Hi Rodinhooders, I work in the Financial Services industry and my entrepreneurial aspiration revolves around managing money for people. Please spare some time to share your views on this:
Whom amongst these would you prefer to have as your Wealth/Investment Manager –
A big Bank (ex. CITI, Deutsche Bank, ICICI Bank etc.), a hard-core Broking Firm (say, Motilal Oswal, Anand Rathi, IIFL Private Wealth etc.) or a Boutique Wealth Management firm/Independent Financial Advisor (say, a well known private firm in your town/city but limited to that geography only).
It would be great if you could also share the reasons for your choice and some real-time experiences you would have had dealing with any of them.
If someone doesn’t already have an experience dealing with a wealth manager, you can still answer this hypothetically – just think of it like this – If 3 representatives from these three kind of set-ups were to approach you to manage your portfolio, whom would you go with(& reasons)?
Thanks!!
Eswar Rao Kadari
Eswar Rao Kadari
I will prefer bank.Bank are more conscious about their brand and will response and resolve when there is an issue.
Mayank Uppal
Hi Eswar .. Don’t you think that given the business model that is being currently followed by most of the banks, it dilutes the whole wealth management proposition very badly. If the same Wealth Manager has to take care of your day-to-day banking requirements, opening new accounts, taking care of credit cards and other mundane banking stuff.. how well equipped do you think this guy will be to actually take care of your investment portfolio.
Wouldn’t a pure wealth management or broking outfit be able to do more justice to this, who just handles your investments, and your banking is left to your bankers?
Gurleen Kaur
Hi Mayank,
When it comes to our money, how well our investments perform is out of our control but who we choose to manage our money is..!
I personally do not like bank’s approach to wealth management. Without knowing a person’s background, they know that a particular product is suitable for the client. And more so they are not accountable for what they sell and recommend, so they are providing any or every product. The level of attrition is so high that you don’t get to speak to same Relationship manager if you call up after an year.
A hard core broking firm may be useful if you have big corpus, a retail client is not what they always prefer and welcome.
An independent Financial Advisor can be of help if you think he is:
1. Reliable and Responsible
2.Trustworthy
3.Long term in his business
4.Accountable
5. One point of contact.
Disclaimer: Though I am a Financial advisor myself, the response was based on my experience with clients as to what they feel about bank and broking firms and a little contribution is from my experience before I chose career of Financial Advisor.
Alok Rodinhood Kejriwal
PLEASE READ THIS
How Societe Generale tried to Scam me!
The Sanjeev Agarwal incident with Citibank has triggered me to finally spill these beans:
In 2007, Societe Generale (Mumbai) was partially handling the Treasury function of my business group – c2w Group of Businesses (https://c2wgroup.com).
A lady called Sanghamitra Mukherjee was our designated manager.
The Corporate business of c2w group is mainly liquid and FMP investments since we dont like to take market risks on our balance sheet. Largely there were no problems on that account except for bad investment choices that Soc Gen recommended to us like Lotus Liquid Fund (that actually stalled payment for 3 days on redemption date!!). I suspect Soc Gen earned more commission on such inferior funds and made us guinea pigs.
Some time in 2007, Sanghamitra approached me and suggested I start a Personal Wealth Management type of account with Societe Generale. I cant remember what they actually called it.
Individually, I am fully invested in very long term Pure Equity Mutual Funds (HDFC 200 types) since I believe that real wealth gets created only via Equity invested for 10+ year horizons. And since I run businesses, I leave the Mutual Funds to invest on my behalf (not that even if I tried I would succeed in selecting individual stocks). So my entire wealth is in long term equity MF’s.
I was initially reluctant to open this account since I never believe in trading day to day equity (The Fortune magazine once reported that no day to day trader ever made net money over a long career).
Yet Sanghamitra was persistent and said I should give it a try.
In an experimental frame of mind (and not listening to my wife’s objections), I agreed to start the account and I (STILL THANK MY STARS) – only put 20 lacs into it (phew).
I remember Sanghamitra asking me once – ‘Alok, what do you want’?
I said ‘A BMW 5 series’.
She said ‘Fair enough – invest 20 lacs first, and I will multiply it to get you a BMW 5 series’
I bought the plan.
An important point to note is that the account was ‘non discretionary’ – that means that for ever trade, Soc Gen would call me on the phone (recorded and stored by them) and ask for my permission to do that trade. I hated that construct (would disturb me) and actually suggested they make it ‘discretionary’ – which meant they could do anything with my money, but RBI/SEBI (one of them) had not granted them permission to do so.
In the weeks that ensued, Sanghamitra would call me and ask my permission to buy Stocks that Soc Gen was recommending. Also, she executed some sales. Like a dumb Robot, every time she would call, I would say ‘Yes, Yes, Yes’, sometimes even before the question was asked.
I IMPLICITLY TRUSTED SOC GEN AND SANGHAMITRA and hence didnt really care which stock and shares I was saying yes to buy or to sell!
