CARE Advisory Research

and Training Ltd.

Confidential

October 22, 2021.

To,

Anand Rathi Wealth Limited (formerly known as Anand Rathi Wealth Services Limited)

Express Zone, A wing, 10th floor,

Western Express Highway,

Goregaon, Mumbai – 400 063,

Maharashtra, India

Dear Sir / Madam,

Update of Research Report on Wealth Management Industry for M/s. Anand Rathi Wealth

Limited.

Please refer to your mandate letter dated September 23, 2021 regarding the above mentioned assignment.

With reference to above mandate, we hereby forward the final Research Report on Wealth Management Industry for M/s. Anand Rathi Wealth Limited.

Kindly acknowledge the receipt.

Thanking you.

Yours faithfully,

(Mehul Parekh)

Consultant

Enclosure: As Above.

Wholly Owned Subsidiary of CARE Ratings Ltd. (Formerly known as Credit Analysis & Research Ltd.)

REGISTERED OFFICE : 4th Floor, Godrej Coliseum, Somaiya Hospital Road, Off Eastern Express Highway, Sion (E), Mumbai 400 022.

Tel.: +91-22-6754 3456 | Fax: +91-22-6754 3457

CIN-U74999MH0216PLC285575

RHP Final Wealth Management Industry Research Report 2021

Industry Research Report

On

WEALTH MANAGEMENT

By

October 2021

A Division of CARE Advisory Research and Training Limited.

A-1102/1103, 11th Floor, Kanakia Wall Street, Chakala, Andheri - Kurla Rd,

Andheri East, Mumbai- 400093

Contact No. 022 – 6837 4462/ E-mail: mehul.parekh@care-cart.com

Page 1 of 98

RHP Final Wealth Management Industry Research Report 2021

DISCLAIMER

This report is prepared by CARE Advisory, division of CARE Advisory Research and Training Limited (CART). CARE Advisory has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE Advisory operates independently of CARE ratings Limited and this report does not contain any confidential information obtained by ratings division, which they may have obtained in the regular course of operations. The opinion expressed in this report cannot be compared to the rating assigned to the company within this industry by the ratings division. The opinion expressed is also not a recommendation to buy, sell or hold an instrument.

CARE Advisory is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE (including all divisions) has no financial liability whatsoever to the user of this product. This report is for the information of the intended recipients only and no part of this report may be published or reproduced in any form or manner without prior written permission of CARE Advisory.

Page 2 of 98

RHP Final Wealth Management Industry Research Report 2021

List of Abbreviation

Abbreviations		Full Form
AAUM		Average Assets under Management
AMCs		Asset management companies
AOP		Association Of Persons
APAC		Asia-Pacific
ARN		Amfi Registration Number
AUM		Assets under Management
BCG		Boston Consulting Group
Bn.		Billion
BOI		Body Of Individuals
CAGR		Compounded Annual Growth Rate
Cr.		Crore
CART		CARE Advisory Research & Training Limited
CSO		Central Statistics Organization
ELSS		Equity Linked Savings Scheme
EMEA		Europe, Middle East, and Africa
ETFs		Exchange Traded Funds
EUIN		Employee Unique Identity Number
FDI		Foreign Direct Investment
FIIs		Foreign institutional investors
FY		Financial Year
G SEC		Government Security
GDP		Gross Domestic Product
GST		Goods and Services Tax
HUF		Hindu Undivided Family
IFAs		Independent financial advisors
IIA		India Industries Association
IMF		International Monetary Fund
IT		Income-Tax
LIC		Life Insurance Corporation of India
Mn.		Million
MOSPI		Ministry Of Statistics And Programme Implementation
MT		Metric Tonnes
PFCE		Private Final Consumption Expenditure
PMJDY		Pradhan Mantri Jan-Dhan Yojana
PMJJBY		Pradhan Mantri Jeevan Jyoti Bima Yojana
PMS		Portfolio Management Services
PMSBY		Pradhan Mantri Suraksha Bima Yojana

Page 3 of 98

			RHP Final Wealth Management Industry Research Report 2021
	PP MLD		Principal Protected Market Linked Debentures
	PPP		Public Private Partnership
	PPP		Purchasing Power Parity
	PSU		Public Sector Undertaking
	QAAUM		Quarterly Average Assets Under Management
	QIP		Qualified Institutional Placement
	RBI		Reserve Bank of India
	RBI		Reserve Bank Of India
	RERA		Real Estate Regulatory Authority
	SEBI		Securities and Exchange Board of India
	SME		Small And Medium-Sized Enterprises
	SRO		Self-regulatory organization
	UHNH		Ultra-High Networth Households
	UHNI		Ultra-High Net-Worth Individual
	UTI		Unit Trust of India
	WEO		World Economic Outlook
	WMS		Wealth management services
	YoY		Year on Year

Page 4 of 98

RHP Final Wealth Management Industry Research Report 2021

TABLE OF CONTENTS

EXECUTIVE SUMMARY	6
ECONOMIC OUTLOOK	8
INDIAN CAPITAL MARKET OUTLOOK	15
INDIAN WEALTH MANAGEMENT INDUSTRY OVERVIEW	17
KEY GROWTH DRIVERS	21
EVOLUTION OF DIGITAL WEALTH MANAGEMENT	38
KEY INDUSTRY PLAYER OVERVIEW	42
OUTLOOK FOR WEALTH MANAGEMENT INDUSTRY IN INDIA	50
PRODUCT OVERVIEW	65
WEALTH MANAGEMENT INDUSTRY IN INDIA	68
CLASSIFICATION & CHARACTERISTICS OF ULTRA HNI & HNI	86
GLOBAL OVERVIEW	89
OUTLOOK FOR WEALTH MANAGEMENT INDUSTRY IN INDIA-OVERALL	94

Page 5 of 98

RHP Final Wealth Management Industry Research Report 2021

EXECUTIVE SUMMARY

∙ CARE Ratings estimated India’s GDP growth rate at 9.2% for the FY2022. India’s growth outlook has improved significantly and the COVID-19 vaccination drive will help the economic rebound.

∙ Nearly 890 million COVID-19 vaccine doses have so far been administered in the country till 30th September 2021. According to the ministry’s data, a total of 650 million first doses and 240 million second doses of the vaccine have been administered across the country

∙ More than 50% of the Indian population is under 25 years of age and this is the largest and fastest-growing adult segment across the globe which represents a great opportunity for the wealth management industry. Favourable demographics, rising income levels and a burgeoning affluent middle class provides a strong customer base for wealth management sector.

∙ Total number of accounts (or folios as per mutual fund parlance) as on June 30, 2021 stood at 102.6 million, while the number of folios under Equity, ELSS and Balanced schemes, wherein the maximum investment is from retail segment stood at 92.8 million.

