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Amid India's growing economy and rising high net-worth individuals (HNIs), a report by Jefferies noted that India's wealth management industry is likely to register strong growth in the coming years, companies expected to clock more than 20 per cent growth annually in their core business for next three years.
The report stated that healthy growth in the core wealth management (WM) segment is expected to continue, supported by opportunities to expand the client base, strengthen relationship manager (RM) networks, and improve productivity. It stated "Leading WMs can grow +20 per cent in core wealth AUM (Assets Under Mangement) over the next 3yrs". However, the report also noted that the high-net-worth individual (HNI) space is becoming increasingly crowded, and revenue streams in this segment are becoming more layered. It stated "The HNI space is crowded & revenue streams are more layered. Transition from distribution to advisory model is key, but needs to be timed well". Jefferies believed this shift will be essential, especially as wealth managers look to tap deeper into the ultra-high-net-worth individual (UHNI) segment with larger ticket sizes. The advisory model typically generates lower fees, between 30-45 basis points, compared to the distribution model, which offers 50-100 basis points. Despite the lower margins, the advisory model offers advantages such as larger scale and deeper client engagement. For most wealth managers, around 80 per cent of the UHNI AUM is critical, making the advisory model a useful tool for client retention. Nevertheless, the report cautioned that shifting to the advisory model too early could impact profitability, particularly when firms are still in investment mode and dealing with a sub-par AUM per client. Timing the transition appropriately will be important to avoid such risks. The report also mentioned that the HNI segment in the country is more fragmented, with numerous brokers, domestic as well as foreign banks. As competition in the industry intensifies, Jefferies pointed out rising attrition risks and cost pressures, which firms will need to manage carefully in order to sustain long-term growth. (ANI)
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