Wealth management firms are expanding their footprint beyond the tier-I cities as high net worth individuals (HNIs) in smaller cities look to diversify their portfolios beyond gold and real estate. Wealth managers say demand has picked up post-Covid with the pandemic breathing new life into certain industries.
Wealth management encompasses a wide range of services, from financial planning to advisory on taxation and estate planning. They offer wider expanse of investment products compared to other high-end money management avenues like investment advisory and portfolio management services. Most wealth managers maintain a high ticket size criteria ranging from Rs one crore to Rs 25 crore.
The rise in demand for wealth management in tier-II cities reflects in the changing geographic proportion of the total assets being managed by these players. ASK Private Wealth says the proportion of clients from tier-II cities stands at 22 per cent currently, up from 17 per cent in the pre-Covid era. In the same time, the assets under management (AUM) from tier-II has gone up from 13 per cent to 22 per cent. For Nuvama Private, the proportion of tier-II clients now stands at 20 per cent as against 15 per cent in the pre-pandemic period.
This rise in traction has meant that more and more players are ramping up their physical presence across the country. Some wealth managers have opened up physical branches in cities like Kanpur, Lucknow, Ludhiana, Chandigarh, Ranchi, Indore and Goa.
According to senior executives, this rise in demand emanates from the improvement in business landscape in certain pockets of the country.
Jayesh Faria of Motilal Oswal Private Wealth says one example is the growth in the speciality chemical sector post-Covid. "Speciality chemicals as an industry has done extremely well post-Covid, generating wealth for promoters and several others involved in this business. Given that the avenues for high expenses are lower in these cities, there has been a disproportionate rise in disposable income for people residing in these cities," says Faria, Director, Regional Head-West, Motilal Oswal Private Wealth.
The other examples include the surge in the number of startups in non-metro cities. In March 2022, the government informed the Parliament that almost 50 per cent of the recognised startups are based out of tier-II and tier-III cities.
"The infrastructure in tier 2 and 3 towns is improving, making it easier for businesses to operate. In addition, businesses have been supported by the government through tax breaks, subsidies and other incentives," says Alok Saigal, President & Head, Nuvama Private.
The growing list of HNIs is just one factor. Officials say covid has brought about a change in the way people want to go about managing their wealth. Declining returns from traditional investment avenues like bank fixed deposits and real estate has forced people to explore other avenues like equity and fixed income, they say, adding that in recent times they have on boarded many new clients from tier-II cities who had till now never ventured beyond real estate, bank FDs and gold.
Even HNI-focused mutual fund distributors are seeing a similar shift. Anand Rathi Wealth says its AUM from tier-II cities has surged manifold to Rs 3,500 crore from Rs 814 crore in the pre-Covid period. Their business in cities like Jodhpur and Nagpur has more than doubled.
The growing demand has led to emergence of certain players with higher focus on non-metro cities, albeit with a much lower ticket size and limited product offerings. Epsilon Money Mart, which started operations in 2022, says 70 per cent of their clients are from tier-II and tier-III cities.
However, this expansion has its own set of challenges with the primary issue being lack of trust and limited awareness of these investors when it comes to non-traditional investment products. "Most clients have been investing in traditional products or keeping all their wealth in the business. Time needs to be spent in educating them about the need to diversify their wealth outside their businesses, real estate, and traditional investments like gold and FD," says Rajesh Saluja, CEO & MD, ASK Private Wealth.
The other issue is availability of talent. At present, most of the talent is acquired from bank branches in these cities but the rising competition from other wealth managers as well as other financial service firms has meant that everyone is not getting enough of the right talent.