Changing Trends And the Future Of Wealth Management In India
Wealth management solutions work for longer terms and does not offer the prospect of instant gratification that comes with a trial
Historically, customers viewed wealth management as a complex topic understood by a very few.They lacked the knowledge to decipher the jargon and ways these products worked. Unfortunately, wealth managers sold these products using that complexity and jargon that confused the customer rather than assisting the customer in making the right decisions. Customers fundamentally suffer from a lack of knowledge and and hence the fear of the unknown. In addition, Wealth management solutions work for longer terms and does not offer the prospect of instant gratification that comes with a trial.
As a result, the market remained under-penetrated with the customers finding favour with gold, real estate, and bank deposits as safe places to invest. However, the last 5-7 years have changed much of these dynamics. Bank deposit rates have come down; real estate and gold have been tough to make money on. Customers are increasingly looking at financial assets as a way of investing. This is likely to be a 10-20 year move where the Indians will show a marked preference towards owning financial assets.
The first step that aided this process was simplifying access. In the last few years, thanks to Aadhaar, esign, digital solutions and other regulatory interventions, it is easy to start investing in any financial product(from a simple mutual fund to complex instruments like derivatives and PMS).
The second aspect is trust and education. The regulator has been doing their bit to make sure that the products offered and the wealth managers are well regulated and investors' interests are taken care of. Along with this , there has been a rapid increase in the propensity to learn more about financial products - particularly consuming digital content.
We see that an average Indian wealth customer today is much more knowledgeable than a decade ago. Based on the data we see of domestic inflows and outflows during the market ups and downs, it is clearly evident that the risk-taking ability of an average Indian across income categories has gone up.
With access and knowledge getting solved over a period of time, we are now in the phase where customers will expect much more than a trustworthy Relationship Manager or good UI/UX, or plain vanilla product recommendations. Customers will seek specific investment solutions for their needs - completely personalized. The cookie-cutter approach of offering a standard risk profile-based product will not be enough. Customers will want to know why a specific product works for them vs a product being just a good product.
As customers mature and understand the broad suite of products, they are asking for new products for their needs. However, this is an area that requires some help from regulators also. Product innovation has to be balanced with regulatory compliance. Regulatory coverage typically lags product innovation - for e.g. crypto assets. While in the last 2-3 months, crypto assets are doing poorly, there is no regulatory clarity on crypto as an asset class even after a large number of customers investing in them.
We are also seeing customers wanting to be provided with enough information so that they can decide on their investments rather than accepting the recommendations of the Relationship Manager. Customers are also getting well aware of the inherent principal-agent problem in the wealth management business; customers are asking the right questions to ensure that the advisor is acting in the best interest of the customer.
In summary, the next few years will be exciting times for wealth management firms. The market is likely to expand significantly; so will the customer maturity and expectations, wealth management firms have to adapt to this new paradigm.