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1. “As part of our ongoing initiative to share knowledge on the Indian financial services sector, Motilal Oswal Investor Relations presents its
article series – Fin Sight. In each issue, we discuss a topic impacting this sector. We draw upon the Group’s learning, experience and current
thinking to develop these insights. We look forward to your questions and feedback to help us provide you a better perspective of this sector…”
Sameer Kamath, Chief Financial Officer
Wealth management landscape and outlook in India: Takeaways from the global experience
Our Business Verticals:
Recent scenario in the Indian wealth management (WM) space Fig 1: Indian HNI's 5 yr CAGR has been relatively strong
HNI Count (Th) 2006 2011 CAGR
 Broking & Distribution India 100 126 5%
WM business has typically been an offshoot of the growth in discretionary income. With the rapid
 Institutional Equities Asia Pacific 2,600 3,400 6%
growth in India’s GDP and income levels, its WM industry has become a hot-bed of activity. New Global 9,500 11,000 3%
 Investment Banking and existing players are competing in a yet nascent market. Indian HNI wealth and count has grown HNI Wealth (US$Bn)
India 350 477 6%
 Asset Management at a CAGR of 5-6% from 2006 to 2011, similar to Asian markets but much higher than global rates Asia Pacific 8,420 10,700 5%
Global 37,200 42,000 2%
 Private Equity
Nevertheless, a growth market has its set of challenges. Volatile markets since 2011 have played Source: Merrill Lynch-Capgemini Global & Asia Wealth reports
 Wealth Management havoc with asset values. Client’s focus is now shifting to low-risk products, with expectations of Economic and income growth boosted
higher service levels at competitive prices. This poses a challenge, as WM players need to reorient scope for WM, but volatile markets and
their operating models to maintain their share in a competitive and evolving market growth slowdown have posed challenges
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Size and structure of the WM market in India
 Please use this link to
As per Capgemini’s report on Asian wealth, India had 126,000 HNIs with wealth of US$477bn in 2011 vs. 100,000 HNIs with US$350bn in 2006.
read our previous
The growth trajectory during this period has been volatile. 2011 was especially harsh for India owing to macro concerns and economic
Fin-Sight articles:
slowdown. On a YoY basis, India’s HNI count dipped from 153,000 to 126,000 and HNI wealth slid from US$582bn to US$477bn in 2011
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inancial-Services/Investor- India’s market is fragmented, with organized sector (independent firms, banks, brokers) battling unorganized sector (private advisors, CAs).
Relations/Presentation/ Celent’s research says a shift is seen towards organized sector as the market evolves, whose share is still just half that of unorganized players
India’s HNI count to total population grew from 0.007% to 0.011% from 2004 to 2011, with a high of 0.013% in 2010. However, it is still quite
small compared to major mature and emerging markets. This indicates healthy growth prospects as the ratio moves closer to global averages
Business Updates: Experience of a similarly evolving market like China shows that as India’s long-term economic story takes shape, the proportion of HNI Wealth
 Conducted the 8th to GDP should rise. HNI wealth tends to grow proportionately higher than GDP as the discretionary income and savings grows in the economy
Annual Motilal Oswal Fig 2: HNI count/population ratio in India is still much Fig 3: Proportion of HNI wealth to GDP picks up with GDS% as the Fig 4: Emerging economies allocate a smaller proportion
lower than both mature markets and emerging peers market evolves (as seen in China, Korea); HNI wealth picks up when of household personal financial assets towards equities
Global Investor growth in Per Capita GDP is higher (as seen in China and Indonesia); Others 912 4,917 38,225
1.17%
Emerging Mature 0%
Conference in Mumbai Korea is a more mature market hence its HNI wealth is already sizable
0.98%
2004 markets 10% 12%
0.92%
markets Deposits
0.85%
Avg of HNI Wealth/GDP (2006-11) CAGR of HNI Wealth (2006-11) 17%
0.70%
 PE business has been
0.69%
2011 Avg of GDS/GDP (2006-11) CAGR of Per Capita GDP (2006-11) Currency 42% 64% 2%
0.30%
30%
strengthened with the 48% 52% 21% Insurance & Pension
13%
0.15%
17% Reserves 7% 13%
joining of Somak Ghosh
0.08%
34% 34% 31% 34% 31% 16%
0.011%
Mutual Funds
0.04%
0.05%
11% 11%
0.007%
0.02%
9% 9% 6%
15% 6% 7% 10% 26%
as Co-CEO, responsible 3% Direct Equity 14% 8%
for growing the real India China Brazil Korea USA UK Germany
India China USA
India China Indonesia Korea India China Indonesia Korea Source: FICCI_McKinsey report - Capital Markets 2020 - Going for 3x
estate fund business Source: Indexmundi.com; Merrill Lynch-Capgemini Global Wealth reports
Source: IMF data, Merrill Lynch-Capgemini Asia Pacific Wealth reports
Fig 5: Indian HNI Wealth have generally moved in a higher
