Hits and misses
‘Sir, it is a very big client; sir, it is a very good client; sir, the meeting went very well,’ laughs Yatin when describing the post-client meeting feedback he often gets from his younger relationship managers.
In a company that prides itself on always being hungry and ready to hunt, the founders say that they have had to work hard to balance aggression with restraint: Understanding that being client-centric should not mean becoming servile. In their line of work, relationship can be a loaded word that can often lead both advisors and clients to assume obligations that are unnecessary and maybe even, damaging.
While it is important to establish a comfort level and build a rapport with the client, one of the biggest mistakes relationship managers can make while working with individual clients is to believe they “own” them — that the client will follow them, Karan says. Client relationships are tricky: They need maturity.
Risky behaviour by individuals doesn’t just destroy interpersonal relationships; in an industry where trust is key, mistakes can rapidly erode brand value and organisational reputation.
Karan admits to the founders having made enough mistakes as young relationship managers to be able to better anticipate the traps their teams can get caught in, including taking disproportionate risk on behalf of a client. There is usually no great reward to be had by taking great risks, they say. This might sound contrary to the founders’ personal entrepreneurial philosophy but being able to separate that from organisational culture was necessary.
More mistakes happen when things are going well, he warns. While risks escalate, rewards often remain the same. If things go well, clients will be happy with the extra returns on a bold move but it’s not like they will pay you more. But, the impact of a daring bet gone wrong can result in losing a client — something the founders say they try and drill into their sales teams. At the core of their proposition, they say, is that they are wealth preservers and managers — not the creators of riches.
Don’t promise the moon, keep things real
When Yatin began his innings as a wealth manager in Kotak in December 2002, the Gujarati community in Mumbai served as the catchment area. It was early days in the wealth management industry. He confesses that the advice doled out was often unsophisticated. The focus was on grabbing low-hanging fruits and distributing financial products was the way to do so. The Gujarati community he worked with emboldened this short-term approach. Gujaratis have traditionally been a largely trading community, comfortable with taking risks against their portfolios. Their ability to absorb anxieties amplified Yatin’s natural inclinations.
From 2003-2007, the Gujarati community became the bedrock of his success. The capital markets in India were doing well in that period. His roster of clients had the requisite liquidity and mindset to take advantage of the bull-run. His personal equity within the community was on the rise.
Little did he know it would soon be tested.
In April 2007, while Yatin was still with Kotak, the Bombay Stock Exchange was selling a 51 per cent stake to non-brokers, a third of which went to overseas investors. Kotak Mahindra was one of the investment bankers working on the BSE transaction. It was tasked with the responsibility of finding institutional investors as well as large families to invest 50 crore ($7.5 million) each, or higher. ‘It was a unique proposition for an individual or family to become a shareholder in a stock exchange, and India’s most successful, well-regarded exchange at that,’ Yatin recalls.
Yatin admits he pulled out all stops to convince his clients: Selling the idea as one they couldn’t afford to miss. He first tapped into Mumbai’s top ten diamond merchants, many of whom bought into the idea. He collected 200 crore ($30 million) from a clutch of investors and lined up several others eager to participate in the deal as well.
Clients were thrilled at being given a chance to participate, an excitement only heightened when a list of all the investors was made public after the transaction. Along with the names of marquee institutional investors such as the Bajaj Group and Reliance Group, names of Yatin’s clients — around four diamond merchants — were also listed. Yatin recalls that he and his colleagues did pat their own backs for having done so much for their clients. The self-congratulations would be short-lived.
During 2007 and 2008, the BSE went through a turbulent period, wracked by some of the largest single-day Sensex (BSE’s benchmark index) crashes.
When the markets crashed in the eighteen months following the BSE transaction, Yatin’s clients believed he hadn’t given them full information although the truth is, in April 2007, nobody in the industry could have foreseen the scale or the consequent fallout of the global financial crisis being as severe as it ultimately was.
Trust is the currency of business in the Gujarati trader community, Yatin says. When damaged, trust is not easily repaired. ‘Even today, they believe they were misled by me,’ Yatin tells me with a sigh.
The warmth of the personal relationship couldn’t thaw the ice that had set in the professional relationship.
It’s not as if his relationship has eroded: They might not do business together but he continues to be invited to their family events. A top diamond merchant who had bought a stake worth 75 crore ($11.2 million) in the BSE deal, had two suits made for Shah during a family wedding from a Belgian suits tailor who custom made suits for the entire family, as gifts.
Keep emotion out of the equation
In December 2012, a successful Mumbai-based generic drugs pharma company sold its business to a European drugmaker. Although the transaction amount wasn’t disclosed, the buzz on the street was that the company’s founder had come into a large infusion of personal wealth. Wealth advisors started to close in on this significant business opportunity. IIFL Wealth was keen to win the portfolio. It was just the kind of transaction they had by then developed a strong knack for.
