Well if you are in any industry you see two faces (actually more, but for this article 2 will suffice). One face is by the regulators and the powerful people in the industry and the other one is by the weaker ones. The powerful people create rules and make products which are designed to be mis-sold. The compensation (say in case of ULIP) has always been so front ended that mis-selling is a product design fault. THE WHOLE INDUSTRY knows it. If you told them then they said “I know it Subra, but ….others are doing it”. Also there is too much of Private Equity/ private investors pressure.

Then the weaker guys who are given products, prices, targets and ’schemes’. The powerful people then parrot 2 things:

“Mis-selling is wrong, and rebating is wrong.”

Both happen and happen brazenly. Other than the regulator and the finance minister everybody knows it. When a mis-seller in Sikkim is caught he is removed as an agent. The future premium from him Rs. 4000. When a mis-seller from Mumbai is caught there are 2 ways of dealing with him. If he is big, make his wife an agent. If he is small, remove him as an agent and take him as a consultant. Even if he is removed there is no way of returning the premium that he has collected till date.

This article was about goal keeper Manuel Neuer. He cheated. Well in the England vs. Germany match when the English Midfielder scored – the ball was clearly over the line- Frank Lampard would have been able to see it perhaps. The linesman or the referee did not. Football does not use technology. The worst thing is just like the bigwigs of the financial service industry. They boast about numbers got through cheating. Cheating the customers. One senior executive said the customers deserve to be cheated (well a point of view, is it not?).

The worst thing is Neuer said “I fooled the refree…..” I think that says it all. The days of Adam Gilchrist or a Gundappa Vishwanath or a Mansur Ali Khan Pataudi are over.

Cheating is ok, it has been legalised, and worse, you can boast about it. Mera Bharat Mahan.

Fund managers also come in various shapes and sizes….but clearly HDFC as a group is there at the top. Not to say mistakes do not happen, but it is contained. Action is taken against the guilty and the systems strengthened. This is true for Hdfc ltd., Hdfc securities, Hdfc bank and surely the same culture must be there at Hdfc Amc and Hdfc Standard life insurance. Mr. Deepak Parekh – and therefore all his CEOs set very high standards…

However one equity dealer (employee) has played dirty. He must have taken a lot of precautions. He just forgot that ‘there is no right way of doing a wrong thing’. Basic fundamental rule which thieves forget.  This is not uncommon – after all these are kids in the ‘Greed is Good’ times when Wall Street has gone beserk. If Grasso could justify a $ 140 Million bonus…what is a few crore Indian rupees.

Kapadia seems to have done ‘front running’. Front running is buying the shares in your personal account before you buy for the fund. This allows you to profit quite handsomely – because the fund’s buying takes the share up….and then you sell. That is what Kapadia and his friends have done. Or seems to have done.

What SEBI has done is a good investigation against Kapadia, Sanghvi and Mehta regarding transactions done in the year 2007 and has asked the AMC to do more detailed investigations.

One MNC for whom I used to do internal audit had the power to ask the employee to give a declaration about all his bank accounts (demat was not yet in and this was an engineering giant). In one case we did find payments from dealers in the employee’s father’s account. However sacking the employee was the only solution.

One group in the south has sacked people for traveling 2nd class and claiming 1st class…

One brokerage house sacked a few top executives for doing transactions without completing K Y C formalities – there are millions of instances. As a CA you get to hear some stories, as a broker you get to hear some stories…however nothing really comes out. Or it is killed before it comes out.

This incident must be a complete nightmare not only for the management of hdfc and its associates but also the trustees, custodian, internal auditor, outside directors, and the top management which would just be answering calls. This wake up call is for others who also manage money in a pool – be it a pms, a mutual fund, or a life insurance company.  Too much is at stake.

For people like us who have trusted this brand since 1980 as a shareholder, as a fixed deposit holder, bank account holder, demat account holder, fixed deposit holder, brokerage account holder, as a mutual fund unit holder, as a life insurance policy holder,….this is quite a hit. Since the news broke (yesterday evening for lesser mortals like me) at least 4 people have asked…’Is my money safe…’. Last week my voice would have had more conviction. Now I am waiting to see what the trustees have to say. Remember it is their responsibility to ensure that the back end processes are robust and keep the industry free of risk.