∙ Number of millionaires in 2020 and 2025 (Selected countries)

				Number (thousand)						Change			CAGR
	Country
				2020			2025			(%)			%
	India			698			1,269			82%			12.70%
	World			56,084			84,014			49%			8.42%

The number of Millionaires in India are expected to almost double at CAGR of 12.70% by CY25, most of the increase will be driven by young Indians getting wealthier.

∙ Investors in India are increasingly changing investment behavior from physical savings e.g. real estate and gold towards financial assets such as equity, bonds and alternate investments that has higher potential for wealth creation. Lower expected returns on physical assets have been one of the major factors for shift in investments preference of investors towards financial products and have increased post demonetization.

∙ Even the reduction in bank deposit rates in the past year has led to a shift in investment to mutual funds and the stock markets. Such financial savings will find its way into mutual funds, owing to increased awareness of the product.

∙ Assets managed by the Indian mutual fund industry has increased from Rs. 27.74 trillion in September 2020 to Rs. 37.41 trillion in September 2021. That represents 34.84% increase in assets over September 2020. (Assets are measured as average assets for the month).

Page 6 of 98

RHP Final Wealth Management Industry Research Report 2021

∙Even after such high growth India has the lowest mutual fund penetration globally. The total Assets under Management (AUM) to GDP ratio of India stands at a mere 16.0%, which is below the global average of 63.0% in CY 2020. Countries like US have AUM to GDP ratios of

over 100%.(Source – Statista.com, CARE Advisory Research & Training Limited (CART))

∙Changing Wealth Management Operating Models in the future – As per CART, due to increasing use of technology, many organizations are shifting to digital platforms to provide services to clients such as Robo-advisors which have successfully leveraged the demand for user friendly and interconnected digital services and deployed a simple streamlined digital experience for clients. These firms have created direct-to-consumer models to provide the basic elements of wealth management advice, minimizing the traditional reliance on human advisors. Digital platforms automatically invest and rebalance according to clients’ goals and risk tolerances without human interference which will remain a strong reason for growth and this trend will continue in the future.

∙Wealth held by individuals is expected to reach approx. Rs. 812 trillion by FY25 at a steady CAGR of 11.77% per annum from Rs 465 trillion in FY20.

∙India is expected to be the fourth largest private wealth market globally by 2028.

∙The Association of Mutual Funds in India (AMFI) is targeting nearly three-fold growth in AUM to Rs. 95 trillion (US$ 1.26 trillion) and more than three times growth in investor accounts to 130 million by 2025.

∙Global wealth is projected to rise by 39% over the next five years, reaching USD 583 trillion by 2025. Low- and middle-income countries are responsible for 42% of the growth, although they account for just 33% of current wealth. Wealth per adult is projected to increase by 31%, passing the watershed mark of USD 100,000. The number of millionaires will also grow markedly over the next five years, reaching 84 million by CY25, while the number of UHNWIs should reach 344,000 by CY25.

∙CART believes that factors such as favorable demographic profile with a young working population rise in income levels, increasing financial literacy, and retail participation and buoyancy in capital markets supporting equity AUM, are expected to drive the growth of the mutual fund industry in the long term which ultimately will lead to the growth of Wealth Management Industry. Hence, the mutual fund industry in the country provides huge scope for growth and development.

Page 7 of 98

RHP Final Wealth Management Industry Research Report 2021

ECONOMIC OUTLOOK

1.1 Global Economy

The world economy contracted by -3.1% in CY2020 owing to the global outbreak of Covid-19. However, it is expected to grow by 5.9% in CY2021 and moderate to a growth rate of 4.9% in CY2022 on the back of vaccination inoculation drive and resumption of economic activities as pandemic induced restrictions are eased across the globe. The base effect of negative growth rate in 2020 has resulted in higher growth in 2021 across the spectrum of countries though the impact varies.

Exhibit 1: Global Growth Outlook Projections (in %)

	Country/Group			2020			2021E			2022E
	World Output			–3.1			5.9			4.9
	Advanced Economies			–4.5		5.2			4.5
	United States			–3.4			6.0			5.2
	Euro Area			–6.3		5.0			4.3
	Japan			–4.6			2.4			3.2
	United Kingdom			–9.8		6.8			5.0
	Canada			–5.3			5.7			4.9
	Remaining Advanced Economies			–1.9		4.6			3.7
	Developing Economies			–2.1			6.4			5.1
	Emerging and Developing Asia			–0.8		7.2			6.3
	China			2.3			8.0			5.6
	India*			–7.3			9.5			8.5
	ASEAN**			–3.4			2.9			5.8
	Emerging and Developing Europe			–2.0		6.0			3.6
	Latin America and the Caribbean			–7.0			6.3			3.0
	Middle East and Central Asia			–2.8		4.1			4.1
	Sub-Saharan Africa			–1.7			3.7			3.8

Notes: E-Estimate

*For India, data and forecasts are presented on a fiscal year basis and GDP from 2011 onward is based on GDP at market prices with fiscal year 2011/12 as a base year.

**Includes Indonesia, Malaysia, Philippines, Thailand and Vietnam Source: IMF – World Economic Outlook, Oct 2021

Advanced economies are projected to grow by 5.2% in CY2021 after a negative growth of 4.5% in CY2020. It is expected to moderate to a growth of 4.5% in CY2022. The growth forecast for the advanced economies has been marked up by IMF from its April 2021 projections on the back of the

Page 8 of 98

RHP Final Wealth Management Industry Research Report 2021

pace of the vaccine rollouts and additional fiscal support. Amongst the advanced economies, United States is projected to grow by 6% in CY21 and moderate to a growth of 5.2% in CY2022. Meanwhile, the projections for Japan has been downgraded due to strict restrictions in first half of CY2021 and is expected to see stronger recovery in the second half of CY2021.

Emerging market and developing economies are estimated to grow by 6.4% in CY2021 after contracting by -2.1% in CY2020. It is projected to grow by 5.1% in CY2022.The projections for emerging market and developing economies were downgraded by IMF from its April 2021 estimates primarily due to markdowns carried out in the emerging Asian economies group. Within this group, India was marked down on account surge in Covid-19 cases during March-May 2021. Similarly, the ASEAN-5 group is also witnessing rise in cases which is in turn impacting the pace of economic recovery. China’s forecast was downgraded too due to scaling back of overall government support. Meanwhile, growth projections for other regions in general in the emerging market and developing economies have been marked up depending on the vaccine rollouts and government policy support which in turn has led to stronger than expected recovery in Q1CY2021.

IMF highlighted in its report that the economic recovery is highly dependent on vaccine access across regions, hence economies will witness diverging recovery rates which may not remain steady as long as people are exposed to the virus and its emerging variants. Close to 40% of the population is vaccinated in the advanced economies while only around 10% of the population is vaccinated in the emerging market and developing economies and only a tiny proportion of population is vaccinated in low-income group. Hence, the economic growth projections are dependent on several factors such as access to vaccine, pace of its rollout, its ability to fight emerging variants of the virus and the fiscal and monetary support provided by the governments.