In between, Sanghamitra would call excitedly and say, ‘Alok we made x on this and y on that’, but I am a hard core Marwari and would always tell her – ‘Dont impress me with individual trades – show me the net gain’.
The XIRR % on the portfolio till end of 2007 was 15-18% (annualized), which honestly didn’t impress me much.
Post Jan 2008, when the markets tanked, the portfolio went negative.
I kind of shrugged it off thinking its typically market movements and it will take a couple of years to improve. (In 2008, the mood was very dismal).
Sometime later that year, Sanghamitra called and told me she was quitting Soc Gen and moving on. She introduced me to her Colleague who was taking over and I bid her goodbye.
The portfolio was pretty much in shambles by then.
One day, the new Soc Gen lady in charge of my account paid a courtesy visit to me and also bought her Equity Analyst with her. They wanted to do a quick review of my account.
When she started ticking off individual stock names, I interrupted her and reminded her that I had no clue what was bought and was not interested, coz all the suggestions were Soc Gen’s – as routed by Sangha to me via phone. Hence they should do what was appropriate.
‘No Sir’ the new Manager said. ‘These x an y shares’ were never recommended by Soc Gen!!!
I WAS STUNNED. I HAD NO CLUE WHY SANGHAMITRA had asked me to buy those shares (and they were the ones down 90-95%).
I immediately called Sanghamitra on the phone in front of her ex Employers officers and confronted her with the situation.
‘Alok, I recommended these stocks myself – they were not from the Bank’ replied Sanghamitra!!!
I had been cheated into believing that Soc Gen was asking me to buy shares – on the recorded phone calls that I had said YES to – and now I was learning that the Share choices were of an individual (Sanghamitra) whom I did not know!!
End of story – I thank God that I only invested 20 lacs (Imagine Sanjeev Agarwal who has lost 32 crores of his own money).
The money in the bank can now just about buy me a Corolla – forget a BMW (my wife always likes to remind me). Thankfully in 2010 and this year, most of the shit inside is now turning positive.
Soc Gen’s India head etc visited me and apologized etc, but legally I decided to stay quiet coz on the phone I had said ‘Yes’ to all the trades.
Lessons learnt:
All these fancy Banking Companies are just out there to Churn your money. They have very poor or no internal controls. They wine and dine you just to fool you. And when in trouble, they shrug their shoulders.
Just buy long term Mutual Funds as ranked in the papers everyday and be happy. They return 20-25% IRR’s over 5-7 year horizons which is more than anything you can ask for.
Also check – My simple quiz that every Investment Banker and Financial whiz has …
Alok Rodinhood Kejriwal
And also read this:
My simple quiz that every Investment Banker and Financial whiz has failed in..
So, I have the usual financial consultant ‘baraati’s’ coming to my doors (baraatis are the dudes who walk to the brides house in a hindu marriage – typically dancing along the way)
They pitch to me:
– High net worth banking services
– Portfolio Management services
– All kinds of ‘structured’ deals (most of them sound like eating radium pills and then going to pluto).
Initially I used to poke fun at their ‘churn your clients money and get rich syndrome’
I also pointed out to the case where I got cheated by Societe General Bank (India ) – (link at the end)
But now I’ve stopped presenting all these arguments.
Whenever the Armani and Calvin Klein suited men and hot banking women come to my office, I present a simple printed chart to them (from mutulalfundsindia.com)
I ask them to study the numbers and to take their time and FILL IN the names of the funds on the left side that march the returns on the right.
The reaction?
ALL OF THEM SAY – ‘ Alok, it could be ANY MUTUAL FUND OUT THERE. Maybe the first fund that earned 25 % is HDFC or something and then the rest are the usual suspects’
hahahahahaha- just as they are say it, they see the smirk on my face and also realize that their PITCH JUST GOT KILLED.
I tell them what finally massacres them:
All these funds are publicly listed. I can take 15 lacs and spread them into 15 of these funds and then drink champagne all day long while these HARD WORKING FUNDS pay out 20 % (Blended) IRR for me – COMPOUNDED EACH YEAR. (Honestly, very few legitimate businesses turn out 20 % IRR each year) !
SO if you wanna work for me and suck up my money – Guarantee me that you will GET BETTER RETURNS than these for me – AND ALL MY MONEY IS YOURS.
If you can’t then GET LOST – coz I have no reason to humor you.
So far, 5 years and counting – NO ONE has accepted my challenge.
And the reasons are very simple:
– ONLY FOOLS think they can make money in ‘stock trading’. They are either trading because they don’t have a job or they are bored or they are mentally unstable.
– What turns profits today turns losses tomorrow – net net all stock traders barely afford to pay for their meals.
– Most private banking services only churn money via deals because it makes them fees
– Most clients of these private banks LOVE INSTANT gratification of DOING DEALS – buying, selling, trading etc etc – they don’t realize that they are lending money to these bankers to churn; generate fees and then pay their own salaries.
– MONEY TAKES TIME TO EARN.
