Shiv Gupta, Founder and CEO of Sanctum Wealth Management, is a veteran in the wealth management industry.

He shares his views on the trends in the sector and the evolution and investment patterns of Indian high net worth individuals. Edited excerpts:

‘Shirtsleeves to shirtsleeves in 3 generations’ — 90 per cent of high net worth (HNW) families are said to lose their wealth by the third generation. Has this changed over the years? How can HNW families plan to sustain wealth?

Yes, the historical precedent in many markets has been that HNW families lose a significant portion of their wealth over a few generations, primarily because of inadequate financial knowledge and poor succession planning, often compounded by estate duties and taxes.

That said, there is some subjectivity in the analytical process and outcomes have been heavily influenced by the sizes and nature of holdings. Besides, in the local context, a large segment of the wealth can be considered new and is therefore still in the hands of the first and second generations.

Our own experience, and anecdotal evidence, suggest that attention to wealth preservation has been growing.

While wealth preservation plans vary based on the nature and size of the assets, the general principles that can improve the likelihood of success are: seeking professional guidance for wealth structuring, educating and involving the next generation on estate matters, and a long-term mindset that is reflected in the structure of the estate’s assets.

Who qualifies as a high net-worth individual (HNI) in India today?

While there is no precise definition of the wealth that somebody must possess to qualify as a high-net-worth individual, a traditional rule of thumb has been to consider liquid investible assets of a million dollars as a base.

But this definition has been in force for many years and with the growing numbers of individuals falling in this category, and taking inflation into account, some international firms have started moving their definitions upwards to two or even three million dollars in investable assets.

In India, the rising stock market and the manifold increase in property values over the past two decades have created massive wealth and seen plenty of newcomers to all categories of wealthy individuals.

In terms of distribution, Indian high-net-worth wealth is overwhelmingly concentrated in the hands of entrepreneurs and, to a lesser extent, investors who have benefited from the rapid rise in real estate and financial assets.

There is also a considerable skew towards the top 10 cities although wealth creation is picking up pace across tier-2 and tier-3 cities too.

In which asset classes is the Indian HNI predominantly investing?

We have seen a general move from a focus on real estate and fixed deposits to capital markets investments across fixed-income and equities. Within this, current market sentiment has been favouring equities where participation has seen massive increases in recent years.

That said, real estate remains an area of interest but there’s far greater interest in liquidity creation and asset disposal, with the willingness to speculate having dissipated considerably.

There has also been growing interest in less liquid investment avenues such as private equity and venture capital through investment in collective investment vehicles and in many cases, even directly.

‘Moonshot’ investments, if any, would fall into this latter category.

Do you recommend investing abroad in equities or real estate to HNI clients? What about art?

Overseas investing remains administratively cumbersome as also restrictive in terms of size and permissible investments. These conditions, combined with the local market outlook where the expected return is considerably higher, have resulted in a tendency for clients to be domestically-focused.

However, we do see some clients seeking international exposure from time to time but a sizeable proportion of this tends to be in real estate for personal use.

As a firm, we fundamentally advocate diversification but have also seen that the expected returns currently available in India are generally more attractive than in most parts of the developed world, even after adjusting for currency movements. Geographic diversification has not necessarily provided risk-adjusted excess returns, as correlations have headed to one during recent downturns.

Art as an investment asset has seen considerable growth in the past few years although local options to invest through professionally-managed investment vehicles just don’t exist.

Consequently, investments in art tend to take place directly.

Art is likely to remain the domain of passion investors and ultra HNIs for the foreseeable future.

Do you recommend the recently launched InvIT instruments for HNIs?

For investors, it represents a new investment category with income streams linked to specific underlying assets, offering a diversification opportunity — an equity type investment with some fixed-income characteristics.

Some analysts feel that the recent returns on offer may not be commensurate with the underlying risks.

Over time, however, relative attractiveness will vary across different offerings and portfolio suitability will depend on individual investor profiles.

As a firm, we believe there will be a place for it in many of our clients’ portfolios.

Wealth managers have often drawn a lot of flak for not being true to client interests. How deep is the problem? How do you address it?

This remains a problem which runs quite deep, given that some may not even be familiar with the real meaning of concepts such as ‘fiduciary’ or “suitability’ standards.

To an extent this reflects the maturity of the market but general awareness has been growing and clients are getting a lot savvier. Over time, this is bound to affect behaviours positively.

Further, the regulator must continue to promote transparency and accountability.

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