 Sudhir Dhar, Head of Comparing Asia’s growth markets to USA shows that equity comprises a comparatively lesser proportion YoY with growth shifts in Household Financial Savings
HR, was awarded the proportion of private financial wealth in Asia. It is instead dominated by insurance and deposits Growth in Household Financial Savings Growth in HNI Wealth
71%
“Most Powerful HR Kotak’s survey shows that while Indian HNIs’ spending habits were unchanged in 2011, their 46%
Professionals of India” investment decisions changed. Capital conservation, low-risk, discipline were the buzzwords 20%
Award by the World 14% 15%
Safe, low-risk assets were in vogue & demand for equities was low. But despite the low demand, -2% -25% -8% -10% -16%
HRD Congress many didn’t withdraw their existing equity holdings as they viewed it as a long-term bet 2007 2008 2009 2010 2011
Main focus has been on Tier I/II cities so far, while wealth pools outside them remain untapped Source: RBI, Economic Survey, Times of India, ML-Capgemini Asia Wealth reports
Entrepreneurs, Professionals led the recent growth in Indian HNIs, as economic growth helped business owners/workforce enhance incomes
Clients now often question what is the
Email us on Recent trends seen globally real value that advisors bring for them
investorrelations@motilaloswal.com Contrary to expectations, global billionaire count actually increased last year. Forbes Billionaires Fig 6: Growth trends show fee-based markets like North America
or sourajit.aiyer@motilaloswal.com List of 2012 scored an all-time high of 1,226. US saw additions, due to innovations, strong brands fared better than commission-based markets like Asia in terms of
maintaining revenues and profits, despite the dip in AUM growth
and US market upswing. Amongst BRICs, only Brazil saw an uptick, while India and China saw dips 2009 2011
; or call Sourajit Aiyer
27%
Recent economic realities in mature markets warranted demand for safer, simpler products. A North America Asia Pacific
Brokers ex Japan
on +91 22 3982 5510
16%
PWC survey on US wealth shows clients are now cautious, less trusting, demand better service
15%
14%
13%
and transparency in pricing, risks & investments. An Accenture report on global wealth showed as
0.76%
0.66%
0.62%
0.62%
5%
2%
1%
clients became more knowledgeable, they took more self-directed decisions in vanilla products
Shift towards fee-model as it ensures sale of appropriate products and client stickiness. YoY AUM Rev per Pretax YoY AUM Rev per Pretax
growth Client Profit growth Client Profit
Corporate Presentation: Commission-model led to churning and mis-selling, which failed to achieve investment objectives. Assets Margin Assets Margin
Source: ML-Capgemini Asia Wealth reports, Own analysis
With the preference for low-yield products, revenues in commission-based markets are hit. On
Please use this link to Fig 7: Operational efficiency in terms of cost control has picked
the contrary, an Accenture wealth survey shows revenue/AUM grew globally in 2011. Since larger up globally across all major cost heads since the last 3 years
read our latest
WM assets are in USA which is a largely fee-based market, it indicates revenues held firm there.
78%
77%
75%
2009 2010 2011
corporate profile
Comparing North America brokers and Asia Pacific ex-Japan shows a largely fee-based market
41%
39%
37%
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like America maintained its revenues and profitability, despite the dip in AUM growth in 2011
15%
15%
15%
inancial-Services/Investor-
14%
13%
13%
9%
9%
9%
Relations/Presentation/ Demand for low-yield products, high compliance, advisor & technology costs put profit pressures.
Firms are now focusing on operational efficiencies. Costs as a percent of revenues improved Total Cost Staff, Accnt, Ops and IT Sales and Other Costs
to Rev% Marktg Costs Costs to Rev% Front-end to Rev%
globally across major cost heads in the last 3 years. A BCG report on global wealth also shows to Rev % Costs to Rev%
client assets/RM improved as firms let go of non-performers and used performance-driven sales Source: Boston Consulting Group Wealth reports

2. Firms are also focusing on sticky products that are difficult to replicate or shift, like funds of High-margin fees, cost control and a
leading managers, specialist investment products and tax related investments more segmented client approach are
A more segmented client approach is gaining precedence, as client retention becomes an issue. increasingly the focus of global WM firms
Our Latest Results: With volatile markets impacting investments, client dissatisfaction rose. Firms are using client Fig 8: HNI wealth growth ratehas matched or exceeded GDP growth
whenever GDP growth picked up or market performance saw an uptick
insights to customize solutions & deliver a relevant value proposition to each target client group 10x
 Please use this link to
India: HNI Wealth
Growth/GDP Growth
read our quarterly Heightened competition intensified the hunt for quality advisors with strong relationships. 5x Global: HNI Wealth
Growth/GDP Growth
earnings releases Given its impact on staff costs, firms are also developing fresh advisors, who come at lower costs.
