The wealth management industry is gearing up for tectonic shifts across the world. Globally, affluence in multiple segments is increasing, while consumer consumption patterns are evolving driven by changing preferences. India is witnessing a rise in savings and a change in investment patterns. These changes have already started shaping a new narrative for the growth of wealth management.
The change is evident in the range of efforts, experimentation, and innovations by Wealth Management firms and ecosystems around them alike. The future is poised to bring a more pronounced response by these companies to the changes. To survive and thrive in the future, wealth management firms would have to relook at the way they engage with their customers and the way they innovate and operate in providing a range of services through an advanced technology stack.
Three Shifts That Are Shaping the Industry’s Future
Financial services, and specifically investment and wealth management firms, have always been highly sensitive to the play of macro factors unravelling outside their premises. The interplay of post-pandemic economic effects of the slowdown and inflation along with ongoing geo-political changes has created a similar dynamic. On the other hand, there are parallel changes happening in the world around them that have the potential to directly change the way they look at their business and chart their growth stories.
Increasing Affluence Across the World
The world is witnessing a consistent surge in the concentration of wealth among a section of the population, notwithstanding the slowdown in the rate of increase due to the pandemic. India followed a similar trend. The number of ultra-high-net-worth individuals (UHNWI) with assets of more than $30 million and highnet-worth individuals (HNI) with net assets of more than $1 million are expected to rise in India by 2026.
The shifts in the income levels in India are more pervasive in the segment of the super-rich. The Indian middle class with an annual income between $7700-15400 is expected to increase by 2025 too, according to forecasts made before the pandemic. The pandemic might have slowed the voluminous increase in the middle class but has not stopped its upward movement. In fact, the income levels of higher-income consumers have been either stable or have increased during the last year.
Increasing Household Savings and Changing Investment Patterns in India
Despite a recent dip in savings, likely because of post-pandemic spending, overall household savings in India are on the rise. However, it is not just the volume of savings that is gradually changing in India, the pattern of investing is also shifting. Traditionally in India, average households held only 5% of their total assets in financial instruments such as deposits and savings, publicly traded shares, mutual funds, life insurance, and retirement accounts.
Savings in financial instruments is on the rise as people gradually move away from traditional forms like gold and silver. The increases are likely driven by the awareness that over-concentration of wealth in non-financial assets in the face of rising inflation can yield negative returns. The change in saving behavior of Indians is apparent in their trend of putting incrementally more money in capital markets. Savings are on the rise and are gradually moving towards financial asset investments.
Evolving Preferences of the Digitally Immersed
Factors to understand customer segments are not limited by income levels, savings, and investment patterns anymore. As money concentrates in hands of the new investors, understanding their changing preferences and behavior is critical to shaping the future of wealth. The new breed of investors is digitally immersed and used to the curated and contextualized offerings of Netflix, Instagram, Amazon, and Spotify. These new investors carry the same expectations to all financial services touchpoints; buying investment products, receiving marketing content, or interacting with customer care.
Worldwide, number of investors who use online trading and robo-advisory is estimated to grow consistently. By 2030 in India, Millennials and Generation Z will constitute 77% of India’s population. This is a cohort that is breaking away from frugal spending patterns and has witnessed ubiquitous digital consumption. By 2030, an increasing number of customer personas from these groups with strong brand preferences, a propensity to research and buy products online, and a preference for technology-enabled consumption models will be a large section of the audience of wealth managers.
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