In my last couple of articles, I have been highlighting about the strength of the Indian economy under the current global recessionary fears and reality. The Indian economy will grow by 6 % or 7% for the next 10 years as per the projections from various agencies. In the last 2 decades, the Indian GDP has grown 7 folds from half trillion to $3.4 trillion GDP so as did the Indian capital market BSE Sensex and NIFTY. The financial market has also dramatically changed in the last 2 decades. The so-called word “Agents” got converted into Advisory and India witnessed a radical change in financial advisory. SEBI introduced Registered Investment Advisory Model along with Mutual Fund Distributors (MFD).
The RIA business model went through many changes
where the initial advantages of earning were changed dramatically making it fall
like a pack of cards. Some RIAs also
operate the MFD business in their relative’s name to circumvent SEBI norms. Even a few RIA started giving stock tips etc
under the name of RIA. Many reputed companies shut down their RIA models of
business and even a few sold their businesses to competitors and left the Indian
financial market. From 1800 RIAs the
number came down to 900 individuals and 470 around corporates in the last 10 years.
As per the Ministry of Finance In India,
there is only one Registered Investment Advisor (RIA) for more than 76000
Mutual Fund investors and Demat account holders. Well in one way it is good to have a low number of RI since quality matters in this type of profession. Further, as the maturity of the Indian investor and RIA grow the number will grow.
The Fee-based model of RIA demands new
abilities and significant knowledge and more importantly a mature market. The
current Indian investors are yet to mature since for them free tips and free advice
makes them believe that they have invested in the best of the funds. Direct scheme
concepts have been exploited and further to that financial advisory has been restricted
to only MFDs and not to proper advisory models.
Now in 2023, we hear about financial advisors
asking about client risk profiles and asset allocation strategy but prior to
that the maturity of the MFDs and RIAs lacked and the investor’s maturity will take
another 5 to 10 years where the fee will be paid by an investor with happy in
mind. This mindset will change only when RIA's will think out of the box.
Today’s RIA needs to understand that you need
to create wealth and lifestyle solutions for goals moving ahead from selling
dreams. This generation of clients demands
transparency, wealth creation and most importantly trust. Today smartphone has changed
the dynamics of investment and advisory but a human touch-based RIA will
make a quantum impact compared to an online model. In many cases, regulatory
rules and guidelines have been blamed for RIA numbers to come down but the fact
is India needs serious players in the financial industry.
If you remember there was a time when Fidelity
AMC, Goldman Sachs and many others left India when the mutual fund upfront commission
used to be around 7%. All these AMC had quality products but they believed in performance
whereas others believed in the commission model. This
era got over Finance Ministry firmly holds the matter and changes the MF
industry.
Today if you want global RIA like Woodley
Farra Manion, Albion Financial Group, The Burney Company, Luther King Capital Management etc. to come and open up
shops in India then you want fair play rules where performance of advisory
speaks loud.
Let me remind you Citibank, FirstRand
Bank, ANZ Grindlays, RBS, Commonwealth Bank of Australia, and Barclays scaled down
in 2012, likewise, Bank of America-Merril Lynch, Barclays and Standard
Chartered scaled down their operations in 2015. Hence the global RIAs
getting into JV with the Indian RIAs model of joint collaboration will be the next
big change which India needs and might witness provided the current RIA’s belief
in Indian GDP growth to 5 trillion marks. RIAs are the only ones who can
replace these bank's wealth platforms and create immense growth opportunities by
joining hands with global RIA’s.
In this decade we will find global
RIAs joining hands with local RIAs to set up business models in India since
Indian investors are changing dramatically. This is very much possible since in
the developed economies you have now left with managing retirement corpus which
has already been done and the young population is struggling with BNPL and
high borrowed cost of living which leaves fewer savings for investment planning. Hence the opportunity
of joining hands with global RIAs with
local Indian ones to start operations is a very strong business proposition which
comes to keep the changing investors' mindset in India. Further, the biggest advantage
will quantum jump in technical expertise and know-how followed by
technological enhancement.
As per the latest report, its being found
that in India 308 Indians entered the ultra-rich category. Globally, in 2021,
the number of HNWIs increased by 7.8% to 22.5 million, with an 8% rise in their
overall wealth. Some 90% of the country’s population is below the
$10,000 mark. According to the World Wealth Report, the bottom 70% of India’s
households own about 20% of the country’s household or private wealth.
This number is changing dramatically and with Ideas getting funded easily
through the startup community, the numbers will shoot up significantly. As new industries and manufacturing 4.0 gets bigger in India the quality of clients will need service as compared to the Foreign banks in terms of wealth advisory.
Indian RIA’s need to understand that
quality clients exist and that every client is not for RIA. If we look at the outflows
for investment in international stocks and bonds under LRS rose to an all-time
high of $747 million in FY22, up 58% from $472 million in FY21, according to
RBI data. This shows how the Indian investors are changing and what type
of opportunity waits for the RIA’s doing JV with global ones.
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