0x
http://www.motilaloswal.com/ A US firm is recruiting advisors from the same universities as its target clients, to use networking 2007 2008 2009 2010 2011
Financial-Services/Investor- -5x
Relations/Financial-
US business models are using new service formats like contact centers to offer cost-effective India 114%
Market Cap Returns %
-64% 104% 30% -38%
Reports/content/C27/ personalized service, and free the bandwidth of high-cost advisors for advice and acquisitions Global 20% -47% 47% 17% -14%
Source: IMF data, RBI Handbook, WFE, ML-Capgemini Global and Asia Wealth reports
 Please use this link to A Booz & Co survey showed HNI wealth growth matched GDP growth globally over the 2002-07
read our annual reports bull-run. The volatile period of 2007-11 reaffirms this trend of positive correlation between HNI
Fig 9: Criticality of high-margin discretionary products is seen as higher
% of discretionary mandates in AUM boosted ROAs in mature markets
http://www.motilaloswal.com/ 2009 2011
Financial-Services/Investor-
wealth and GDP growth. Also, during periods of economic growth and market upswing, the extent Asia Pac ex Japan European Offshore North America Banks
Relations/Financial- of outperformance of HNI wealth vis a vis GDP growth was much higher, as compared to the 73
87 94 84 90
Reports/content/C26/ 65
extent of decline during periods of downturns
45
36
Enhancing revenue with high-value products using a ‘trusted advisor’ pitch. As per an Accenture 15 16
global wealth survey, the focus is to grow discretionary mandates (where clients delegates 2 4
decisions) as it has positive correlation with ROA. As per BCG’s global wealth report, gross Discrete%* ROA% Discrete%* ROA% Discrete%* ROA%
Source: BCG Wealth reports Discrete%* is Discretionary Mandates as % of AUM
revenue margin from discretionary mandates is ~2x that from execution-only mandates
Integrated firms like banks and brokers benefited from synergies gained from sharing of Fee-model firms stress in client pitches
infrastructure/fixed costs and existing client and distribution network for WM client acquisition that they get salaries, not commissions
Meet our Management:
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investorrelations@motilaloswal.com Few trends and challenges currently seen in India
if you want to schedule a Client’s awareness of WM is still low, hence it’s still a vanilla market
WM market has seen healthy growth in India, given its economic
meeting to discuss this Product variety slow to pick up, especially in alternate products
growth and rise in savings and discretionary income
sector, its long-term Savings into physical savings has been a traditional practice. ~50% of
Preference of households towards physical asset classes for
opportunity and the savings is in physical assets, higher than comparable nations
savings, rather than financial assets
company’s strategy Heightened competition is impacting revenue and costs and putting
Banks and brokers are utilizing their distribution channels. pricing pressure, making WM a volume game
Insurance firms are retraining their agents to sell wealth products.
Clients are cautious in selection their WM firm - based on advisor
Independent firms are focusing on product and customer niches
capability, brand, reputation, service levels, word-of-mouth referral
HNIs are now adopting a long-term disciplined approach, rather Safe debt earns low yields, and demand for high-yield equities is low
than short-term opportunistic one. With caution and capital Clients are more actively involved with advisors in products that
conservation in focus, HNIs are maintaining a close control over they understand, hence demand for justification of advice is higher
their wealth decisions They may view products that they don’t understand as complicated,
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making it difficult for advisors to sell them
Relations Mailing List: Entrepreneurs and Professionals are the dominant sources of the Most Professionals are first-time HNIs and don’t enjoy strong
Please email us at recent increase in HNI wealth in India, apart from Inheritors existing relationships. Hence, competition for this pie will be intense
investorrelations@motilaloswal.com
Bulk of the existing HNI wealth has come from primary business. as most firms are seeking to break into this untapped segment
or sourajit.aiyer@motilaloswal.com
Kotak’s wealth survey showed that many HNIs did not plough it As the industrial outlook improves and requires funding, a portion of
back into the primary business, due to subdued industrial climate HNI client assets may get diverted to fuel the primary business
Based on the global experience, certain observations that may be useful for Indian WM firms
Cost effective operations, client segmentation, managing clients’ evolving expectations, using client insights to customize solutions and
deliver a relevant value proposition, referrals from clients, retention of quality advisors, expanded product suite, value-for-money pricing
and outsourcing of non-essential services will determine the next market leaders
Value proposition for each client segment Deliver an enhanced client experience Expand product suite, incl. 3rd party, so
- A PWC report on global wealth says - Firms globally are implementing tools for that clients get access to best products
understanding segment performance in client reporting and analytics - An E&Y survey on US wealth estimates
clients, products and costs is imminent - Advisors using interactive tools for scenario most firms are focusing on expanded
- Which segments are growing, profitable or based planning during client proposals. open-architecture & annual product
