Wealth management is the next frontier for India’s financial sector amid technological advancements
In the late 1980s and early 1990s, there were few professional investment advisers in India and wealth management services were limited to a handful of high net worth individuals (HNIs). Investment intelligence came mostly from LIC agents who posed as the de facto investment advisers to the masses. Therefore, most of the time, only LIC policies are sold as investments that lead to mass sales wrongly all over the country.
Over the past two decades, while this trend has changed significantly with the introduction of professional wealth managers, it was still limited to HNIs and very high income individuals (UHNIs). Investments supported for laymen had still not taken off except for a few equity investments.
Over the past decade, the situation has changed dramatically. Wealth management has moved beyond HNIs and UHNIs towards retail investors who actively engage in investing in all assets. It happened on the back a general increase in middle-class incomes leading to a considerable increase in disposable income.
With the advancements of the internet and technology, there is now an increased awareness of the importance of investing in the right asset classes. Investors are now well informed about asset classes, the risks involved, the expected returns and their benefits. New technologies are now changing the way wealth is managed in India.
A big breakthrough that has catalyzed wealth management across all classes is the rise in the number of start-ups and subsequently the number of unicorns that have sprung up on Indian industrial development. India currently has the third largest start-up ecosystem in the world with around 60,000 start-ups in operation. In January 2022, India had 81 unicorns with a total valuation exceeding $274 billion, out of which 43 unicorns with a total valuation of over $89 billion emerged in the past year. Unicorns, with younger leadership, have brought the average age of HNIs or investors down to around 30.
Currently, there is considerable wealth in India which can be professionally managed. According to Capgemini’s World Wealth Report, India ranks among the top 10 countries when it comes to total private wealth ownership. India’s wealth is estimated to exceed the magic figure of Rs. 400 trillion over the next five years with growth predicted at a CAGR of 27%.
Investment trends among Indians have also reshaped as investors are now looking to shift their money from fixed deposits to ULIPs and mutual funds, not just stock markets. This resulted in wealth management companies have to change their approach. Wealth management firms have had to revamp their product offerings with a greater focus on innovation and have shifted their approach and focus from wealth accumulation to goal-based solutions that focus on the real cash needs of investors.
The next wave that has already started to take shape is that of Fintechs that will take advantage of digitalization and allow investors to take charge of their own money and make everyone an autonomous investor. Today, a growing number of investors are willing to self-manage their money through sources like YouTube, blogs, and internet advisors.
Fintech start-ups have made their presence felt in the market and are transforming the financial services industry with innovative and profitable services and improved customer experience. While technology has facilitated investment, it has also opened the door to new challenges.
This ease of investment has led investors to behave like buyers who buy all the financial instruments that appear on their screens. Most often, the instruments purchased do not correspond to the profile of the investor and therefore they find themselves with many financial products without really knowing what to do and how to manage their investments.
The next wave of innovation should focus on providing personalized investment information that allows investors to invest in alignment with their goals and to do so without having to systematically find answers to questions such as when to invest, where to invest and how much to invest.
The opinions expressed above are those of the author.
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