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Key Trends in the Indian Wealth Management Market: Market Dynamics at Work

The organized wealth management sector in India is growing, and there is a major opportunity for providers, which has led to the evolution of business models, according to a new report, Key Trends in the Indian Wealth Management Market: Market Dynamics at Work, from Celent, a Boston-based financial research and consulting firm.

Key findings of the report include:

• Growth of the organized wealth management sector. The organized wealth management sector in India has seen tremendous growth in the past two years, rising to 60% market share, from 40% in 2007. This is on account of a three-way push: increasing presence of organized providers, income and profitability pressures resulting in consolidation, and talent migration. The next battle between the sectors will be staged in Tier 3 & 4 cities of India.

• Growth in the wealth management market opportunity. Contrary to popular belief, there is no slowdown in the wealth management market opportunity. India is poised to have a US$1.2 trillion wealth management market by 2014. Demographics, economic growth, and provider push are contributing to the growth in the wealth management market in the country. Assets under management are highest for the HNW and UHNW segments of the market. The mass market will be a US$300 billion dollar opportunity by 2014.

• Provider specialization. Various provider classes have established and consolidated positions in the market. Domestic wealth management providers are strong in the affluent segments of the market, while international private banks and boutique wealth management outfits have become strong in the HNW and ultra HNW segments of the market.

• Rise of financial supermarkets. Firms that provide everything from insurance and broking services to mutual funds and private equity funds to lending (and in some cases even banking operations) through a number of subsidiaries carrying the same brand identity are on the rise. Their rise is driven by the growth in the mass market and mass affluent segments of the market. These segments of the market are more comfortable dealing with entities carrying brand identities of the more reliable parent company.

• Brokerages are morphing into wealth management advisory services companies. Two trends are being observed: Consolidation in a hypercompetitive and commoditized market space to gain national footprint and enhance product portfolio; and a focus on advisory businesses to increase margins and reduce dependency on volumes at the mass affluent and upwards segments of the market.

• A customer-centric approach. This is the rise of new provider classes, the supermarkets, the aggregators, and the accountants, together with a surge in other provider classes like the family offices. Family offices operating in India have grown to nearly 450 in 2010 from around 300 in 2007. These of course are focused on the UHNW segment.

• Shift in asset class preferences due to the financial crisis. There has been a slight decrease in the allocation towards equities in the wealth management portfolio. The fixed income and debt products have seen a rise in s a result of changing customer preference for less risky products. This is consistent with international figures; however, in western markets, while institutional investors are still on a low profile, retail traders have already started looking for high alpha and more risky asset classes. Alternate investment products such as art and real estate have slowed down significantly.