adding costs, where firms’ sales strengths lie, - CRM and lead management tools in focus reviews to maintain relevant products
product knowledge, client behavior insights - With many clients now opting for self- - It helps cushion against value erosion in
- Provide differentiated, yet cost-effective directed decisions, Schwab, TD Waterhouse any one asset & ensure net new inflows
services, with wide product bouquet, have added ‘Do it yourself’ tools - Most firms offer ETF, MF, PE and PMS
personalized service formats and level of - Using contact centers for 24*7 access, - May use innovative products to match
analytical advice to each target client which is more cost-effective than pure return expectations, which can capture
segment and offer a unique value to each relationship management by advisors upside along with capital protection
Target untapped gaps in the market and gain New entrants building new relationships Advisor productivity and cost/income
market share ahead of peers may be better off targeting Professionals ratio efficiencies are in focus
- Ensure pricing is relevant, accurate and with - Their incomes are growing but may not - Targeting new advisors with strong client
options so clients have a choice for services, have existing relationships with WM firms relationships, remove those performing
and ensure perceiving of value by the client - ‘Old Money’ UHNI clients typically have below-par, creating incentive structures
- Commoditize some services using set existing relationships whom they trust - Keeping tight control over operational
processes, applications to scale up faster - Older firms can leverage existing clients for costs, look at higher-margin products
- Bundle common products at a discount and referrals. In any case, the longetivity of the and fee model to protect revenues, esp.
charge a premium for specialized services relationship is only as strong as the results when AUM growth gets impacted

3. Way forward : What is required in India – focus areas and challenges
India poses a good opportunity, as its expected growth in discretionary income and the longer, working life of its ‘young’ population,
indicates opportunity for enhanced affluence and wealth
Focus areas:- Potential challenges:-
Segmental focus and client discovery is critical. As per Accenture’s report on Focus on multiple segments may complicate their
global wealth, analyzing client insights, understanding their changing operating model
demands, customizing solutions aligned to specific client needs are critical to
offer a unique value for each target segment and ensure relevance of Firms need to first identify where its strength lie and
services as per expectations, achieve client satisfaction and retention develop into those target areas
Segment-based accurate pricing to ensure ‘value for money’. Pricing as per Internal allocation of costs as per segment to estimate
the service, product and level of analytical involvement. Clients often mix healthy margin for each segment and negotiate
self-direction and dependence on advice in their decisions, hence pricing has accordingly for mutually beneficial fee rates
to be relevant for clients to perceive value
Replicate, scale and benchmark the successful tactics and practices of the Hire and develop such advisors; Dearth of focused
best advisors certification/education programmes in this discipline
Exclusivity as a value driver (exclusive funds, fund managers and products), Ensure product architecture & sales capability supports
which cannot be commoditized and earn healthy margins the access for such products
For services with cheaper alternatives, offer clients commoditized services at Managing transition process during outsourcing
competitive prices using technology or outsourcing Maintain client experience levels despite outsourcing
Earn higher margins or control operational costs in this volume game; just Profit pressures and short-term capital demands
adding clients without proportionate revenue flow will put profit pressures Sustaining operational cost controls
Given the competition, the market may see a shake-down amongst players Poor investment performance impacts future wealth
Increase in Indian workers returning from overseas adding to wealth pool Accessing the wealth pools in towns outside Tier I/II
Remittances from India’s overseas NRIs are significant and is a key target Brand building outlays for new firms
Conclusion: The WM Opportunity in India Fig 10: Projected HNI Count & Wealth in India till 2017 based on IMF's
GDP & population estimates and 5 year historical average ratios of HNI
Despite recent economic headwinds, the Indian market offers a good scope for
count/population and HNI wealth/GDP in each year from 2012-17
growth, given its long-term economic prospects, positive demographics and
current low penetration. Using 5 year historical average of HNI wealth/GDP for 139,504 141,898 138,899 141,201
129,001 129,856
each year, combined with IMF’s GDP projections, we roughly estimate HNI 952
842
wealth in India to grow to US$952bn by 2017, a 12% CAGR from 2011
781
728
However, evolving challenges exist. Companies need to understand the changing
631
client behavior, market dynamics and reorient their operating models to adapt to 589 Projected HNI Count
Projected HNI Wealth (US$ Bn)
new situations. Firms with the right strategy, product mix, value proposition and
service levels can gain retention, revenues and profitability. Value proposition for 2012 2013 2014 2015 2016 2017
client segments and advice-based sales will be critical. The need for advice has Source: IMF data, ML-Capgemini Asia Wealth reports
never been greater, but the way it is delivered will be a challenge
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