Twenty years ago, when I started my career in the Wealth Management industry, India’s per capita income was INR 72,805. Today, that figure has soared to over INR 2,00,000 – a threefold increase that speaks volumes about our nation’s economic progress.
The wealth creation we’re witnessing is nothing short of extraordinary. But this is just the beginning. The number of Indians with a net worth exceeding 1 crore is growing at an impressive 14% compound annual growth rate. By 2027, we’re projected to have ~30 lakh households with greater than INR 1 crore in financial wealth in India.
It’s a testament to our collective drive for excellence and the opportunities our growing economy presents. As we’ve grown wealthier as a nation, we’ve also grown wiser about managing that wealth. The old adage of working hard for your money has evolved. Now, it’s about making your money work hard for you.
India’s investment world is huge. There are 2,500+ mutual funds, over 5,000 stocks, and hundreds of PE and VC funds. Then there are AIFs, PMSs, bank FDs, bonds, REITs, and InvITs. It’s a lot too much for most people to handle alone.
Past performance? Just one piece of the puzzle. You’ve got to think about the big picture – GDP, inflation, interest rates. Then, zoom in – on company health, industry trends, and management quality. It’s complex and overwhelming. That’s why top wealth creators don’t go at it alone. They get help. Professional wealth managers navigate this maze daily. They’ve got the tools, the know-how. In this jungle of options, expert guidance isn’t just nice. It’s necessary.
And now, we’re at a watershed moment for India’s investment ecosystem. The recent changes in capital gains tax are reshaping how India’s Wealth Creators approach their portfolios. These changes favour long-term, growth-focused investing and make portfolio mistakes more expensive due to higher Short-Term Capital Gains (STCG) taxes. We’re seeing an unprecedented push towards the financialisation of savings.
In the era post 23rd July 2024, understanding these changes is crucial. They make smart, strategic investing more important than ever. At Dezerv, we believe that understanding must precede action, especially when it comes to aligning your portfolio with these new realities.
So, in this blog, I dive deep into the evolving Wealth Management landscape in India as I cover:
- Recent developments that influence Wealth Management in India, including the new tax changes
- SEBI-regulated Wealth Management licences in India
- A comparative analysis of Wealth Management services in India
- Who doesn’t qualify as a Wealth Manager
- When should you consider professional Wealth Management?
- Steps to choose the right Wealth Management partner
The Wealth Management landscape: Navigating recent changes
The recent budget has shaken up the financial chessboard:
- Long-term, growth-focused investing is now the king
- Higher Short-Term Capital Gains (STCG) tax has raised the stakes – mistakes can be costly
- We’re witnessing a grand push towards the financialisation of savings
These changes highlight the need for professional guidance in managing your wealth.
But with so many options available, how do you choose the right one?
Types of legitimate Wealth Management platforms
Now, let’s talk about Wealth Management. It’s a term thrown around a lot. But what does it really mean?
‘Wealth Management’ – everyone’s using it. Banks, brokers, advisors, distributors. But they’re not all talking about the same thing.
When someone says ‘Wealth Management’, ask what they mean.
Here’s the deal: In India, there are only four ways to be a wealth manager. Four licences. That’s it. All are regulated by SEBI (Securities and Exchange Board of India).
Why should you care? Because your money matters. Your wealth creation journey is unique. Some platforms will fit you better than others.
Here are the four options:
- Mutual Fund Distributors (MFDs): They distribute mutual fund products, provide guidance on which funds to invest in and manage mutual fund investments.
- Registered Investment Advisors (RIAs) – These advisors offer personalised financial planning and advisory services, charging fees directly from clients.
- Portfolio Management Services (PMS) – They manage your investment portfolio on the client’s behalf, tailoring strategies to meet specific financial goals.
- Alternative Investment Funds (AIFs) – These funds pool money from investors to invest in assets beyond traditional stocks and bonds, often targeting high-net-worth individuals and institutional investors. Compare AIFs with Mutual Funds to understand their distinct features.
Each of these SEBI-regulated entities plays a unique role in the Wealth Management ecosystem.
Decoding the spectrum of Wealth Management services
In the complex world of Indian Wealth Management, not all services are created equal.
SEBI recognises four distinct categories of Wealth Management. Each of these serves a unique role in the financial ecosystem, with varying levels of customisation, risk management, and client interaction. Understanding the nuances between these categories is crucial for investors seeking to align their financial goals with the right type of professional support.
The following table breaks down the key aspects of each licence type, from regulatory oversight to fee structures and investment scopes. By dissecting these differences, you’ll be better equipped to navigate the wealth management landscape and choose a service that truly fits your needs and risk appetite.
Armed with this knowledge, hopefully, you’re now better prepared to identify genuine Wealth Management services. However, it’s equally important to recognise what doesn’t fall under this umbrella. In the financial world, many services might seem like Wealth Management at first glance, but they don’t meet the regulatory standards or offer the comprehensive approach true Wealth Management entails. Let’s explore who doesn’t qualify as a wealth manager – because knowing who to avoid is just as crucial as knowing who to trust with your financial future.
Who doesn’t qualify as a Wealth Manager?
