Senior employees of large wealth management companies who walked out together to build something of their own are starting to show that the model can work. The entities they set up are now advising clients on assets worth more than ₹1.38 trillion.
However, pressures associated with private equity funding and scaling up to add clients outside of their loyal customer base may still prove to be hurdles as they pursue sustainable profits, executives said.
Demand for wealth management services in India in terms of assets under management (AUM) will almost double to $2.3 trillion by FY29 from $1.1 trillion in FY24, according to a report from Deloitte. In India, the number of ultra-high net worth individuals, defined as those with a net worth above ₹25 crore ($2.6 million), reached 13,600 in 2024, as per DBS Bank.
At least six such new wealth management ventures have come up over the past few years. TriGen Wealth was formed late last year after about 35 employees of LGT Wealth quit together. Veriqus Partners was incorporated in August last year. A majority of the team worked at DSP Merrill Lynch (now known as Julius Baer) at some point in their careers.
Among earlier examples is Dezerv, which was set up by former IIFL Wealth executives Sandeep Jethwani, Vaibhav Porwal and Sahil Contractor. Centricity Wealth was started by 13 core founding members, 11 of whom were also former IIFL Wealth employees. Neo Group’s senior leadership are people from Edelweiss Financial Services.
There have been spin-outs from asset management companies too. A set of people from HDFC Asset Management Company went on to set up wealth management firm Creed Capital, led by Naveen Gogia, who was previously an executive vice-president at HDFC AMC.
Few incentives
In most cases, the trigger for the departures of senior wealth management executives is the lack or reducing number of incentives to stay on as they start managing huge assets. As senior executives mature and build a significant book, the cost-income equation increasingly tilts in favour of the organization rather than the employee.
When an executive manages a book of ₹200 crore and generates commission income of, say, 1% or ₹2 crore for the company, he gets a salary and bonus of say, ₹35 lakh. There is a greater incentive for him to stay on and increase his income.
On the other hand, a manager with a ₹1,000 crore book may generate ₹10 crore income for a wealth management company. Of this, he may receive about ₹2 crore as salary and bonus. If the manager branches out on his own, his experience and longstanding relationships with clients can allow him to retain a much larger share of the revenue generated.
“Over time, many RMs begin to perceive that they have become bigger than the brand,” said Maneesh Kapoor, founder and joint CEO of TriGen Wealth. “As their books grow, revenues rise and client trust deepens over a sustained period. Clients often start associating more closely with the individual than with the firm. At that stage, the idea of building something of their own can start to feel viable.”
Even stock options aren’t attractive at this stage. At several larger wealth platforms, employee stock options are either no longer available or have become relatively insignificant for senior managers.
In contrast, the founding members of a new wealth management company can often secure a more meaningful equity participation through ESOPs, said Sailesh Balachandran, founder and joint CEO of TriGen Wealth.
Enter private equity
Then there is the growing interest by private equity firms in the wealth management space, which can create opportunities for managers to eventually monetize their ESOPs. Veriqus Partners has raised money from Norwest Venture Partners. Dezerv has raised money from Premji Invest, Elevation Capital, Matrix Partners India and Accel.
However, reaching break-even is difficult for these new wealth management companies. This is a people-driven business and relationship managers (RMs) are one of the biggest costs for these companies.
Senior RMs with experience often bring large client books and that makes them valuable to competitors too. There is always a risk of rivals poaching them and their clients. Retaining senior RMs and hiring new RMs is a major cost for wealth managers. In order to reach break-even faster, wealth management companies need to lower their fixed costs.
“We are focussing on getting the hiring right. Like hiring from campuses, when you bring in young people and train them,” said Ashish Gumashta, founding partner at Veriqus Partners.
Most wealth management companies are hesitant to spend time on assessing whether an RM fits their value system and they are also reluctant to invest the effort needed to develop someone into a good RM, Gumashta said.
One way of reducing fixed costs is to spend less on physical infrastructure like office space, Gumashta added. Another way to manage costs is by using tech.
Mid-office functions such as analytics, portfolio reviews, data mining and system governance were earlier handled largely through manual processes. Today, it is increasingly being supported by technology, helping reduce operational overheads while improving consistency and scalability, said Balachandran of TriGen.
Because a wealth management company may take time to start making a profit, sustainability becomes an issue, especially with PE firms investing in them, executives said. And over the period of time, with margins in the business coming down, sustainability is even more difficult.
Recovering costs
“It is very difficult to sustain, especially when you take PE money. The PEs are investing through a fund, and that fund has a lifespan. The lifespan of the PE fund may be over before the wealth management firm even starts making money,” said a veteran.
“When a wealth management company has a very high cost structure and needs to recover that cost quickly, the temptation is to sell products carrying very high margins,” said Feroze Azeez, joint chief executive officer (CEO) of Anand Rathi Wealth Ltd, a wealth management company.
Unlisted shares and products with large upfront commissions like alternative investment funds have a very high spread, which may not always be visible to the client. Such products may become attractive to a distributor while lower-margin products like mutual funds may receive less attention, said Azeez.
“So, I am less worried about whether the company’s P&L survives when PE funding reduces. I am more worried about what pressure to monetize quickly can do to client portfolios,” Azeez said.
On scalability, Azeez said that unlike other businesses, reaching a critical mass for a wealth management company is relatively easy because one is monetizing relationships accumulated over the years. However, scaling beyond that critical mass is harder because those legacy relationships are exhausted and it now needs a proposition strong enough for a completely new client, he added.
Rapid client expansion may be the key that will determine whether this entrepreneurial wave transforms into a long-term mainstay.