1.2 Indian Economy1

CARE Ratings Economics Research projects GDP growth to be in the range of 8.8% to 9% for FY22. The growth rate should be viewed with caution as it is followed by a -7.3% decline in FY21.

The economic outlook for the economy for FY22 would seem to look better on almost all counts than FY21 due to negative base effect. The pandemic induced lockdown pushed the growth down to -7.3%

1Source: CARE Ratings Economics Research report titled ‘Economic Outlook for India FY2021-22’ dated 26th July, 2021

Page 9 of 98

RHP Final Wealth Management Industry Research Report 2021

in FY21. It was expected that subsequently growth would be rapid in FY22 with both the negative base effect as well as the pent-up demand for consumption and investment helping to accelerate the growth. However, the advent of the second wave of Covid-19 in the beginning of the current financial year which led to state induced lockdowns has upended this assumption to an extent.

Business, as seen ex post, has been better equipped to face the lockdown and while activity did reduce across the country as well as sectors, the impact was less severe. The reverse migration which took place in large numbers last year was of a lower magnitude this time. SMEs were again under pressure in this phase, but as they were operating at less than normal potential, they were not pushed back that severely. Therefore, while the projections made by CARE Ratings Economics Research have come down significantly from March as can be seen from exhibit 2 below, the drop is less damaging this time.

Exhibit 2: Movement in CARE Ratings Economics Research forecasts for GDP growth (in %)

	Date of forecast			GDP growth
	2020-21 (Actual)			-8.0
	2021-22: 24 March'21		11-11.2
	2021-22: 5 April'21			10.7
	2021-22: 21 April'21		10.2
	2021-22: 12 May’ 21			9.2

Source: CARE Ratings Economics Research

Some of the major economic indicators are mentioned below.

1.2.1 Gross Domestic Product (GDP)

GDP is the sum of private consumption, gross investment in the economy, government investment, government spending and net foreign trade (difference between exports and imports). In FY19, quarter wise growth in GDP remained in the range of 5% to 8% while in FY20 it declined and was in the range of 3% to 6%. During FY21, it contracted by -24.4% in Q1FY21 to a growth of 1.6% in Q4FY21. However, in Q1 FY22, the jump in GDP numbers of 20.1% is mainly due to a weak base last year and also a rebound in consumer spending during the quarter.

Page 10 of 98

RHP Final Wealth Management Industry Research Report 2021

Source: CARE Ratings Economics Research

1.2.3 Industrial Growth

During FY21, industrial output as measured by index of industrial production - IIP declined by -8.6% as compared with a negative growth rate of 0.8% in FY20. This implies that industrial production contracted for 2 consecutive years and the fall in FY21 has been the steepest in the series of 2011-12. There has been a sustained decline in industrial production growth from FY17 and that has been exacerbated in FY21 following the nation-wide lockdowns, state-wise restrictions to control the spread of the COVID-19 infections. 8 out of the 12 months in FY21 have registered negative growth with the highest growth of 4.5% observed in October 2020.

Further, in the last month of FY21, the index registered a growth of 24.2% followed by a 134.6% growth in April-21 and 29.3% growth in May-21. For all the 3 consecutive months, the growth rate was backed by the statistical push of low base.

Figure 3: Yearly growth in IIP (in %)

Source: CMIE

1.2.4 Per Capita GDP, Income and Final Consumption

India’s per capita gross domestic product (GDP) de-grew by -8.2% in FY21 from 3.0% growth in FY20. Gross national income (GNI) dropped by 8.2% in FY21 from a 3.1% growth in FY20. The per capita private final consumption expenditure (PFCE), that represents consumer spending, declined by - 10.1% in FY21 after growing by 4.4% in FY20.

Page 12 of 98

RHP Final Wealth Management Industry Research Report 2021

Figure 4: Growth in per capita GDP, Income & Final Consumption

3.0		3.1		4.4

-8.2				-8.2		-10.1
Per capita GDP	Per capita GNI					Per capita PFCE
			FY20		FY21

Source: CMIE

1.3 Indian Economy outlook

CARE Ratings estimated India’s GDP growth rate at 9.2% for the FY2022. India’s growth outlook has improved significantly and the covid-19 vaccination drive will help the economic rebound. The Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) kept the repo rate unchanged at 4% while maintaining an accommodative stance as long as necessary to mitigate the impact of the COVID-19 pandemic. The Indian central bank was widely expected to keep key interest steady amid a surge in COVID-19 cases in the country.

The recent surge in COVID-19 cases has caused lockdown and curfew in many states resulting in a dip in consumer confidence and reignited uncertainty regarding the near-term outlook. Second wave of COVID-19 infections and subsequent lockdowns are derailing economic momentum, RBI interventions will help maintain adequate liquidity as well as prevent hardening of yields in bond market. These measures will ensure economic stability.

The Government has declared that vaccine will be given to every adult citizen (above 18 years) which may help to reduce the transmission of COVID-19 in the near future. The world’s largest vaccine maker, Serum Institute of India (SII), has sought Rs.30 billion grant from the Government to ramp up capacity of the Covishield COVID-19 vaccine beyond 100 million doses a month that the institute is expected to reach by the end of May 2021.

In the 2021-22 Union Budget, for FY22 capital expenditure is likely to increase by 34.5% at US$ 76 billion over FY21 to boost the economy.

Page 13 of 98

RHP Final Wealth Management Industry Research Report 2021

Increased government expenditure is expected to attract private investments, providing excellent

opportunities with production-linked incentive scheme. Consistently policy support is anticipated to

boost the Indian economy.

Page 14 of 98

RHP Final Wealth Management Industry Research Report 2021

INDIAN CAPITAL MARKET OUTLOOK

(Source-NSE,BSE )

Nifty Movement -

	Date			Nifty Closing			Change (Y-o-Y)
	March 31, 2019			11,623.90
	March 31, 2020		8,597.75			-26.32%
	March 31, 2021			14,690.70			70.87%
	September 30, 2021		17,618.15			19.93%*

*March 2021 to Sep 2021

∙Primary Market Trends (Public & Rights Issues)

																	(₹ in Million)
	Particulars			2019-20							2020-21					2021-22*
	Items			No. of			Amount			No. of			Amount			No. of			Amount
				Issues						Issues						Issues
	I. Public Issues (Debt)		34			1,49,840			18			1,05,873			10			53,895
	(a) Public Issue (Equity)			60			2,13,221			57			4,60,597			38			4,58,999
	(b) FPOs		-			-						-
	(c)Rights Issues			16			5,56,420			21			6,40,588			9			7,924
	II. Total Equity Issues		76			7,69,641			78			11,01,185			47			4,66,923
	(a+b+c)
																	Page 15 of 98

RHP Final Wealth Management Industry Research Report 2021

INDIAN WEALTH MANAGEMENT INDUSTRY OVERVIEW

The Indian Wealth Management market is on a sustained path of growth, given India’s long-term economic prospects, positive demographics, rising income levels and current low penetration. While the percentage of wealthy individuals in India is very small compared with developed markets, very high potential of growth in wealth is estimated in future. India has the key ingredients of a high- growth wealth management market, namely driven by a very large and young mass affluent segment; an increase in the wealth of global Indians; the Indian government’s push to control illegal channel of funds and push for tighter regulations of the capital markets.

