We are on the brink of a transformative era in the capital markets and wealth management. New companies like Nvidia and the Mag 7 (Magnificent 7 companies which are mega cap - Apple, Microsoft, Amazon, Google, Meta, Nvidia and Tesla) are reaching unprecedented heights, new asset classes such as Bitcoin, structured products, and leveraged ETFs are continually emerging, index leadership is constantly shifting, fund flows into SIPs in mutual funds are at an all-time high, and AI is revolutionizing the financial landscape.
This confluence of changes has rendered traditional wealth management methods, approaches, tools, and personnel outdated, particularly for serving working professionals who are often underserved in the market. Here are the current issues:
1. Lack of Alpha: Traditional wealth management models often fail to deliver the strong alpha generation (excess returns over market benchmarks) that investors seek. In India, salaried professionals face two extremes: losing money on high-risk F&O or receiving low returns on highly risk-averse annuities. The problem arises when wealth management firms rely on passive investment strategies that do not adequately account for today's dynamic markets.
2. High Cost Commission Game: Another issue is the prevalence of "Distributors" masquerading as "Advisors." We’ve all heard "Mutual Fund Sahi Hai"—next time, ask these so-called advisors (who are actually mutual fund distributors) how much commission they earn from Mutual Fund Schemes and whether they truly prioritize their clients’ interests. Non-discerning investors are often misled, unknowingly paying commissions to MFDs through "Regular Schemes" with lower NAVs and hefty expense ratios to fund managers—75% of whom don’t even meet their own benchmark returns.
3. Lack of Research and AI: Many RIAs lack the necessary technology infrastructure to provide clients with in-depth research from high-quality paid tools like Bloomberg, LSEG, and Morning Star, relying instead on publicly available free research. Many also lack well-established research teams supported by cutting-edge AI, which explains their inability to deliver alpha for their clients.
4. Lack of Capacity and Capability: India currently has around 1,300 SEBI-registered investment advisers, compared to approximately 15,000 in the United States. This stark difference highlights the urgent need for more RIAs in India to meet the growing demand for quality financial advice. While SEBI is pushing for regulatory easing to encourage more RIA professionals, the quality of advisors remains crucial. The profession currently does not attract top talent and has yet to establish high standards akin to Chartered Accountancy (ICAI).
5. Keeping up with the Times: As millennials and Gen Z investors increasingly enter the market, their expectations for personalized service and digital engagement are reshaping the profession. A staggering 90% of heirs switch wealth managers after inheriting due to dissatisfaction with digital maturity and service personalization. Additionally, today’s new class of investors is increasingly looking for Socially Responsible Investing (SRI), and many wealth managers are not well-versed in the ESG framework for investing.
6. Lack of Service: Most wealth management firms, including large ones, are constantly chasing new client acquisition, leaving much to be desired in servicing existing clients. Many wealth advisors do not even meet their clients once a quarter, let alone constantly rebalance their portfolios.
While these challenges are significant, there is a massive opportunity in wealth management in emerging economies like India. India has a substantial $2.4 trillion AUM and could easily replicate the USA’s growth trajectory from $2 trillion to over $80 trillion in AUM over 30 years, especially within the Affluent and Emerging Affluent segments.
So, what does this profession need to do? How should RIAs approach the market? How can we attract new RIAs to join this market? And above all, how can we make a difference in the lives of ambitious working professionals?
While the country is taking baby steps around the "investment advisor" framework, it is crucial for us as professionals to establish foundational elements. Think of ICAI (Institute of Chartered Accountant of India) and how it became the most sought-after profession for both clients and professionals. To monetize the opportunities and embrace the challenges, we need to go back to the drawing board and establish a few non-negotiable mandates as professional obligations:
1. Invest in Research Infrastructure, Harness Technology, and AI: In this fast-paced and rapidly evolving financial world, the only way to provide clients with a knowledge edge is through the use of best-in-class technology—whether it is using top financial databases like Bloomberg or LSEG, investing in data analytics to make meaningful sense of data, or leveraging AI to predict or summarize vast pools of unstructured data. By utilizing research and AI-driven insights, wealth managers can identify emerging trends, optimize portfolio allocations, and uncover hidden opportunities that traditional methods might overlook. This data-driven approach not only enhances performance but also allows for more informed decision-making tailored to individual client needs.
2. Focus on Strong Alpha Generation: Wealth management must prioritize strategies that consistently deliver excess returns over market benchmarks and they need to take accountability for it. This involves moving beyond passive investment approaches to actively managed strategies that leverage both fundamental research and quantitative analysis. RIAs must stay updated with evolving asset classes (offshore equities, structured products, fractional ownership, hybrid products, ETFs, commodities, etc.) and provide the right mix to their clients.
3. Provide Business Class Service: The working professional segment demands the same capabilities that institutional clients enjoy today. They need personalized attention, timely communication, and tailored financial solutions fitting their unique circumstances. As the financial landscape becomes increasingly complex, educating clients about their options is not just essential but a necessary professional obligation. Wealth managers should adopt a consultative approach that empowers clients with knowledge about investment risks, opportunities, and market dynamics. This not only builds trust but also fosters informed decision-making.
4. Hire Top Talent: Please go out and hire the top 10% of talent in the market. This may not necessarily come from the same core wealth management profession. It is important that wealth management firms today bring in talent from allied professional service organizations, such as Big Four Firms where high caliber financial and professional services talent is available.
5. Build Trust: Trust is the most important fabric connecting clients and RIAs. Trust is earned through a deep understanding of clients' issues and problem-solving combined with exemplary service. This is the key to ensuring wealth is passed from one generation to another seamlessly.
In conclusion, the wealth management profession stands at a pivotal foundational moment and this is a call to action to all RIAs and professionals to come together to build a strong professional legacy. By harnessing research, technology, and AI for alpha generation, delivering business-class service to working professionals, enhancing education, hiring top talent, and fostering trust in relationships, we can reshape our profession to meet the needs of today’s investors while preparing for future challenges. Let us work together towards a more innovative, transparent, and client-focused wealth management landscape.
PS: Author consciously uses the word "Profession" instead of "Industry" in the context of Wealth Management in this entire article
Malay Shah is a Founder and a Principal Advisor at CrispIdea (www.crispidea.com/ai-first-wealth). He is a SEBI registered Investment Adviser with more than 24 years of work experience with professional services firms like EY, McKinsey, Alvarez & Marsal bringing in a wealth of knowledge about market trends, economic cycles, and investment strategies.
He is on a mission to democratize wealth for the ambitious professionals in India by bringing the best AI technology combined with powerful capabilities of large fund-houses and financial institutions to retail clients, ensuring capital protection, tax-optimized asset allocation, and market outperformance
