The wealth management industry is seeing a lot of change. The ‘big’ wealth managers – aka product pushers are in some kind of trouble – aka the banks. Their main job was to push expensive products – like those girls in the bar pushing expensive drinks for old men to buy! Well, the comparison is not right, but that is what many ‘wealth management’ companies, banks, etc. have been doing. This party is now reached a stage where there is a push back from some of the top clients who feel that they need real advice, and not just somebody to push products.

Viola.

The bank employees (many of them) leave the bank, walk away with the clients, and do the same thing on their own. However, it is difficult to sell the same products while differentiating themselves and distancing themselves from the bank. For your information not many of them have left because of ‘conscience’ or shit like that. Many have been sacked becasue they could not earn the bank 4x of their CTC. The problem is not with 4, it was with X. However when they are on their own there is no great pressure to earn 4x – all they have to do is to earn x. They have zilch marketing costs. Remember their Rolodex walked with them? Is it ethical to walk out taking the bank’s clients? Oh well, you mean there are people still asking these questions? Must be born in the 1950s or 60s. I thought such people were extinct.

So what do these people do? they offer to charge a nice fat, flat, fee and give them products with no embedded fees. Wait a minute, that means earning a lot less money for them is it not?

Don’t be in a hurry. This is only for the creme de la creme of the clients. More importantly the product manufacturer will re-design an AIF very easily for the HNI sales guys. A few of them are designated as an IFA and a few as RIA so there is no great clarity about the busiess model.

So where is the real cream?

Well the client has already shifted his money from mutual funds bank Arn code to ‘direct’ and the client has ALREADY been shown that he has POTENTIALLY SAVED Rs. 4 CRORES over the life time of the investment horizon. This has a solid impact on the client’s psyche. Now hawking a builder’s Non convertible debenture with the ‘security’ of one or two flats is not so difficult. Amount? Rs. 20 crores. Interest rate? 12% p.a. – net to the customer perhaps. Does the ‘new fund manager’ get any imbedded commission?

What about an AIF for 7 years with a 7 years extension problem? you think it has something embedded?

What about a Rs. 3 crore PMS payable as 12 quarterly instalments of Rs. 25L? Does it have any imbedded commission?

What I say is not as important as what you think.

So what do you think?

 

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  1. IT is excellent pragmatic article which reflects reality of the prevailing financial temperature in the market.

    a

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