Because the transaction happened in the last quarter of the financial year, IIFL Wealth pitched a proposal to the company’s founder. By that time, the money from the European major hadn’t come in. The founder liked the ideas but didn’t have the funds yet to invest in the products being suggested. Yatin was leading these conversations and suggested that IIFL Wealth would invest the money on the founder’s behalf — a loan that could be repaid as soon as the money came in.
On his part, the pharma entrepreneur gave his house as mortgage for the loan IIFL Wealth was extending to him, the value of which was less than ten times the value of the loan. It was a big leap of faith for Yatin and the company, but one they were confident would win them a lifelong relationship. Their potential client seemed to appreciate their team’s passion, calculated risk-taking and drive.
As it would turn out, IIFL Wealth’s worries, about the repayment of the loan, at least, were unfounded. As soon as the money came in, the founder returned the loan. By then, Yatin remembers, they were confident that he would work only with them even though others hadn’t given up the chase either. IIFL Wealth was prepared to match the best commercial terms in case another player emerged as a strong contender — if it came down to that.
But they were in for a surprise. The “client” called Yatin one evening to tell him that he had decided to work with another large wealth advisor, as well, since they seemed similarly driven in terms of getting the business, judging by the advice and research they had presented. Besides, their commercial offer was better.
Yatin remembers being shell-shocked at this; that they lost the business to their closest rival added insult to the injury. It seemed like a personal setback for him. Against the advice of colleagues, soon after the phone call, Yatin went to the client’s house to air his disappointment. It was an emotionally charged conversation. He believed IIFL Wealth had been treated unfairly.
No client is going to feel happy about being made to feel obliged to work with anybody. ‘I realised I had said too much, spooked him off,’ says Yatin.
It took IIFL Wealth six months to get the rela
tionship back on track again. The incident taught the company, and Yatin personally, a very important lesson: That sales aggression can’t become an emotional, egotistic battle for validation. It’s a fine line that, when crossed, can become counterproductive, and a tough one to see, in an organisation that prides itself on its tireless pursuit of new business.
Chapter 20
An eye on the future
Success in the risky world of wealth management hinges on trust. The circle of trust gets built, client by client, but can be destroyed far more quickly. A few client relationships can mar the company’s reliability. Personal reputations can suffer swiftly as some of the episodes mentioned in the book indicate.
The IIFL Wealth team has been up for the challenge, building a company on a foundation strong enough to withstand tremors that have brought others down. Yet, success can be ephemeral. The trends may have worked in their favour so far but their world continues to be a volatile, ambiguous and complicated one.
For one, attitudes towards wealth might well change in their dominant client segment — the first-generation wealthy. It is an unpredictable, whimsical group, still getting used to creating and managing wealth. To assume that it has settled into a template would be a mistake the team at IIFL Wealth can’t afford to make. Clients’ expectations from their wealth advisors are always a work in progress as are the relationships they enter into.
The first-generation wealthy want high returns and push their wealth managers to show them exciting products that can deliver big on high expectations. IIFL Wealth’s biggest successes have come from their ability to craft exciting investment ideas for their clients. It has placed them on the top of the pile in the industry. Yet, the same flair for inventiveness can become a dangerous risk the moment something goes wrong.
MapmyIndia’s Rakesh Verma says that even while he trusts his wealth managers, he’s set up a firm rule for himself: If either of his two advisors come with a product they have crafted in-house, he gets it double-checked by the other. Network18’s Raghav Bahl echoes such caution. In a business like wealth management, even with the best intentions, any investment is, at the end, a market-driven product and can prove to be an unwise call.
There could be economic disturbances, global events that spook markets, or other external stimuli. At times like these, clients will question how a product their advisors pledged full faith in went wrong. The line between negligent or misleading can be very fine in a client’s mind. Trust is fragile.
In a November 2015 article48, Bloomberg News noted the emergence of “robo advisory”. ‘The automated investment platforms industry has seen dramatic growth, from almost zero in 2012 to a projected $300 billion in assets under management at the end of next year. Robo-advisers could manage $2.2 trillion by 2020,’ the article says.
The metrics and avenues for performance might change completely as well. Technology hasn’t disrupted the wealth management space in India yet as clients largely use it to monitor their investments and portfolios. A technology-driven platform that can take over the advisory aspect hasn’t yet been a disruptive force. It might happen though. Global examples of companies such as Charles Schwab, FutureAdvisor and Personal Capital show that in the mass-affluent segment, “robo advisors” are beginning to play a more dominant role in substituting human advisory. Such a disruption in the wealth segment — led by a smartphone application, for example — could change the market environment substantially.
IIFL Wealth’s founders are young. They have shown themselves to be adaptable. But as the company grows, will they continue to be able to tweak and change? Can they sustain the momentum?
In a world where social media has necessitated transparency and the financial services industry continues to suffer from a mounting distrust, can they build a reliable, long-lasting institutional brand from a thriving business?
Hard knocks and the battle for trust
Already, conversions are becoming more difficult than they were two years ago, confesses IIFL Wealth’s Chakraborty. Clients are galloping ahead by years in their education of the financial advisory business. The increased competition, a more aware client base and fresh regulation governing the space has opened up several options for clients.
