealth management firms are establishing a strong presence. This trend underscores the inclusive development and shifting demographics in India.
The emergence of high-net-worth individuals and ultra-high-net-worth individuals in these cities presents a wealth of opportunities for innovative wealth management companies. It also signifies the democratisation of wealth management, as more individuals across different geographies and socio-economic backgrounds participate in wealth-building activities. This dynamic trend reinforces the need for wealth managers to adapt their services and offerings to meet the diverse requirements of clients in these regions.
Strategic portfolio rebalancing
Strategic portfolio rebalancing will be a trend to watch out for as wealth managers seek new strategies for sustainable wealth growth amid market volatility. The importance of portfolio diversity will be emphasised, and wealth managers will provide clients with innovative investment options to generate and sustain wealth.
Alternates gaining importance
As India strives towards its vision of a US$5 trillion economy, a robust credit offtake is expected to fuel capital expenditure, PE-driven investment activity, mergers and acquisitions, and growing consumption, among other factors. This evolving landscape necessitates a decisive pivot towards alternative investment approaches to drive sustained growth while maintaining an effective risk-reward equation.
Globally, the alternative investment landscape is anticipated to be powered by private credit strategies offering higher rates.
Additionally, there is an increased focus on hedge fund strategies capable of capitalising on evolving volatility. Likewise, private equity and real estate investment trusts will continue to attract attention from investors and asset managers, albeit with a more nuanced approach due to higher interest rates and comparatively lower growth figures. In this competitive environment, appealing opportunities will be fiercely contested, presenting challenges in navigating the space effectively.
In the Indian context, media reports indicate that alternative investment funds raised approximately INR 7 trillion in capital in 2022, compared to INR 4.5 trillion in 2020. The sector has the potential to grow multi-fold in the coming years and could overtake the market size currently enjoyed by the mutual fund industry. This optimism arises from the evolving market conditions driving the appeal of alternative investments and signifies strong growth potential, particularly within the Indian landscape.
Wealth managers will focus on providing holistic solutions that meet high-net-worth clients’ individual and family requirements. This involves aligning clients' professional activities and international lifestyles with tax laws, social security systems, and inheritance laws. Through expert advice and personalised solutions, wealth managers will address diverse aspects such as wealth planning, financing, structuring, philanthropy counselling, and family office services.
Agility and resilience
Wealth managers are adopting agile methodologies to adapt to the constantly changing markets and geopolitical landscapes. Agile processes enhance the client experience by prioritising innovations and accelerating delivery times. Integrating technology and a deep understanding of clients’ preferences will be vital to meeting evolving client expectations.
These emerging trends highlight the evolving nature of wealth management in India. To remain competitive, wealth managers need to focus on customer-centricity, embrace technology, and provide personalised solutions. Integrating human expertise with advanced digital tools and capabilities will drive wealth management. By staying abreast of these trends, wealth managers can navigate the changing landscape and continue to deliver exceptional services to their clients this year and beyond.