The next generation of investors has different ideas about wealth management and attempts to bring forth new attitudes and expectations. This, coupled with the growing importance of PMS, is transforming the wealth management segment significantly.
The pandemic continues to influence the way wealth managers operate businesses. As a result, the number of HNI / UHNI has witnessed a significant surge in India in recent years. The growth is driven by multiple factors such as the fast-growing start-up ecosystem, the number of unicorns that have emerged in our country, and the increasing share of the organized sector in the economy. However, with growth comes its fair share of opportunities and challenges.
Hence, in 2022, adapting to the trends in the wealth management segment will help us effectively deal with the challenges and grab onto the relevant opportunities. The key trends expected to be witnessed in the market are-
1. Recency bias to keep investors sway towards equity asset class and so flows will continue to be skewed towards equity products
Recency bias is a cognitive mechanism whereby the mind favors recent events over historical ones. This is also called memory bias of the human mind and gives ‘greater importance to the most recent event’. Going by this, investors would remain swayed towards the equity asset class as Debt and Gold. The sole reason for this is that the Fixed Deposits have been yielding low returns over the past 2 years. On the contrary, the Equity asset class has been at an all-time high during the same time period.
2. Investment decisions would be driven by analysis-backed knowledge conversations over relationship-driven social conversations
The last generation of HNIs had been making investment decisions on the advice of their consultant, banker, advisor, or friend. This is because these HNIs lacked information, and the best way to take such crucial decisions was to rely on their trusted people. The result was less acceptance of equity asset class, and major investments were conducted in Real Estate, Gold, Fixed deposits, and Insurance products. However, in the present times, HNIs do not base their investment decisions on relationships. Instead, they hold onto Data & Analytics. Since data analysis favors equity, more and more HNIs accept this asset class.
3. HNIs and UHNIs would prefer selecting the right portfolio managers over self-managing direct equity portfolios
HNIs and UHNIs have started embracing the equity asset class. However, since it requires in-depth research and most of them face time constraints to manage their equity portfolios; they seek help from experts for efficient portfolio management. Hence, PMS as an investment structure has gained prominence over the past 5 years and this trend is going to pick up pace in the times ahead.
4. UHNIs would continue to increase allocations to Alternates
Today, most HNIs and UHNIs prefer to invest in start-ups besides listed space. 50% of unlisted investments happen at a seed-stage before the Series A phase, 40% are late-stage Pre-IPO transactions, and the rest are in between phases. With this approach, UHNIs aim to build diversified portfolios. The criteria these investors follow while investing in start-ups are the quality of top management, market opportunities with high growth potential, and the presence of a robust competitive moat. It is anticipated that this trend of investing in such alternates will continue in the times to come.
5. Smart Investors would prefer investing in focused and concentrated portfolio management services over-index-hugging diversified funds
The market over the past 2 years has shown a phenomenal rise in the broad-based indices because of liquidity, and pent-up demand in the post-Covid times. As Nifty stands above18k and Sensex above 60k, it is anticipated that 2022 will not be a year of rising in broad indices. Rather, it will be a narrow stock-specific year. Furthermore, HNIs & UHNIs over the last decade have learned that best wealth creation happens at the company level and not at the index level. Thus, the wealth management trend of smart investors preferring focused and concentrated portfolio management services will rise in 2022.