Hopefully the management will improve the internal controls (I am sure the simple things like no cell phone in the dealing room, daily portfolio declarations, etc. must already be in place).

I have no clue what new tricks employees will find and what new steps companies will take….best of luck Hdfc.

anyway the sebi order against nilesh kapadia, rajiv ramniklal sanghvi,…is worth reading..here are the details…orderhdfc

Page 1 of 12
WTM/KMA/IVD/267/06/2010
SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
DIRECTIONS UNDER SECTIONS 11(1), 11(4) AND 11B OF THE SECURITIES AND
EXCHANGE BOARD OF INDIA ACT, 1992 AGAINST MR. NILESH KAPADIA, MR.
RAJIV RAMNIKLAL SANGHVI, RAJIV RAMNIKLAL SANGHVI (HUF), MR.
CHANDRAKANT P. MEHTA AND MS. DIPTI PARAS MEHTA

The answer is very simple. Merchant bankers are a nice small clique who also run PMS schemes. So when the ‘Investment Bank’ goes to get a mandate they flaunt their strength in:

a. The retail brokerage network that they have built

b. The HNI clients that they cater to and

c. The PMS services that they run.

Now all these activities actually become some kind of a backward integration for their brokerage business. Thus these clients are told – here is L&T a great company and at an attractive rate of 8.5%. Gilt is not far away at 8% – and for senior citizens there is the senior citizen yojana at 9%. Of course their own executives were busy filling up forms of Mahindra Finance which was at 9% not very long ago.

So if your PMS provider runs a full fledged business in other finance areas, you are likely to buy some of those lemons or violently churn your portfolio. If you must go to a portfolio management service what you should be looking for is:

a non broking PMS provider – whose only income is PMS fees. There are 3-4 such providers in Mumbai and you would be better off with them. One name which immediately comes to mind is Chetan Parekh of Jeetay Investments. However like all sensible people he does not offer ‘PMS’ at Rs 5 lakhs. Parag Parikh is also a PMS provider – but he perhaps runs some brokerage business as well.

In fact the financial planning business does not conflict with thePMS business. However as a planner it makes sense to stick to Index etf as a recommendation instead of pretending tobe able to find the next WIPRO or the next INFOSYS.

Let us leave that job to Vallabh Bhansali of Enam or Rakesh Jhunjhunwala of RARE to do it. Amen.

NORFOLK, VIRGINIA – Eleven indicted Somali pirates dropped a bombshell in a U.S.court today, revealing that their entire piracy operation is a subsidiary of banking giant Goldman Sachs.

There was an audible gasp in court when the leader of the pirates announced, “We are doing God’s work. We work for Lloyd Blankfein.”

The pirate, who said he earned a bonus of $48 million in dubloons last year, elaborated on the nature of the Somalis’ work for Goldman, explaining that the pirates forcibly attacked ships that Goldman had already shorted.

“We were functioning as investment bankers, only every day was casual Friday,” the pirate said.

The pirate acknowledged that they merged their operations with Goldman in late 2008 to take advantage of the more relaxed regulations governing bankers as opposed to pirates, “plus to get our share of the bailout money.”

In the aftermath of the shocking revelations, government prosecutors were scrambling to see if they still had a case against the Somali pirates, who would now be treated as bankers in the eyes of the law.

“There are lots of laws that could bring these guys down if they were, in fact, pirates,” one government source said. “But if they’re bankers, our hands are tied.”

Comments: The pirates also were not happy with their bonuses because there was a Goldman subsidiary in Switzerland which ran a big ‘Piracy, Ransom, Kidnapping  and Abduction Cover’ the profits of which included Ransom Negotiation Fees of $ 1 Billion. However Goldman big bosses said this was invested in bonds of Greece, and hence the bonus would be paid in Euro instead of US $. Last heard they were still negotiating the average currency rates for the Euro and the $.

Infosys: My investing guru asked me to buy it when this share was available at Rs. 100, I did not. Luckily for me met him again when the price was Rs. 300. I bought 300 shares. Then in a very short period it went to Rs. 700. I sold. Then did not buy Infosys again. Oh la la la!

