Mumbai, Sep 8, 2024
After the pandemic, investors have become more sophisticated and knowledgeable, leading to a notable increase in capital market participation and risk-taking, says SHIV GUPTA, founder and chief executive officer of Sanctum Wealth, in an email interview with Puneet Wadhwa.
How has the wealth management industry evolved in the Asia-Pacific region over the past few years?
The wealth management industry in the region, including India, has undergone remarkable growth in recent years. Singapore and Hong Kong have long been mature financial hubs for offshore wealth, while India has recently emerged as a vibrant market driven by economic expansion, wealth creation, and the stellar performance of its capital markets.
Despite capital movement restrictions, India’s expanding product universe now offers investors more choices than ever before, and this trend will continue. With a supportive regulatory framework, despite occasional short-term disruptions, India is increasingly recognised as a dynamic market with considerable growth potential. Although it remains predominantly an onshore market, its growth prospects make it one of the most competitive in the region.
How have costs and the regulatory landscape changed for the wealth management industry, and to what extent has this impacted margins?
The regulatory landscape has evolved radically over the past decade due to a series of policy moves aimed at investor protection, market development, and improved regulatory compliance by participants. These changes have influenced how firms conduct business, manage client funds, and charge fees across mutual funds, alternative investment funds, broking, and other instruments.
This evolution has strengthened the ecosystem, lending it credibility among investors. However, alongside heightened competition, it has led to margin compression of as much as 40 per cent since 2019.
How are you coping with this margin pressure?
Fortunately, massive wealth creation, an expanding product toolkit, and financialisation have more than offset the impact. These conditions have also created opportunities for innovation in the industry. Despite the challenges, Sanctum has seen tremendous growth over the past five years, with assets under administration and revenues growing at compound annual growth rates of over 40 per cent and 30 per cent, respectively.
How has the investor mindset evolved pre- and post-pandemic?
In general, post-pandemic, clients/investors have become more sophisticated and informed, leading to a notable rise in capital market participation and risk-taking. However, these changes are more the result of underlying economic and market growth in India, accompanying positive investor sentiment, rather than the pandemic itself. That said, the pandemic did give many investors more time to focus on their investments and accelerated the adoption of digital technologies.
How are pure wealth management firms competing with broking firms that have wealth management arms and independent social media influencers?
For us, competition comes in many forms, including banks, broking firms, and non-banking financial companies. We address it through an open-architecture, full-service platform. We hold six regulatory licences, including broking and portfolio management services, and we maintain high service standards with a client-centric culture. Social media financial influencers generally have little impact on our target clients, who are high-net-worth (HNW) and ultra-HNW individuals.
What percentage of revenue do wealth management firms typically spend on training personnel? Do you expect this to increase?
Talent is indeed in short supply, particularly for client-facing roles. This reflects the immense growth potential of the industry and the accompanying competitive intensity. However, the industry is not investing adequately in training and development, which likely amounts to less than 1 per cent of revenues for most firms. Most participants seem to be focused on short-term solutions, preferring to poach talent from others, which drives up attrition and salary costs.
Given India’s long-term growth trajectory, firms would benefit from taking a long view and investing in talent development. This is the approach we are taking at Sanctum.
Do you think the wealth management industry is ripe for consolidation?
As competitive intensity increases and margins compress, there is a sense that the pressure to achieve scale will drive some consolidation. However, given the current optimistic sentiment, most firms, large and small, are likely feeling positive about their prospects.
In terms of creating a moat, firms with scale in assets under management, a breadth of products and services, balanced revenue profiles across annuity and transactional income, and strong client cultures are better positioned to weather the inevitable storms during downcycles — of which we have not seen one for a while.
Which players, in your opinion, have created a moat and will be able to survive?
Disruption is inherently unpredictable. However, the most likely source of disruption is technology, where our industry — particularly those serving HNW and UHNW clients — has had a poor record of adoption and behavioural change.
Aside from disruption, the major forces shaping wealth management include the sheer volume of wealth creation, an expanding product universe, evolving regulations, and, once again, technology.
– Shiv Gupta, Founder and Chief Executive Officer
Link to the Business Standard interview
For more information, please visit www.sanctumwealth.com
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