Number of millionaires in 2020 and 2025 (Selected countries)

	Country			Number (thousand)						Change			CAGR
				2020			2025			(%)			%
	United States		21,951			28,055			28			5.03%
	China			5,279			10,172			93			14.02%
	Japan		3,662			5,411			48			8.12%
	United Kingdom			2,491			3,711			49			8.30%
	Germany		2,953			4,240			44			7.50%
	India			698			1,269			82%			12.70%
	World		56,084			84,014			49%			8.42%

(Source- Global Wealth Report 2021)

The demographic difference presents an opportunity to create new products to address the needs of a young population and leverage new technologies, such as social and software-based investing applications as a key differentiator. Indian wealth management industry is largely focused mainly on the urban segment, leaving untapped majority of Indian population. One of the key factors for Advisors is to develop trust with the potential investors where advisors constantly need to build its brand, focus on overcoming trust barriers, invest in technology and focus on transparency and compliance.

In 2018, top 8% of the total population in India represents 45% of the total wealth and of the above only 20% take advice from wealth managers. With increase in start-ups, rising income levels and friendly macro factors with ease of doing business will drive growth of young HNI population in India; there is a big opportunity for a wealth management firm to tap into an underpenetrated market with huge upside growth potential for wealth managers

There is steady growth in number of client’s interest towards:

1)Access to Mutual Fund / Other financial Product Distribution

2)Financial Planning (specific short term and long term goals) Advice

3)Tax Planning Advice

4)Estate Planning Advice

Page 17 of 98

RHP Final Wealth Management Industry Research Report 2021

5) Wealth Management Advice

Based on the investment corpus available with the individuals, CART have grouped individuals in following four categories -

Retail – With financial assets of Rs. 1 million and lower

Mass Affluent – With financial assets between Rs 1 million to Rs. 50 million

HNI - With financial assets between Rs 50 million to Rs. 500 million

Ultra HNI – With financial assets of more than Rs. 500 million

Wealth Pyramid

	• Rs.500+ million in Financial Assets
Ultra HNI
HNI	• Rs.50 - 500 million in Financial Assets
Mass Affluent	• Rs.1 - 50 million in Financial Assets
Retail	• Below Rs.1 million in Financial Assets

Indian Mutual Fund Industry Overview

(Source -AMFI)

The Indian mutual fund industry has a long history of over 50 years, starting with the formation of UTI, a joint initiative of the Government of India (“GOI”) and the RBI in 1963. It was regulated and

Page 18 of 98

RHP Final Wealth Management Industry Research Report 2021

controlled by the RBI until 1978, after which the Industrial Development Bank of India (“IDBI”) took over. UTI launched its first scheme, Unit Scheme 1964, in 1964 and its AUM reached ₹ 67 billion by 1988. The year 1987 witnessed the entry of other public sector banks to set up mutual fund business in the country. Since 2003, the mutual fund industry has witnessed a healthy growth, supported by various regulatory measures as well as investor education initiatives, where AUM of the Indian MF Industry has grown from ₹ 3.26 trillion as on 31st March 2007 to ₹ 36.73 trillion as on 30th September, 2021, more than 11.27 times in a span of about 14.5 years.

Digital presence by mutual fund houses and wealth management players is enhancing distribution reach. Digital advances have ensured distribution efficiencies, and also helped to create predictable revenue streams in the business. Digital platforms have helped distributors to focus more on research and tracking markets rather than operational tasks such as individual client visits and extended paperwork. Tablet and mobile apps are helping mutual funds increase reach in B30 locations. Moreover, there have been several industry-wide initiatives to help distributors build digital capabilities in order to serve investors better. While there are all types of distributors — robots, fee-based advisors and transaction-only distributors — will co-exist as there is low penetration of distributors in the country, with only a small number of distributors catering to the large population base.

Note: As per SEBI circular SEBI/HO/IMD/DF2/CIR/P/2018/16 dated 02.02.2018, the terms and definition of “15 cities”, “T15” and “B15” are substituted with “30 cities”, “T30” and “B30” respectively, with effect from April 1, 2018.

Players in the Indian wealth management space

Products offered: Wealth managers in India mainly sell mutual funds, private equity funds, real estate funds, non-convertible debentures, portfolio management services, structured products and tax-free bonds to investors.

Page 19 of 98

RHP Final Wealth Management Industry Research Report 2021

	Business model	Market		Key characteristics
		positioning
	Universal banks	Strong	●	Includes large players, mainly private banks;
				recently some PSU
			●	Banks have also announced plans to launch wealth-
				management services
			●	Extensive reach
			●	Relatively high entry barriers
			●	Cross-sell potential with both retail and corporate
				customers
	Wealth management	Medium	●	Mainly foreign players with strong understanding of
	Specialists			advisory services
			●	Offerings are mainly managed/structured products
			●	Typically high entry barriers
			●	Focus on the UHNI segment
	Global investment banks	Weak	●	Focus on the UHNI segment
			●	Institutional approach to serve clients with
				investment banking products
	Brokers/dealer discount/	Strong	●	Large number of players
	online brokers		●	Focus on the mass affluent segment
			●	Mainly offer mutual fund products
	National distributors	Strong	●	Some firms are affiliated to a brokerage firm with a
				large network of sub-brokers
			●	Large firms with extensive distribution network
			●	Multiple products
	Family office	Weak	●	Holistic advisory services for specific client
				segments such as entrepreneurs
	Robo-advisors	Upcoming	●	Fully automated or hybrid investment managers
			●	Algorithm-based	advice	without	human
				intervention
			●	Suitable for small-ticket retail investors
			●	Available at a lower cost
			●	Consistent and transparent advice
	Others (independent	Medium	●	Very low entry barriers
	funds/insurance advisors,		●	Commission-driven model
	Etc.)		●	No dedicated wealth management offering

Page 20 of 98

RHP Final Wealth Management Industry Research Report 2021

KEY GROWTH DRIVERS

1.Increasing Penetration of Mutual Fund Market in India

Assets managed by the Indian mutual fund industry has increased from Rs. 27.74 trillion in September 2020 to Rs. 37.41 trillion in September 2021. That represents 34.84% increase in assets over September 2020. (Assets are measured as average assets for the month).

Despite the size and growth profile, India continues to be underpenetrated with a mutual fund penetration rate (the ratio of period ending mutual fund AUM to GDP) of 16.0% in 2020, as compared to 140% in the United States, 84% in Brazil and a global average of 63%. Further, India accounts for less than 2% of the global mutual fund industry, representing a significant growth opportunity.

