The last decade has seen the Indian economy grow by leaps and bounds leading to creation of a large number of millionaires. However, due to the nascent nature of their wealth, these next generation high net-worth individuals (HNIs) have limited wealth management experience and are not aware of the products and services available in the market. Going further up the wealth pyramid, the ultra-HNIs (UHNIs)—having investible wealth of at least $25 million)—require more personal attention and highly sophisticated products.
A study by Kotak Wealth Management and Crisil estimates that there are around 62,000 UHNIs in India as of 2010-11, which is poised to rise to 219,000 by 2015-16, reflecting a total net worth of Rs235 trillion. Numbers around HNIs can be a bit tricky, what with a variety of definitions spanning, “investible surplus”, “assets under management” or “net worth”. What is given is that riding high on the “demographic dividend” and good gross domestic product growth, there is an immense opportunity to serve UHNIs as they currently manage most of their wealth and yet appreciate the service offerings and product profiles of wealth managers.
The case for HNIs
In case of HNIs or the mass affluent market, the cost of servicing a customer is high as it needs emphasis on education on financial products, taking care of piecemeal investments and more number of follow-ups. In a wealth management survey (2011) by PricewaterhouseCoopers Pvt. Ltd, 67% of the respondents said it takes less than six months for a client (with networth of at least $50 million) to turn profitable while it may take a year or more for clients with less than $1 million. Also, UHNIs will be more receptive towards the full-fledged advisory model compared with HNIs.
Now the key question for wealth managers would be whether to focus on the volume of the HNI and mass affluent market or become a private banker to UHNIs? To be more accurate, the Indian wealth management industry has not taken off as substantively as the Indian economy. These segments are much more price sensitive. With the capital markets in a chaos and real estate prices holding (in many places even skyrocketing) it has become more difficult for wealth managers to target the HNIs.
The case for ultra HNIs
The case is different for UHNIs. This cohort believes in opulence and would like to spend more on all types of luxury items, seemingly immune to inflation, asset value depletion or turmoil in the global financial markets. The wealth managers essentially need to guide them as they will have strong points of view with respect to brands, reputation and sophistication of products offered. Products such as family offices and managing trust estates will have a larger effect on these UHNIs. While UHNIs as a target market looks very attractive, client acquisition may remain a challenge. The absence of timely information regarding their investment habits, predilection towards spending and investing can become a significant challenge in developing products and services customized towards their needs.
The long-term story of India is intact and the number of UHNIs will grow more steadily as this segment has far deeper risk-taking capacity and, therefore, withstand the downturns better. The ability of global and local wealth managers to provide more innovative products, high quality of service, pricing and brand differentiation will help them target UHNIs. UHNIs notwithstanding, the HNIs and mass market still provide the largest identifiable market to build scale for wealth managers and as they as clients move up the value curve, they will become a more attractive proposition.
Robin Roy is associate director, PricewaterhouseCoopers Pvt. Ltd. Sanjoy Majumder, senior consultant-financial services, PricewaterhouseCoopers, contributed to this column.
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