The growing interest in brokerage and other alternative investments in India is changing the way advisors and firms are positioning themselves as wealth managers.
In a recent study by Boston financial consulting firm Celent, titled "Wealth Managers: Retail Brokerages in India," it was revealed that aversion to risk and diversification of providers is fast becoming a theme among retail investors. In fact, estimates show that brokerages account for 30 to 40 per cent of retail customers' financial investments, resulting to a surge in the number of brokers and brokerage houses in the country.
With the retail investor demographic touted to rise to 25 million by 2012, India's wealth management market is moving towards products and services that are equity-linked, with the likes of F&O, debt and primary issuances showing palpable resurgence. Insurance and mutual fund distribution are also exhibiting an uptake.
To date, 90 per cent of the brokerage houses in the country target the retail market, and this is more likely to rise further as more corporate players expand and consolidate.
Internet penetration was also given a special notice, especially as brokerage houses do almost 20 per cent of their business online. While this is relatively small compared to the volume of offline transactions, the fact that the share of online channels is forecast to rise to developed world levels by 2020 is enough to prompt local houses to make a transition, Celent said.
The number of Internet users is estimated to reach 300 million in 2020, what with the young affluent demographic expected to grow from 774 million this year to 882 million by 2020.
Overall, the theme of the study is the encouragement of change and transition among wealth management providers and ensuring clients' evolving appetites are met. At present, brokerages derive 40 to 60 per cent of the income from brokerage-related activities.