∙Mutual Fund Penetration of various Countries CY2020 – AUM to GDP

(Source: CART, Statista.com)

There is lack of healthy participation from investors in B30 (beyond top 30) locations. Recently, the mutual fund sector is witnessing rising activity from B30 locations, especially in the equity segment due to improved distribution and regulatory changes in fee structure. Lack of awareness about financial instruments and prevalence of low financial knowledge has been one of the key factors in a lower inflow of investments as compared to that in other BRIC nations like China and Brazil. Favorable demographics and rising income levels make it one of the most attractive sectors in the financial services industry. Robust macroeconomic fundamentals outlook and various government reforms have strengthened investor confidence, prompting them to participate in the equity market, especially increased participation of investors from tier 3 and tier 4 cities. With increasing mobile phone penetration and increasing wealth managers’ use of technology enables transparency and systematic products in an efficient manner which in turn helps to develop informed customers and

Page 21 of 98

RHP Final Wealth Management Industry Research Report 2021

distributors to penetrate deeper across the wealth management space.

a. Distributors - Key to drive growth of MF Industry

September - 2019

(Source-AMFI)

About 13% of the retail investors chose to invest directly, while 22% of HNI assets were invested directly.

(Source-AMFI)

Page 22 of 98

RHP Final Wealth Management Industry Research Report 2021

March - 2021

(Source-AMFI)

About 16% of the retail investors chose to invest directly, while 24% of HNI assets were invested directly. 47% of the assets of the mutual fund industry came directly. A large proportion of direct investments were in non-equity-oriented schemes where institutional investors dominate.

(Source-AMFI)

76% of liquid/money market scheme assets where institutional investors dominate, were direct, whereas 57% of debt-oriented scheme assets and 21% of equity scheme assets were direct.

Page 23 of 98

RHP Final Wealth Management Industry Research Report 2021

August - 2021

(Source-AMFI)

About 17% of the retail investors chose to invest directly, while 24% of HNI assets were invested directly. 46% of the assets of the mutual fund industry came directly. A large proportion of direct investments were in non-equity-oriented schemes where institutional investors dominate.

(Source-AMFI)

76% of liquid/money market scheme assets where institutional investors dominate, were direct, whereas 59% of debt-oriented scheme assets and 22% of equity scheme assets were direct.

Distributors have been a key player for strong participation from retail investors that has led to overall growth in the industry. Commission rates for the distributors have relatively remained stable and the increase in participations of investors through distributors has been a key driver for increase

Page 24 of 98

RHP Final Wealth Management Industry Research Report 2021

in total AUM of mutual fund industry. Retailers /HNIs have preferred to invest through distributors. As of August 2021, about 83% of the retail investors chose to invest through distributor, while 76% of HNI assets were invested through distributor. In the equity schemes, 78% of the assets were through distributors who have been an important factor for growth of domestic equity market. Distributors are becoming more and more prominent with private players dominating the distribution market where advisors still play a critical role in providing information to potential investors. Distributors from B30 cities are also key drivers for increasing penetration of mutual funds in the smaller cities and attractive incentives in low per capita state.

∙Investors – Overall Composition

(Source-AMFI)

Distribution channel accounted for 79% of total mutual fund assets under management (AUM) as on August 2021, of which 58% belongs to top 30 cities.

Page 25 of 98

RHP Final Wealth Management Industry Research Report 2021

∙State-wise new ARN registration as on March 2021

	State / Union territory			% of ARN/ EUIN
	Maharashtra			25.29%
	Gujarat		12.26%
	Uttar Pradesh			8.35%
	Tamil Nadu		5.99%
	West Bengal			5.52%
	Delhi		5.48%
	Karnataka			5.22%
	Rajasthan		3.81%
	Madhya Pradesh			3.66%
	Telangana		3.63%
	Haryana			3.27%
	Odisha		2.62%
	Andhra Pradesh			2.36%
	Jharkhand		2.14%
	Kerala			2.14%
	Bihar		1.92%
	Punjab			1.81%
	Remaining states		4.53%
	Total			100.00%

(Source-AMFI)

Maharashtra continues to be the top state to add the highest number of new MFDs/EUIN in the industry. Maharashtra accounts for 25% of the new ARN and EUIN registrations, shows the latest AMFI data on geographical spread of the new ARN holders as on March 2021.

Meanwhile, Gujarat and Uttar Pradesh have secured second and third position in terms of bringing in new distributors in the industry. Gujarat and Uttar Pradesh have contributed 12% and 8% new distributors, respectively. The top three states collectively contribute over 45% of the new ARN and EUIN registrations.

AMFI data shows that 46% of the individual distributors has come from B30 cities as of March 2021. Of the 94,510 registered individual distributors, 43,823 has come from B30 cities while the remaining 50,687 or 54% distributors were from T30 cities.

B30 cities have added 3,405 new individual MFDs while T30 cities saw an addition of 3,475 new MFDs under individual category in the last one year.

Overall, the mutual fund industry has over 0.243 million ARNs of which over 0.094 million are

Page 26 of 98

RHP Final Wealth Management Industry Research Report 2021

individual distributors, 0.133 million are employees & 0.016 falls Under Other Category.

b. Increase in Retail participation and mass affluent

(Source-AMFI)

c. B30 and T30 Asset Mix

(Source-AMFI)

Note: As per SEBI circular SEBI/HO/IMD/DF2/CIR/P/2018/16 dated 02.02.2018, the terms and definition of “15 cities”, “T15” and “B15” are substituted with “30 cities”, “T30” and “B30” respectively, with effect from April 1, 2018.

Page 27 of 98

RHP Final Wealth Management Industry Research Report 2021

The wealth management market (assets under advisory) in India is about ₹ 21.77 trillion in July 2021, which is only approx. 9% of the country's GDP, as compared to 60% to 75% of GDP in established markets. The increase in penetration of wealth management companies into Tier II and III cities will also help to drive the growth given more than 44% of the UHNIs live in non-Metro where currently wealth is majorly managed by IFAs and Chartered Accountants. (Source-AMFI).

The investable wealth across HNI and mass affluent segment is rising due to fast growing economy, creating a need for wealth services across various potential investors group. More than 50% of the Indian population is under 25 years of age and this is the largest and fastest-growing adult segment across the globe which represents a greatest opportunity for the wealth management industry. Favourable demographics, rising income levels and a burgeoning affluent middle class will provide a strong customer base for wealth management sector.

As investors are getting more educated, retail investor’s style of investing is becoming more mature and they are becoming aware of the potential that equities offer along with the associated risks. Individual investor’s component of total number of folios in the industry has steadily increasing over the years where mass affluent retail investors are spearheading the growth rate. Mutual funds remain a largely under represented asset class in India where a large part of mutual fund savings originate from the large cities. Growing popularity of mutual funds has seen increasing participation from retail investors in B30 cities.