If you don’t believe me – ask your grandfather. Stocks are no different.
My approach is to keep investing as and when I get liquidity, in the top listed mutual funds in the large cap ONLY EQUITY basket, and then SIT, SIT, SIT and SIT.
Waiting is the virtue of the rich. Ask Warren Buffett.
And then as the years stroll by, when I need money, I look at my portfolio and just shave (like parmesan cheese) some of the Mutual fund’s that I have HELD in the past 7-10 years and it allows me to buy my new car, my foreign trips etc etc
So, fire your bankers and stop wasting your precious time in trading.
Just invest in the top mutual funds for a MINIMUM 10 year horizon and the DO NOTHING
Unfortunately no one will ever give you this advise – because it doesn’t suit their purpose.
But its THE ONLY WAY TO GET RICH with your investments.
Oh yeah, and just to add a cherry on this cake – read How Soc Gen scammed me (which really also inspired this blog)
******
Mayank Uppal
Hi Gurleen,
Thanks a lot for taking out time and sharing your inputs! I couldn’t agree more on the push-based industry practices without even knowing the details about the client that you have mentioned. Just one thing.. If I am targeting HNIs & Ultra HNIs as my clients and not retail particularly, are you saying that it would be a better idea to have a full-service stock-broking sort of a setup rather than a pure financial advisory one?
Mayank Uppal
Dear Alok,
Thanks a lot for sharing the details and your personal experiences above. I think your reply calls for some reverts from my side, I would try to give my best shot based on my understanding. Also while reading what you have shared, some ideas were popping into my mind. I am trying to put my thoughts in a structured way, point-wise here:
1. The details which you have mentioned in your Soc. Gen. experience mostly relates to short-term stock-trading, and in this case, the RM defrauding you by pitching the ideas as the institution’s advice and not her own. I am sure that this is not the only case and many such instances would be happening in the whole country as I write this. But at the same time, there are some wealth management/consulting companies who manage clients’ wealth on a long-term basis, having periodic reviews not with an idea of churning, but just to let know the client how the portfolio is performing (most of the banks will not figure in this list). The idea is to get a Wealth Manager who is working to make money for you, and in return also makes money for himself, either through a fees charged from you or from the commission earned through the deals executed (just to note – A commission based model doesn’t necessarily mean that the deals done are not in your interest).
2. This brings us to my second point, and also to the question that I had actually asked in my original post – If a person approaches you to manage your portfolio – A Banker, A Broker and an Independent Financial Advisor, whom are you most likely to give your money to?
Considering the experience that you have had above, I think bankers would be the last option you would go to. But still, your experience has made you paint the whole industry with the same color. Even I totally agree with the fact that a Banker is not the best person to manage an investment portfolio. Not just because of a perverse incentive model, even if he is acting in your interest, still he has a Choked Bandwidth. A bank Wealth Manager/Relationship Manager usually handles not just your investments, but your Home Loan/Auto Loan requirements, Forex Transactions, Credit Card, other banking stuff etc. It leaves him with very little time to keep a tab on the investments and give good advice.
But, a Broker or an IFA is in the job of managing investments day-in and day-out, which to my knowledge & belief, is a big point to go towards any of these two, instead of a banker.
3. And this brings us to the third point – THE TEST – that you have mentioned. From what I understand from your second post, you would put all the three categories of money-managers I have mentioned under a same bigger umbrella, and would rather go for Large Cap Equity MFs.
If you would give this test to me – I would tell you – that as your Wealth Manager, it actually doesn’t matter whether I know these funds by name or not and/or which return belongs to which fund. This work can easily be done by any analyst sitting in my office, but it will not be of much use. My reasoning on this — If you are just looking at beating inflation and generating a return slightly higher than inflation, your strategy of investing in these MFs is bang-on. You have achieved your objective. But I think that a Wealth Manager’s job is not just to match or beat inflation, but to beat the broader Market Returns (just talking about your equity investments). If the WM can’t do that, you would be better off just investing in an index fund also rather than paying your WM. The reality is that there are players in the market, who do that. With my limited experience, I have come across some PMSs managed by some broking houses, which have been consistently generating above market-returns, with a lesser downside. So we are actually talking about a Higher RISK-ADJUSTED return.
Add to this, I think a Wealth Manager should be able to service all of your investment needs — across asset classes. If you want to buy a property, the WM should be able to tell where, at what price. You want to buy a yacht, he should be the one to facilitate. God, if you want to buy a private island, there also he should be the deal-maker. That’s the kind of vision that I have on this. So that there’s no confusion, I had mentioned earlier also that I would like to target HNIs & Ultra HNIs in this business, and so am talking about these kind of investments as well. Now if doing all this, your Wealth Manager can make some good money for you, and in turn become rich himself, I think it’s a big win-win.
The question remains, what kind of an institution/person would be best suited to do this — and would win your trust to get started – Bank / Broking Outfit / Independent Financial Advisor.
Thanks again for sharing your inputs!!