With new clients, the competition for the share of their portfolio is intense. In a situation different from even two or three years ago, IIFL Wealth’s share of a client’s portfolio is becoming smaller. What continues to be a great shot in the arm for the team is that they have consistently managed to make inroads and foster relationships with every large stake-sale transaction across India’s main business hubs. That gives them a foundation to build on.
The image crisis — of being greedy commission hunters — that wealth managers continue to suffer from, adds to the struggle of acquiring clients. Interestingly, much of the cynicism about wealth managers comes from those who haven’t used one. Several of the new wealthy, who do not use professional wealth advisors, are sceptical — or even mildly disdainful — on what wealth managers can do for them, if they ever need one at all. The industry has a fair distance to go to build respect and trust, especially when it comes to entrepreneurs.
Entrepreneurs, especially those who have substantial equity in their growing businesses and run it full-time, seem most dismissive of the services wealth managers may be able to provide them. They feel the potential to scale up their wealth through their own businesses is much higher and thus a wealth advisor’s bouquet of products and propositions are not of much relevance to them.
Stellar Group’s Sethi says that only if they ran out of opportunities for growth in their own company would they be “forced” to think about investing in other products. Moreover, the private bankers and wealth advisors he says he has met don’t inspire his confidence.
‘I tell the wealth managers I meet, or those who pitch to me, that I am already managed,’ Paytm’s Sharma says. ‘Everything I have is in my company. I can’t think in terms of asset allocation and diversification. I’m either all in, or out.’
Sharma adds unflinchingly that his respect for fund managers and investment managers is in the negative because they are not asset creators. ‘I think I am better off by investing in and working hard for my own company,’ says the entrepreneur.
There are others who see the entrepreneurial mindset as being in an uneasy conflict with the attitude and skill that managing money needs. Because business builders consider the process of creating wealth to be superior, it does leave them with condescension for wealth managers: Perceived by many to be a “rent-seeking business”.
‘Meeting with several wealth managers after the deal, I knew I didn’t want to work with them,’ says Freecharge’s Kunal Shah. IIFL Wealth does manage his personal portfolio though, largely at the behest of his business partner, Sandeep Tandon. ‘The language most wealth managers speak is so protectionist that it just doesn’t agree with how I think. For most advisors, wealth is a sugarcane factory. They are concerned about how to get more juice out of it. I am interested in creating more sugarcane factories, or actually, in planting new sugarcane fields.’
The question of ethics also continues to loom large over the financial services industry. The wealth management industry — or IIFL Wealth — isn’t insulated from such biases.
Mint’s Monika Halan says she continues to be cynical about ethics in the financial sector. If they could cheat, they would, she feels, because over decades of evolution, that is part of the industry’s DNA. Even in the high-net worth segment, where the danger of the information asymmetry that plagues the retail investment segment isn’t as dangerous, careful tracking and a healthy caution must be constantly maintained.
These may seem like harsh words but, interestingly, wealth managers across the spectrum agree that their industry deserves some of the condescension for the self-serving advice several players may have doled out. It’s a perception issue and one the IIFL Wealth team will have to continuously battle.
The problem of plen
ty
Things have changed rapidly for the company in the past year itself. First, the shutting down of foreign private banking outfits as well as the infusion of funds from General Atlantic has made it possible for them to hire a group of senior private bankers from Citibank, Barclays and Standard Chartered. This has led to a continued momentum towards growth. No other organised player in the wealth management space is 500-people strong, according to the company’s leadership.
However, the problems of growth can sometimes be as crippling as the fight for scaling up. A fast-growing company, especially one built around its people, has to make sure that new teams hit the ground running, are integrated quickly and imbibe the company culture.
Since relationships with clients are no longer managed only by founders or those who work closely with them, the learning-by-osmosis model has outlived its use. In its place, must come a well-designed and carefully executed training framework.
Himanshu Bhagat is a managing partner at IIFL Wealth, having joined the firm in late 2015 to take charge of the non-sales functions of the company. Focusing mainly on learning and development, technology and internal processes, he says, that training will determine their ability to stay the course. In its first eight years, the company hadn’t focused on it. Its rampant growth had imbued the organisation with enough energy to offset any damage from the lack of training. This can no longer be sustained, the founders confess.
Even as perceptions about the industry remain deeply entrenched, IIFL Wealth’s leadership team say they have as yet underinvested in building a “brand”, something they saw their former employer Kotak do extremely well after getting a retail licence. They recall how the bank’s leadership spent several months and took personal charge of this exercise in the run-up to the launch of retail banking in 2003.
In their case, the founders believe, all functions have been subordinate to acquiring, managing and retaining clients. These are big gaps they feel they need to address in the next phase of their growth. It could determine their ability to grow from being an aggressive and smart new kid on the block to becoming a stable, solid industry major.
The Wealth Wallahs Page 22