Brokerages take a fancy to wealth management

The wealth management business is back in the limelight after suffering quite badly in the ongoing economic downturn.

Now, Indian brokerages are aggressively expanding in the wealth management space to take advantage of the rising number of high networth individuals and ultra high networth individuals in the country. Also, the recent turnaround in the stock market is giving confidence to these two categories of investors to invest.

No wonder, hiring has been quite frenzied in this space. Ambit Capital recently hired Sutapa Banerjee from ABN Amro as head of its wealth management operations. SMC Capital, which offers wealth management in partnership with South Africa-based Sanlam, has appointed Chetan Mehra from UBS London as its chief investment officer. Alchemy Capital has hired Rupesh Nagda from Motilal Oswal.

Besides beefing up their businesses, a number of players are entering the space as well. Quant Capital, a broking firm dealing with institutional clients, is planning to get into this business. Similarly, in a bid to enter this space, Karvy Consultants has acquired Park Financial advisors and Mangal Keshav has joined hands with Bank Muscat.

Kaustav Mazumdar, deputy CEO, SMC Wealth, said: "Historically, brokers have been dependent on execution of business. That is, their main income stream came from executing buy/sell orders of their clients. However, in the last one year, most of them have seen a sharp fall of almost 50-70 per cent in this income."

Entering the wealth management business would help them minimise this risk, Mazumdar said, adding that there was a great opportunity in this segment because of the rising number of HNIs and UHNIs.

According to a Merrill Lynch Capgemini report, there were 123,000 millionaires in India, growing at a rate of more than 20 per cent every year. The number of HNIs in India was growing at the fastest rate in the Asia-Pacific region, the report said.

The wealth management business of many firms suffered quite badly in the recent downturn because of issues with too many exotic and structured products that did not deliver returns. But many clients moved their money from equities to debt and other assets, resulting in some steady income for firms.

Also, from the business point of view, wealth management is increasingly being seen as a great relationship builder with clients. Once this arm gets a client, he is offered other services of the firm as well.

"Now, broking firms are trying to offer multiple assets... There has been a change in approach and it has paid off well for some people during uncertain times," said Sriram Venkatasubramanian, head, FCH Centrum Wealth Management.