The top five cities, Mumbai, Delhi, Bangalore, Kolkata and Pune contributed to 57.31% of the AUM of mutual fund for the quarter ending in June 2021. But with rising income levels and a growing affluent middle class, Retail investors are becoming more inclined towards equities as an investment option over traditional preference of savings towards physical assets, especially from B30 cities. As of March 2021, Mumbai and New Delhi attributed to 43% of the average AUM compared to 56% in March 2015. 16% of the assets of the mutual fund industry came from B30 locations in July 2021. Assets from B30 increased from Rs.4.45 trillion in August 2020 to 5.86 trillion in August 2021, representing an increase of 32%.

Investors from B30 locations are attracted towards equity as compared to T30 (T30 refers to the top 30 geographical locations in India and B30 refers to the locations beyond the top 30) where debt portion is higher due to large participation from institutional investors. As of August 2021, 71% of the assets from B30 locations are in equity schemes as compared to 62% from B30 locations in March 2018.

Investors in urban cities get advice from several large bank and wealth managers, but mass affluent retail clients depends on IFAs for advice on mutual fund where there is immense potential to tap the untapped market. Small investors are opting for mutual funds through systematic investment plans (SIPs) in order to create long term wealth and meet their financial goals.

Page 28 of 98

RHP Final Wealth Management Industry Research Report 2021

d. Increase in folios

(Source-AMFI)

Retail investor’s preference is becoming more mature as they get more informed regarding equities potential and risk associated in investing in it. Since March 2014, there is an increase in investor accounts from 39.5 million to 102.6 million in June 2021. Increase in penetration of mutual funds products driven by increase in number of folios and participation from mass affluent segment. Total number of accounts (or folios as per mutual fund parlance) as on June 30, 2021 stood at 102.6 million, while the number of folios under Equity, ELSS and Balanced schemes, wherein the maximum investment is from retail segment stood at 92.8 million. Individual investor’s component of total number of folios in the industry has been steadily increasing over period of years where mass affluent retail investors are spearheading the growth rate. The total number of retail investor folios increased from 45.40 million as of March 31, 2016 to 92.8 million as of June 30, 2021, adding 47.45 million folios in 5.25 years growing at CAGR of 14.60%.

2. Increase in Wealth and HNI population in India

For the past decade, India has been classified as a lower-middle income country which aspires to move a step up in the global prosperity ladder. In the past three decades, per capita incomes have multiplied, poverty has reduced, illiteracy rates have fallen, and health conditions have improved. An expanding economy has provided the much-needed resources to address chronic infrastructure deficits and improve the lives of millions. India is now poised to transition to a higher and more widely shared level of prosperity. Households in the global middle class can fulfil a range of aspirations, such as affordable housing, health care, education, clean water, sanitation facilities, reliable electricity, a safe environment, and discretionary income to spend on leisure pursuits. According to World Bank draft report, unlike East Asia, there is an expanding share of young adults in India, so there is limited risk of sustained wage increases for low-skilled workers and unlike Latin America, India is a net importer of minerals, timber, and many other commodities, so that India’s growth does not fade with declining commodity prices. The share of population in extreme poverty

Page 29 of 98

RHP Final Wealth Management Industry Research Report 2021

of India was reduced from 45% in 1994 to 13.4% in 2015. If this trend continues, India is on track to eliminate extreme poverty by 2026 (to below 3%). The rapid decline in poverty between 2005 and 2015 was driven mainly by higher labour earnings (Source - Policy Research Working Paper by World Bank Group). Non-farm jobs, supported by an unprecedented rise in wages for unskilled labor, helped millions of Indian households to move up the poverty line.

a. Increase in GDP to drive growth of Wealth in India Strong correlation between Wealth/GDP

(Source-Global wealth Report 2019)

The average per capita GDP of India rose from US$ 443 in CY 2000 to US$ 2,104 in CY 2019. In the past three decades, per capita incomes have quadrupled, poverty has retreated, illiteracy rates have declined, and health conditions have improved. An expanding economy has provided the much- needed resources to address chronic infrastructure deficits and improve the lives of millions. Increase in GDP/Adult ratio of selected developed nations such as United States, Japan, Australia; has also led to increase in their wealth/GDP ratio. While India’s GDP is expected to grow at much faster rate, it is estimated that it will mirror similar increase in its wealth/GDP ratio as growth observed by developing nations. Wealth per adult grew by 1.2%, raising global mean wealth to a record high of $70,850 per adult in CY2019. Most of the top performing countries were boosted by strong stock market gains during the year. In developed regions such as North America and Europe, financial savings represents a high proportion of overall wealth per adult as compared to other regions. Strong underlying economic expansion along with significant growth per capita income will drive the pace of

Page 30 of 98

RHP Final Wealth Management Industry Research Report 2021

wealth creation in India where investment towards financial savings is gradually increasing with increase in GDP.

b. Increase in HNI population and reliance on wealth managers for investment advice Growth of Ultra HNIs in India

(Source-Kotak Wealth-Top of the Pyramid Report)

India currently has one of the youngest populations in the world, with a median age of 27.73 years and has the world’s highest number of 10 to 24-year-olds, with 242 million, compared to China, which has 185 million young people. By 2021, India is expected to have 34.33% share of youth in total population. Although India is one of the world’s fastest growing UHNI’s populations both in terms of the number of individuals and the wealth levels, percentage of wealthy Indians remains very small compared with developed economies. With increase in start-ups, rising income levels and friendly macro factors with ease of doing business will drive growth of young HNI population in India, a big opportunity for wealth management firm to tap into underpenetrated market. In 2017 around 69% of total HNI population in India is below the age of 55 years where majority of them seeks a wealth manager to advice on investment opportunity as they neither have the expertise nor the time to monitor their investments. The number of UHNIs grew to 1,60,600 (with Rs.153 trillion worth of assets) at the end of 2017, up 10% from that in 2016 , which roughly equalled the combined market- capitalization of all companies listed on BSE. Ultra-HNIs in India are expected to double to 3,30,400 with Rs.352 trillion worth of assets by 2022 at a CAGR of 18.13% mostly increase driven by young Indians getting wealthier. UHNHs in India are inclining towards ‘opportunity-driven approach’ to equity investing and are keen on reducing exposure to real estate and debt instruments in pursuit of bigger profits in equity market.

Page 31 of 98

RHP Final Wealth Management Industry Research Report 2021

3.Increase in Household savings with high proportion of savings towards financial assets.

a. Increase in preference of investing in financial assets

Changes in Household savings in India

(Source-www.rbi.org.in)

Sector-Wise Domestic Saving at Current Prices

				(₹ in Billion)
Particulars	2014-15	2015-16	2016-17	2017-18		2018-19	2019-20
Gross financial saving	12,572	14,962	16,147	20,564		21,341	22,846
Less-financial liabilities	3,768	3,854	4,686	7,507		7,784	6,641
Net Financial Savings	8,804	11,108	11,460	13,057		13,557	16,205
Saving in physical assets	15,131	13,176	15,946	19,442		22,481	23,272
Saving in the form of valuables	456	465	465	467		427	431
Household sector	24,391	24,749	27,871	32,966		36,465	39,908
GVA	97,121	1,04,919	1,13,283	1,20,342		1,27,442	1,32,715
Net Financial Savings as % of GVA	9.07%	10.59%	10.12%	10.85%		10.64%	12.21%
(Source-www.rbi.org.in)

As can been seen from the above graph, share of Financial Savings increased to 41% in 2019-20 from 2014-15. The Financial Savings is at Rs. 16,205 billion 2019-20.

