David Davidar, CEO of penguin group (India), is a self-confessed conservative investor. He'd rather put all his money in bank deposits and be happy with the fixed returns than grapple with the daily ups and downs of the stockmarket, or even the complexities of bonds. But the steady cuts in interest rates over the last few years have meant that the 44-year-old must get more proactive about investment or watch it diminish in real terms (that's your return minus the rate of inflation). Davidar, however, wants to do neither. But can he really?

Yes, says a growing chorus of bankers who are wooing high net worth individuals (HNWIs) like Davidar to make an industry out of managing wealth for the super rich. The good news for them: the tally of India's millionaires is growing by the year. For example, according to a Merrill Lynch and Cap Gemini Ernst and Young report, there were 45,000 Indians in 2001 with a net worth of more than $1 million (Rs 4.6 crore). By the end of last year the number had climbed to 50,000. In other words, at least another Rs 25,000 crore in assets needed managing.

Besides growing affluence, what's helping the wealth management industry is the changes in the capital market and regulatory environment. For instance, the abolition of lock-in period in the case of portfolio management services (PMS) has allowed investors to shift from one service provider to another, depending on its performance. Also, there are more investment options available to investors (such as derivatives) that require specialised knowledge. Says Hemang Raja, CEO, IL&Fs Investsmart, which launched a wealth management service recently: "There's a tremendous surge in demand for full service wealth management because a lot of the retail investors who had left the stock market a few years ago are returning."

"Being a wealth manager means acting as the client's chief financial officer" Rohit Sarin, Partner/ Client Associates

According to Raja, half of the trade on BSE and NSE four years ago used to be accounted for by retail investors (the current retail share is estimated at 15 to 20 per cent, or about Rs 800 crore). But then the stockmarket tanked in 2000 and the retail investor almost swore off Dalal Street. Similarly, a lot of the brokerages that were offering PMS had to shut shop, although the more successful ones like J.M. Morgan Stanley and Kotak Securities managed to add more services and grow. Foreign banks, which had experience of wealth management elsewhere in the world, and aggressive Indian private sector banks also got into the act.

Today, a typical wealth manager offers everything from investment advisory to financial planning to estate services. Says Rohit Sarin, Partner, Client Associates, a Gurgaon-based wealth management firm: "Being a wealth manager means acting as the client's chief financial officer, protecting the worth of his investments and ensuring a return that is at least higher than the existing inflation rate and in tune with the client's investment objective and risk profile."

In fact, the client profile is key to how the service is structured. In most cases, fund managers slot their clients into four different categories: Aggressive risk, conservative for growth, moderate risk, and risk averse. Each category involves assigning a different proportion of debt and equity in the portfolio, and almost never are two customer portfolios alike even if they fall under the same broad category. How do the wealth managers make their money? By charging a fee between 0.5 per cent and 2 per cent in the case of brokerages, depending on the portfolio and the range of services. Banks, however, do not charge any fee, but ensure that customers maintain a minimum quarterly balance in their accounts.

"The emphasis is on positive performance since safety of capital is our first priority" P. Dokania, Executive VP (Debt and Private Client Group)/DSP Merrill Lynch

Deepening The Market

While high net worth individuals continue to be the mainstay of the wealth managers, efforts are on to deepen the market. For example, IL&Fs' Invest Saathi targets anybody with more than Rs 15 lakh to invest in a year. ICICI Bank too will handle portfolios as small as Rs 10 lakh to Rs 15 lakh. In fact, put the top wealth managers aside, and you would find that 30 to 40 per cent of the customers are middle to senior executives. ICICI is going a step further by tapping professionals in their 30s. Says Amitabh Chaturvedi, Head (Retail Liability Group), ICICI Bank: "The logic is simple: A person earning Rs 10 lakh to Rs 15 lakh in his early 30s is likely to earn much more in the future. Moreover, the low entry level helps us drive up volumes."

That's also because the super rich tend to prefer foreign banks and brokers that have a global network (See Bankers in the Fray). For example, DSP Merrill Lynch wouldn't take on clients who have less than Rs 2 crore of financial assets. In fact, its average portfolio size is Rs 5 crore and each adviser manages a clientele of 50 to 60. Moreover, DSP Merrill Lynch focuses mostly on debt instruments such as fixed deposits and government bonds. Says Pradeep Dokania, the firm's Executive Vice President (Debt and Private Client Group): "The emphasis is on positive performance rather than on out performance, since safety of the capital is our first priority."

Despite their differing strategies, the wealth managers agree that India is a growing market. ICICI Bank already has a list of 15,000 clients, and Sarin's Client Associates has snagged 83 in just one year. Kotak Mahindra Bank and Kotak Securities together have a roster of 5000. If the economy continues to grow, the count of affluent may actually grow faster. Says Sutapa Banerjee, Head, Private Banking (India), ABN Amro: ''We are not chasing volumes, but there's no doubt that the overall market is growing.'' And chances are that more and more of the new affluent will be like Davidar-money spinners, but who couldn't be bothered with the intricacies of its deployment.