Where Are HNIs In Small Cities Going For Advice

For Jaipur-based Mohit Soni, one of the family promoters of Soni Group of Hospitals, weekends are about family plans with parents, wife, twins, younger brother, and sister-in-law. His outings include safaris in Ranthambore, VR games in Delhi, or taking part in premier handball leagues. A weekend getaway to Goa every year and trips to Thailand is common on the family’s itinerary. In Jaipur, he often indulges his children in biking and driving at a grand stadium or swimming at a fancy club.

An IIT-Bombay and Indian School of Business alumus, Soni joined his family business that his father had set up in 1986. His children study at Jaipur IB School (JPIS), which is among the top-10 IB schools in India. The family’s fleet of cars include Mercedes Benz, BMWs, Kia Caren and Seltos, Hyundai Venue and Toyota Innova Crysta. Soni flaunts luxury, but is also subtle about it. “You go to a bank in a Mercedes Benz, you will easily get loans. Luxury is proxy for doing well. We adopt brands but are subtle about it,” he says.

Soni is among the growing tribe of high net-worth individuals (HNIs) who stay in smaller cities, but lead a life as plush as that of their peers in the metros.

The number of HNIs in India with an asset value of $1 million (about Rs 8 crore) and more, increased to 797,714 in 2022 from 763,674 in 2021, according to Knight Frank’s The Wealth Report 2023. Knight Frank expects this number to rise to 1,657,272 by 2027 and the number of ultra-HNIs (net worth of over $30 million) to rise by 58.4 per cent in from 12,069 in 2022 to 19,119 in 2027.

A major chunk of this growth among HNIs and ultra HNIs is expected to come from smaller cities. One major indicator for this is that many from the wealth management and portfolio management services (PMS) industry are flocking to the smaller cities.

We spoke to a few HNIs and some wealth management firms based in smaller cities to figure out how they go about their financial management.

The Lure Of Small Cities

The wealth management industry is actively reaching out to the wealthy in smaller towns. “A large wealth management firm from Mumbai has opened up a branch here. At least five senior fund managers have come in the last one year and met prospective clients,” says Kanpur-based Satya Narain, who is a senior partner at 360 ONE Wealth, earlier known as IIFL Wealth & Asset Management.

ICICI Prudential PMS has also seen new client additions from across India. “The number of PMS clients in India remains around 120,000 even as the assets under management (AUM) grew above Rs 2 lakh crore, which means earlier only those in the metros kept investing more. The shift to smaller cities has happened over the last 12-18 months,” says Sharzad Sethna, head of business development at ICICI Prudential AMC Alternate Investments, which also offers an array of boutique PMS and alternate investment fund (AIF) products.

He adds: “Hardly any funds flowed from these cities even two years back. Now, 20 per cent of our new business comes from the non-top 10 locations.”

Surat-based boutique PMS firm Turtle Wealth CEO and fund manager Rohan Mehta says: “Over 30 per cent of our AUM has come from tier-II and tier-III cities such as Surat, Pune, Jaipur, Coimbatore, Indore, Telangana, Nashik, Nagpur, Vapi and Rajkot, among others.”

Some wealth management firms are  also tying up with local firms and agents to acquire HNI client.

The Trusted ‘Man Friday’

Though big PMS and AIF firms are trying to make inroads in smaller cities, the going hasn’t been easy. Says Nirav Karkera, head of research at Fisdom, a wealth tech platform, “The top five asset management firms may have a wider reach in smaller cities but their percentage contribution to overall AUM is not significant yet.”

One reason could be the trust factor. Most HNI families in these cities rely on their chartered accountants (CAs)or bank relationship managers (RMs) for advice.

Says Soni: “Many wealth management companies and angel investment funds keep approaching me for investment, but I don’t feel comfortable doing business with them.” Instead, he often gives in to the pitches of his RM. “We can say no, but sometimes it becomes an obligation to invest so that the relationship is maintained,” says Soni. Banks usually appoint RMs for HNI customers.

CAs are allowed to give incidental advice to clients, and sometimes end up taking a distribution licence in the name of a family member to sell products to a select group of clients. “CAs who have a long-term relationship with families do not act with vested interest. They genuinely help,” says Abhishek Banerjee, founder of Hyderabad-based LotusDew Wealth and Investment Advisors.

Most HNIs are fine with paying a fee as long as they get good services.

Then, there is also the DIY category. Adds Banerjee: “Marwadi business families I know of are quite active in commodity and equity trading. The promoters of these companies have time to keep themselves engaged with daily stock market movements.”

An Ahmednagar-based business owner said on the condition of anonymity that he also believes in DIY. “Every month, I receive in-person pitches from PMS and AIF managers. But I find the historical and projected returns they project unrealistic. So, I invest in equities on my own. I stick to companies whose business model I understand. I mostly invest in the auto sector,” he says.

More money inflow and outflow from smaller cities also means more mis-selling because of the lack of exposure and, consequently, increased tussle between the new-age wealth managers and the old trusted advisors.

Investments: New Vs Old

The tug-of-war between the new and the old is also reflected in the choice of investments. While traditional instruments, such as real estate and gold remain favourites, equity is also gaining traction. Says Mehta: “One of my clients is a promoter of a listed company with a market capitalisation of Rs 10,000 crore. He invested in the market for the first time in 2022.”

At the same time, some HNIs in smaller cities are willing to experiment with new investment products, beyond equities. “A common ask I often hear is, ‘kuch naya bata’ (tell me about something new),” says Karkera.

One of Karkera’s clients from Nadiad in Gujarat who has a portfolio of about Rs 4.5 crore, complains that Karkera’s team always asks him to top up his original allocation everytime he asks for new investment avenues. “I have been asking your team to suggest me new investment products. But everytime I ask, they tell me to top up my original allocation strategy,” Karkera narrates the client’s complaints.

Wealth managers we spoke to say a lot of them are aware about lesser-known investment options such as peer-to-peer lending, market-linked debentures, unlisted companies and different categories of AIFs. “People ask about opportunities in the unlisted space. Some of them made good money in NSE in 2022. A host of companies remain popular in the unlisted space. They show interest in AIFs, such as long and short funds and private credit funds,” says Narain.

What Makes Them Tick?

Trust is primary for HNIs of smaller cities when it comes to choosing an advisor, even though they seem to be willing to place it in new and untested instruments at times.

“The first cheque always goes to someone they trust. Once they get a hang of it, the second cheque may go to a branded financial services firm. The third cheque could be for alternate investments such as cryptos, start-ups and others,” says Mehta.

Small city HNIs are embracing newer ideas as they embark on new investment journeys. How they approach their finances can have an impact on the financialisation of the Indian economy in the long run. It’s still early days and there’s a lot to see how the small-city investment landscape unfolds in the future.

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