'Wealth management industry is likely to grow at 10-15% over next 5 years'

After two spectacular years of a good run in the equity market, markets will consolidate before it sees the next phase of growth, says Reliance Wealth Management CEO Nitin Rao

High net-worth individuals are increasingly opting for more evolved products like alternative investment funds, portfolio management services, hedged strategies, private placement, co-investing and higher credit risk exposure products, says Nitin Rao, chief executive officer at Reliance Wealth Management in conversation with Puneet Wadhwa. Edited excerpts:

How have the investing trends among the wealthy changed over the last two-three years? What is the road ahead?

Customers have become more aware of investment avenues in general and mature investors have also understood the correlation between distribution costs and the degree of complications in normal investment products. Coupled with the emergence of direct mutual fund investments and investment advisory practices, a trend has been seen where mature investors have moved towards low-cost investment or advisory/transaction fee-based investment practices.

We are witnessing increased levels of investment in more evolved products like alternative investment funds (AIFs), portfolio management services (PMS), hedged strategies, private placement, co-investing, higher credit risk exposure products etc among high net-worth individuals (HNIs). This trend will continue. Coupled with the emergence of greater risk-taking ability in the millennial/second generation space, we expect trends of co-investing / asset diversification through liberalised remittance scheme (LRS) route/commodity investing, etc to also emerge as avenues.

Over the last few years, avenues such as art, wines etc have emerged as investment options. Are the well-heeled in India looking at them?

Prior to demonetisation and introduction of GST (goods and services tax), the Indian markets were focused on real estate/gold investments as a key investment option. We have now seen a shift to equities in the recent years. Concepts such as art and wines are interesting but are still a long way from becoming an important area of interest of investment for customers.

You joined Reliance Wealth Management recently. What are the challenges you foresee at the company and at the industry level? How do you plan to overcome these?

The boom in the Indian wealth management industry was driven primarily by banks and select wealth management entities who utilised the opportunities driven by a bullish market sentiment aided by mega shifts in savings patterns and maturing of the Indian investor. This has also led to more and more customers expressing requirements for investment products around different risk categorisations balanced with suitable advice.

The challenge is to create and build a wider network, covering multiple private banking segments from the entry level to the super-affluent and the ultra-HNI (high net worth individual) segment in a comprehensive/layered way, keeping each segments’ requirement distinct and separate. This is something we have not scaled up to and our effort is to restructure the business to align it to this path, in a cost-efficient manner over a five-year time frame.

While the high end may have seen a significant amount of maturity and saturation, big opportunities exist for wealth management companies, under emerging regulations to replicate the scale of banks to start work across a larger number of segments. After March 2019, banks can only be a distributor of financial products, thus leaving a vacuum to be filled for good and sound advisory.

Reliance Wealth saw a 50 per cent growth in its assets under management (AUM) to Rs 60 billion in the last one year. What is the road ahead for the next three years?

After two spectacular years of a good run in the equity market, we believe markets will consolidate before it sees the next phase of growth. This would happen over a three-year time frame. We plan to use this opportunity to consolidate our business, extend city coverage from two cities to at least 12 and increase our banker strength by at least 4 times from about 30 to 130 with a multi-segment focus by the end of the year. This will help us achieve a six-fold increase in business over a five-year time frame.

How do you plan to achieve this?

We have already initiated significant restructuring in our business model – from having just a narrow focus covering ultra-HNIs from Delhi and Mumbai around our revised thoughts covering processes and system infrastructure. In the last one month, we have already hired 36 senior bankers from leading multinational banks and domestic wealth management players, including seven business unit heads. There are also big synergies to tap from within the Reliance Group, from Reliance Mutual Fund and Reliance Securities, both being dominant players with over 7 million customers. So, in the investing community, our credentials are fairly well understood.

Do you think the wealth management segment is getting overcrowded and the margins will get thinner going ahead?

The ultra-HNI segment is clearly overcrowded and hence the margins are thin, with a product-specific focus coming in. Our advantage is that our presence here is niche and with the group’s synergies across managing investor money in different companies, we have the scope to provide superior opportunities to customers, even as margins are low.

In other high-end wealth segments, the evolution of more and more investment savvy customers and a shift to individual advisory entities, due to regulatory developments has provided an opportunity for wealth entities to grow significantly though at slightly lower margins. While customers in these segments will benefit from better products, building relationships to provide complete asset allocation support and proper product offerings is an important part of the business, which will protect margins though the trend will be downward.

Can you elaborate on the likely industry growth rate for the next 3 – 5 years and how do you plan to stand out?

The wealth management industry is expected to grow at 10-15 per cent over the next five years. We would expect to grow faster than the market as our strategy is to reach a minimum level of scale in line with the competition. Our objective remains to work in an open architecture model so that best offerings can be made to customers. To that extent, we will work with partners as and when opportunities come up.

The wealth management business competes with banks as well. How do you maintain your leadership, profitability and growth?

Banks have played a key role in changing savings trends to investment products and creating trust in customers to facilitate investments which we expect to continue. However, the opportunity is that banks may be getting increasingly restricted into mutual funds and insurance by various regulatory frameworks on the product coverage they can offer.

This framework of business is now helping wealth management companies to focus on taking customers to next level of investment opportunities, in a model across asset allocation/advice and execution. This has already happened to a certain extent in the higher-end segments and this will percolate down. This shift is the core behind which we will evolve as investor mind-sets mature. 

A layered research offering, proper product coverage, targeted investment support across segments in line with needs/risk profile, proper relationship management and an ethical investing approach should ensure consistent growth in this business.

How big a challenge is it to retain talent? How do you tackle this?

It is a challenge to retain talent in the ultra-HNW segment since the number of relationship managers are low. In my view, the cost dynamics from a business perspective have gone haywire in some cases as there is a tendency to chase resources for their relationships at exorbitant costs, which can go wrong when markets turn.  We are careful as we manage the highest segment, even as there is churn. We are confident over time, that even if there is churn, customers will build relationships with the group, basis our overall proposition.