Here are some roles that, while related to finance, do not classify as wealth managers under SEBI regulations:
- Financial advisors – They help you make decisions about what to do with your money. They guide their clients on saving for major purchases, putting money aside for retirement, and investing money for the future.
- Robo advisors – They provide automated, algorithmic investment services with minimal human supervision.
- Financial bloggers, YouTubers and Instagram influencers – provide advice on social media on various topics like investing, personal finance, real estate, etc. However, they may or may not have appropriate certificates or SEBI licences.
Caution – Few Social media tipsters provide stock tips or market predictions. They are not wealth managers and investors should be careful as they operate in a regulatory grey area.
It’s crucial to verify the credentials and licences of anyone claiming to offer Wealth Management services. Always ask for their SEBI registration number or AMFI Registration Number (ARN) and verify it on the respective regulatory websites.
When should you consider professional Wealth Management?
As your wealth grows, so does the complexity of managing it. Here are some signs that it might be time to seek professional help:
- Dissatisfaction with current service – If you’re unsatisfied with the performance or service of your current wealth manager, it might be time to explore other options.
- Market changes and volatility – Shifts in the market can prompt a reassessment of your investment strategy and the need for a wealth manager who can navigate these challenges.
- Sudden liquidity events – Significant financial events, such as ESOP buybacks, selling a business, ancestral land, property or receiving a windfall, may require expert guidance to manage the new capital effectively.
- Handling wealth transfers – Transferring wealth through inheritance, divorce, or other means often necessitates specialised planning and advice.
- Life stage changes – Major life events, such as retirement, starting a family, or moving abroad, can alter financial goals and priorities.
Choosing the right Wealth Management partner
Choosing a wealth manager is not rocket science.
It’s about creating a strategy that evolves with you, adapting to changes in both your personal circumstances and the broader economic environment.
Make sure you do the following 6 things before choosing a Wealth Manager:
- Identify your financial goals – Start by envisioning your financial future. Are you aiming for a comfortable retirement, wealth growth, or funding your children’s education? Reflect on your goals, risk tolerance, and financial complexities. This self-assessment will help you find an advisor who understands your needs.
- Look for relevant expertise – Credentials matter. Seek advisors with qualifications like Certified Financial Planner (CFP) or Chartered Wealth Manager (CWM), and ensure they are registered with SEBI. Additionally, inquire about their real-world experience and ask for references to gauge their track record.
- Understand the fee structure – Transparency in fees is essential for trust. Advisors may charge flat fees, a percentage of assets, or earn commissions. It’s crucial to understand and feel comfortable with how your advisor is compensated. Clarity on fees fosters stronger relationships.
- Evaluate communication and compatibility – Effective communication is vital. Pay attention to how well your professional expert/advisor listens and explains concepts. They should take the time to understand your goals and make complex ideas accessible. You should feel comfortable asking questions and confident in their respect for your views.
- Understand their investment philosophy – Ensure your advisor’s investment approach aligns with your beliefs and risk tolerance. Don’t hesitate to ask about their strategy and portfolio construction. A good advisor should clearly articulate their philosophy and its relevance to your situation.
- Check for conflicts of interest – Be aware of potential conflicts, especially if advisors earn commissions on certain products. Look for those who are transparent about conflicts and prioritise your interests.
Securing your legacy with Strategic Wealth Management
As we wrap up our look at India’s Wealth Management landscape, it’s important to remember that choosing your wealth manager is a key decision that can greatly affect your financial future. This choice isn’t just about numbers; it’s about building something that can last for generations.
Our parents often focused on immediate financial security and saving money. They worked hard, sometimes putting their personal interests aside for financial stability. Today, we need to approach Wealth Management differently to keep up with evolving current needs and what future generations might require.
By making smart choices about Wealth Management now, we’re not only securing our own finances but potentially changing the lives of our children and grandchildren. A well-managed financial legacy can give the next generation more freedom to follow their interests, focus on personal growth, and have a healthier work-life balance. It allows them the flexibility to take calculated risks, whether in entrepreneurial ventures or creative pursuits, without the burden of financial insecurity.
Imagine a future where your descendants can channel their energies into areas of excellence driven by genuine passion rather than mere necessity. This is the power of strategic Wealth Management – it creates a foundation upon which future generations can build, innovate, and thrive.
It is also worth considering some other perspectives:
- Balancing wealth preservation with social responsibility – How can we manage wealth in a way that benefits society as well as our families?
- Education and financial literacy – Alongside wealth transfer, how can we ensure future generations have the knowledge to manage and grow their inheritance responsibly?
- Diverse investment strategies – How can we balance traditional investment methods with newer options like sustainable or impact investing?
By considering these aspects, we can create a more rounded approach to Wealth Management that goes beyond financial growth. The interplay between increasing Wealth Management needs and the choice of a wealth manager based on the underlying needs will significantly influence wealth creation in India.
Disclaimer:
The information contained herein is for informational purposes and should not be interpreted as soliciting, advertising, or providing any advice. Securities investments are subject to market risks, and there is no assurance or guarantee that the objectives will be achieved.