Changes in Financial Assets / Liabilities of the Household Sector

Page 32 of 98

RHP Final Wealth Management Industry Research Report 2021

(₹ In Billion)

	Sr.no			Particulars			2014-15			2015-16			2016-17			2017-18			2018-19			2019-20
1				Currency		1,333			2,005			(3,329)			4,847			2,779			2,826
2				Bank deposits		5,793			6,224			9,386			5,216			7,800			8,374
3				Non- banking deposits		289			181			349			-6			301			281
4				Life insurance fund		2,993			2,642			3,543			3,440			3,588			3,178
5				Provident and pension fund		1,909			2,907			3,255			3,694			3,977			4,655
6				Claims on Govern- ment		10			679			1,155			1,557			2,064			2,715
7				Shares & debent- ures		204			284			1,745			1,774			790			774
8				Units of UTI		-			-			-			-			-			-
9				Trade Debt (Net)		42			41			44			42			42			43
	10			Changes in financial assets (2 to 9)			12,572			14,962			16,147			20,564			21,341			22,846
11				Bank advances		2,824			2,694			3,458			5,255			6,090			5511.57
12				Loans & advances from other		942			1,156			1,229			2,250			1,688			1128.32
				financial institutions
13				Loans & advances from		2			4			(0)			2			6			1.19
				Government
14				Loans & advances from co-		-			-			-			-			-			-
				operative non-credit societies
	15			Changes in financial liabilities (11			3,768			3,854			4,686			7,507			7,784			6,641
				to 14)
				Net Financial Savings (10-15)		8,804			11,108			11,460			13,057			13,557			16,205

(Source-www.rbi.org.in)

(Source-www.rbi.org.in)

As can be seen from the above table, across the key asset classes, there has been an increase in proportion, primarily in financial asset class and the trend is likely to continue to grow in the coming years.

Page 33 of 98

RHP Final Wealth Management Industry Research Report 2021

Figure: Breakup of changes in financial assets / liabilities of the household sector

(Source-www.rbi.org.in)

4. Digitalizing Wealth Management Sector

Technology is poised to change the nature and delivery of financial advice in some significant ways. Technology is enabling platform convergence and creating opportunities for new client engagement. There is an increasing number of online trading, brokerage, investment, direct-to- consumer (D2C) and robo-advisors offering user friendly, low-cost, automated solutions for core functions such as investing, asset allocation, and portfolio management and reporting. Asset managers revamp their business models — standardize, centralize and outsource through the use of technology. Processes are becoming paperless, efficient, easy and real-time.

Trends driving the emergence of robo advisors

Focus on mass market

●Wealth managers have traditionally focused on the HNI and ultra-HNI segments, which align better with the economics of their advisor-based business model, providing sophisticated products and face-to-face service. This leaves less affluent investors devoid of high-quality wealth management advice.

●Robo-advisers have the ability to make wealth advice economically feasible to the mass market. Their operating model differs from that of traditional players in that it is less sophisticated in terms of products but clear and efficient in scalability. This, in turn, has enabled these players to reach client segments that have traditionally been out of reach of wealth managers.

●The mass market offers tremendous potential for wealth managers worldwide. Although these clients may be relatively small on an individual level, when aggregated they represent a significant

Page 34 of 98

RHP Final Wealth Management Industry Research Report 2021

asset base (for instance, in the US, the mass affluent segment offers a market potential of ~US$ 10t). These digital firms have made it possible to bring investment advice to the masses and unlock the large potential of underserved segments through their low-cost and potentially highly scalable solutions in order to meet core wealth management needs.

Demographic shift

●The wealth management industry is witnessing a phase of significant demographic change as its largest investor segment — the baby boomers (born between 1946 and 1965) — retires and assets are transferred to the next generation — Gen-X (born between 1966 and 1980) and Gen- Y/millennial (born after 1980).

●Younger set of investors have largely been underserved by traditional players, with only 18% of financial advisors in the US targeting Gen-Y clients

●Traditional wealth managers are facing challenges in maintaining relationship with clients, who are tech-savvy and believe in a do-it-yourself approach. On average, a financial advisor is over 50 years of age, which results in a generational gap and a slight disconnect with the younger generation.

●The simple technology platforms offered by new-age digital wealth managers resonate well with the needs of millennials. Digital entrants have also benefited from the fact that many millennials do not have a trusted advisor relationship and feel comfortable using technology to manage their finances. Hence, digital firms are well positioned to capitalize on the generational shift.

Advanced digital capabilities

●Digital has changed the way people interact, creating opportunities for new engagement models with end investors.

●These technology-backed automated investment services (robo-advisors) have been developed on the premise that many of the activities performed by traditional investment advisors can be replicated by adopting advanced digital capabilities.

●Robo-advisors have successfully leveraged the demand for user friendly and interconnected digital services and deployed a simple streamlined digital experience for clients.

These firms have created direct-to-consumer models to provide the basic elements of wealth management advice, minimizing the traditional reliance on human advisors. Digital platforms automatically invest and rebalance according to clients’ goals and risk tolerances sans human interference.

5.Government Initiatives

Page 35 of 98

RHP Final Wealth Management Industry Research Report 2021

In order to promote investors participation, government / regulators are boosting investor’s confidences to participate in equity / debt market by increased focus on client centricity, fiduciary responsibility and compliance. Regulator have been more stringent in their requirements regarding advisor qualifications, infrastructure, risk profiling and suitability criteria. To enhance the penetration of mutual funds in the country, SEBI sought to increase the sales in the B15 location through the commission structure. In 2011, SEBI proposed a self-regulatory organization (SRO) for the Indian wealth management sector that would help regulate business and serve as a medium for SEBI to implement various wealth management initiatives. In September 2012, SEBI allowed fund houses to charge an additional 30 basis points on daily net assets in the total expense ratio, should the new inflows from B15 cities be at least 30% of the gross new inflows in the scheme or 15% of the average AUM, whichever is higher. As per SEBI circular SEBI/HO/IMD/DF2/CIR/P/2018/16 dated 02.02.2018, the terms and definition of “15 cities”, “T15” and “B15” are substituted with “30 cities”, “T30” and “B30” respectively, with effect from April 1, 2018. Later in April 2019, SEBI issued a consultation paper on SROs for intermediaries including investment advisors. In August 2020, SEBI notification called for a wholly- owned subsidiary of a stock exchange to administer and supervise such advisers.

