Jewels in the Crown

Under the blazing summer sun, a long line of BMWs and Mercedes Benzes glide up outside the luxurious DLF Emporio mall in the Indian capital, New Delhi. Perfectly groomed people–impeccably turned out in the latest haute couture and seemingly unaffected by the heat–alight. They are the new wealthy of India, a class of people that since India’s arrival on the global economic stage has been growing at a rapid rate.

A recent trip to India and conversations with market observers and industry players shows that this is the case not just in the larger cities like New Delhi and Mumbai: The number of high-net-worth and mass affluent people in Indian cities is also increasing fast, and so, too, are their desire and need for financial advice, for new kinds of investments and for the same types of products and services that their Western counterparts have had available for some time.

“Any objective metric looking at India suggests tremendous growth potential,” says Frank LaSalla, managing director of global securities services at Pershing in Jersey City, N.J., “and India is fertile ground for any firm looking to provide wealth management services.”

Pershing, through its Chennai, India-based subsidiary iNautix, has had a presence in India for a decade now. The company provides software solutions to a range of financial intermediaries, and these firms have identified private wealth management for both the high-net-worth and mass affluent markets as a top area of business going forward.

There are lessons to be learned from this mushrooming wealth for U.S-based investment advisors and their asset management and business partners, and opportunities as well in India.

Pershing estimates that the number of people in India with over $1 million in investable assets currently stands at around 1.5 million. That figure has grown by about 50% just since last year, LaSalla says, and it is expected to triple by the year 2018. There are currently about 200 million individuals in the mass affluent segment of the population, he says, and that area, too, is slated for significant growth going forward. Non-resident Indians (NRIs) with strong ties to their homeland also constitute a sizeable investor base, since they hold about 15% to 20% of their portfolios in Indian securities.

Westernization of Finance and People

Beyond the high-net-worth and mass affluent classes, the radical economic and social changes that India has been going through in the past years are also resulting in an increased “Westernization” of both the population and the financial landscape. Renny Thomas, a partner at McKinsey’s Mumbai office, believes that the need for investment advisory and wealth management services across the board is only going to grow for all segments of the Indian population, and the greatest trend for much of the market will be the increased need and the growing desire for players who provide the full range of financial services for all the personal and professional needs of individuals and their families. Financial planning for every stage of a person’s life is something that will become increasingly important in India, Thomas says, and as wealth increases across the country, Indians will be looking for advisors who can guide them and firms that can provide them with the right products and services.

In tandem with the increased wealth and financial awareness in India, the fee-based advisor model has been gaining ground quite fast. Indian consumers are among the most price sensitive in the world, McKinsey’s Thomas says, but “our research increasingly shows that consumers are more willing now to pay for advice than earlier.”

The Keys to Success in India

Nevertheless, setting up a successful advisory practice in India is not that easy, says Abhay Aima, Mumbai-based head of the wealth management business at HDFC, one of India’s largest private sector banks. There’s no denying that Indians are increasingly looking toward new areas for investment, turning away from the more traditional products like real estate and gold they have long favored, and toward an array of other products ranging from stock and bond funds, structured finance vehicles and even objects like art.

Many consumers are getting interested in different sorts of insurance products, in vehicles to save for their children’s college education and for their own retirement–all relatively new areas to be thinking about and a consequence of the important economic and social changes that India is going through.

Indians need good advisors to guide them and they want different investment options, yet India remains a very special place, Aima says, not least because it is so regionally, religiously and ethnically diverse. It would be impossible to simply import an advisory or a wealth management model from the West and expect it to function in the same way in India.

“Any firm looking to achieve success in India needs to understand that you are talking about five countries in one,” he says. “One has to understand the Indian psyche, Indian society. Things like the joint family structure; the dependence of parents on their children; the dowry system; that there is a group of people called the Jains who won’t invest in pharmaceutical companies because they do animal testing. You have to be aware of these ethnic differences, you cannot just lift a financial planning model from another country and expect it to work here unless you understand these peculiarities.”

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