COVID – 19 impact on Wealth Management firms

As the COVID -19 sunsets, firms are likely to take measures to improve and rebuild customer confidence in their investment portfolios. In FY21, with the onset of covid there was apprehension amongst investors especially in the equity category of mutual funds. Given below is a brief table on how the net sales for the certain classes of Mutual funds.

	Category			Net Inflow (+ve)/ Outflow (-ve) for the period in Rs. Billion
				Q2FY22			Q1FY22			Q4FY21			Q3FY21			Q2FY21			Q1FY21
	Multi Cap Fund $$		37.16			20.06			67.44			-82.86			-33.34			12.21
	Large Cap Fund			5.28			18.10			-34.10			-77.16			-24.95			30.34
	Large & Mid Cap Fund		19.43			23.53			9.14			-16.47			-0.12			11.38
	Mid Cap Fund			30.01			40.55			1.97			-35.08			-12.50			8.14
	Small Cap Fund		13.67			19.70			-16.88			-22.12			-0.62			9.27
	Dividend Yield Fund			0.40			6.97			0.19			13.62			-0.82			-0.29
	Value Fund/Contra Fund		-11.93			-6.98			-32.17			-41.65			-18.17			0.98
	Focused Fund			41.97			20.06			6.99			-19.02			13.63			17.30
	Sectoral/Thematic Funds		102.32			40.49			42.30			46.39			2.05			7.27
	ELSS (Open ended)			-21.62			-12.18			-1.16			-23.53			2.69			20.51
	Flexi Cap Fund		182.58			24.78			-90.45			-			-			-
	ELSS (close ended)			45.63			-3.17			-3.44			-1.36			-0.60			-0.27
	Other Equity Schemes		127.94			-35.65			-66.90			-41.91			-16.09			-3.04
				-
	Total		572.85			156.27			-117.07			-301.16			-88.83			113.79

Source: AMFI, Year FY21

Page 36 of 98

RHP Final Wealth Management Industry Research Report 2021

∙It could raise the need to use data and analytics to fine-tune their customer, product and pricing strategy to meet customer expectations.

∙Since the COVID-19 period has forced branch lockdowns leaving investors no option but to use online and digital services, the firms could see possible drive and upsurge in demand for digital channels and therefore the need to upscale and upgrade them.

∙COVID-19 could possibly trigger regulation changes on fees, commissions, advice, risk assessment, margin exposures, investment strategies, portfolio valuations etc.

∙If the COVID -19 period stretches longer it could create workforce reduction. There could also be probable salary restructuring from commission based to increased fixed salary component or full time employment along with changes in benefits.

∙There could be push in the industry for retirement planning with investment protection, digital estate planning.

∙The market could witness large scale sale of portfolio for tax harvesting and large number of portfolio gifting to take advantage tax exemptions due to low portfolio value.

Page 37 of 98

RHP Final Wealth Management Industry Research Report 2021

EVOLUTION OF DIGITAL WEALTH MANAGEMENT

The global wealth management industry is being revolutionized by the rapid pace of digital innovation. After the global financial crisis, while traditional asset managers focused on meeting the enhanced regulatory requirements and resolving other crisis-driven complexities, several new age digital players focused on developing simpler and cheaper methods of delivering financial advice in an innovative way. This paved the way for virtual advice, and amidst the increasing evolution of virtual advice, one of the most recent disruptions is the robo-advisor movement, i.e., the emergence of a new group of digital wealth management firms offering automated investment advice services. Notably, these firms are challenging one of the main paradigms of the wealth management industry: the need for face-to-face interaction and a personalized human touch to financial advice.

Robo advisors are automated, low-cost money management providers that mirror the role of a traditional financial advisor. They offer user-friendly digital platforms and conduct individualized risk

profiling via algorithms to determine an optimal asset allocation for investor’s portfolio vis-à-vis the

archetypal time-intensive face-to-face consultations carried out by traditional wealth managers. The basis for this technology is that algorithms can provide sound and logical financial advice at a fraction of a cost compared to human advisors.

How robo-advisors work

Robo-advisors use a combination of simplified client experience, lower fees and increased transparency to offer automated advice direct to consumers. These digital entrants have changed the fundamental economics and scalability of servicing the underserved segments by combining the basic components of a wealth management offering with seamlessly integrated technology, lower pricing, greater transparency and client-relevant digital content. The process followed by most robo- advisors is as follows:

Step 1: Investors are required to complete a comprehensive online questionnaire designed by behavioral finance experts. This comprises questions related to the investors’ specific needs, financial goals and risk appetite.

Step 2: The robo-advisor platform uses proprietary algorithms to process the inputs, and select a portfolio (mainly focusing on exchange-traded funds [ETFs]) to provide a tailored investment plan to investors. The portfolio is periodically rebalanced to optimize profits and taxes.

Step 3: The portfolios are monitored consistently by computers. Investors can re-adjust their goals and risk tolerance, which will trigger re-balancing of the portfolio.

Robo-advisors mainly provide automated portfolio management, with limited focus on tax, retirement and estate planning, and can charge lower fees because of automation. They offer passive investment and charge lower fees. Technology has revolutionized the wealth management space, leading to the emergence of two alternatives to the traditional wealth management model: fully

Page 38 of 98

RHP Final Wealth Management Industry Research Report 2021

automated digital wealth managers and hybrids, which pair computerized services with a human touch (advisor-assisted digital wealth managers).

Traditional vs. digital wealth managers

Traditional wealth managers

S

Advisor-assisted

e

r

v

Full automated

i

c

e

s

Financial planning

Investment

Insurance

Banking/

Retirement

Estates/

management

lending

services

trusts

Robo-advisors

Fully automated digital

Advisor-assisted digital

Traditional wealth

wealth managers

wealth managers

management firms

Software-based delivery of

Phone-based

financial

Face-to-face

advice

customized

and

advisor

accessible

mainly

through

the

Business model

automated

investment

through digital channels

branch

network

for

advice

for personal advice

comprehensive wealth

management

Millennial, tech-savvy and

Mass market and mass

Affluent, HNI and ultra-

price sensitive

customers

affluent

clients

who

NHI

clients

who

value

Client type

who

want

to

match

value

human

guidance

guidance from a trusted

market

returns

and pay

and technology

financial advisor

low fees

A convenient, easy-to-use

A

digital

platform

A dedicated FA with full

and

low-cost

online

combined with advisor

range

of

investment

Value proposition

platform offered

directly

relationship;

affordable

choices

and

to consumers

pricing for a fully

comprehensive

wealth

diversified portfolio

planning

Fee structure

A 0.25%–0.50% fee on

A 0.30%–0.90% fee on

A 0.75%–1.5%+ fee on

assets

managed;

assets

managed;

assets

managed;

varies

minimums may apply

monthly fees per

by

investment

type;

planning

program;

minimums may apply

minimums may apply

Investment

Risk profile, target asset

Virtual

FA

meetings,

In-person meetings with

process

allocation, managed

financial

planning,

risk

a

dedicated

advisor,

Page 39 of 98