Learning: Held on to Hero Honda from Rs. 40 till date, but sold a few shares in between. Holding period: 24 years +

Bharti Airtel: The same person asked me to buy this share at Rs. 80. I told him…Oh God I missed it at Rs. 30. He said you WILL tell me the same thing at Rs. 400. So I bought at Rs. 80 and sold at Rs. 1200. Why am I cribbing? Bought only 200 shares.

Mistake: Betting too little.

Learning: Really nothing. For me betting 10% of my net worth looks IMPOSSIBLE. However if a share grows to that level, I am comfortable holding on to it. Sounds stupid? Behavioural finance at work!!

Ask Parag Parikh what this means…ppfas will have the answers…

Gujarat Ambuja Cement: Bought at Rs. 18 held for 2-3 years sold at Rs. 40 or Rs. 50 (not sure)…maybe even Rs. 70. Mistake: Selling too early.

Financial Technologies: Same adviser asked me to buy it at Rs. 50. Ignored the advise. He sold 3000 shares at Rs. 2500. Nice lesson.

Satyam: Was asked to buy it at Rs. 30. Did not buy it. Reason: Did not like the broker who recommended it. He has never been trustworthy. Frankly no regrets.

DLF: At various prices many people asked me to buy it (even at Rs. 200 when it hit its low). Did not understand the balance sheet. Still do not understand land banks…no regrets though.

Missed all the KP shares – because they were in the portfolio of a mutual fund – most people who have been around long enough know which fund! No regrets, have my pants intact!

So many mistakes made – some cheap, some expensive, some not so stupid in retrospect!!

Similarly for many of today’s writers (including yours truly) the easiest thing to do is to attack the bakra. Catch hold of the agent and say “why are you selling garbage…you limpet?” and he would say…”Sorry this product is designed by……”. So what you cannot sell garbage – did you not read Mint? It says ‘Agents sell garbage’ as long as they are paid their cut.

Let us take a conversation:

Ms. Intellectual: Hey agent you are selling ‘Garbage’

Agent: Sorry Ma’am I am selling a product which people buy.

Ms. I : Oh people do not know what is good for them.

A: but…they ask me for a child plan, retirement plan…

Ms: Only we at Delhi know what is good for them…they do not

A: Ma’am I sell term insurance…is that bad

Ms: Only the government companies have good products…you are selling garbage!

A: Maam Term insurance was introduced in India by Hdfc ..not LIC. Even today Ageon Religare is the cheapest, not LIC

Ms: No, no only government and people like us know what is good for the people..

A: Maam all the products I sell are approved by IRDA, or overseen by SEBI, I have studied in a government college..

Ms. I: I have decided that you are selling garbage, how dare you mere graduate argue with me? I am qualified you know

A: Sorry Ma’am the company whose products I sell also has highly qualified people..and I think they design the product and your IRDA approves it. Then the media advertises it, then websites write about it….then we sell garbage (oops see how influential you are!)

Ms. I: I think people like you should be hung from the nearest post. Only problem is people like Subra will not know what to write. He will have to go back to broking..or really back to accounting and audit. By the way stop selling garbage.

A: Ma’am I only know to sell financial products should I start selling Gillette blades, they are really good I believe..and they do a lot of advertising.

Ms. I : hmmm see you realise that selling garbage does not help. I really like Financial literacy

A: Ma’am the end buyer is not a fool…he knows what he / she is doing

Ms. I: Only if we tell him in a way that he understands..

A: Oh like the government gets excise duty so it allows cigarettes to be sold, or puts the head of Pepsi in its council of advisors, or lets McDonalds spread and create obesity…

Ms. I : Now do not get personal. People know what is good for them so they choose correctly

A: I agree ma’am we sell garbage, but people buy good stuff created by qualified MBAs, CAs, etc. approved by government authorities (Sucheta Dalal says SEBI has to be regulated too!), ..how such good stuff turns to garbage when we sell it beats me. Will you ask somebody to do an article? I will ask IFA galaxy to put it up on their site

Congrats on the nice job you have got! With a degree from an Ivy League school this was a nice job to land. I know you have majored in Finance and are hoping to make money by the tons. Of course I will be sad if I see your picture in the newspaper – these days newspapers only talk about financial scams.

There is nothing wrong with the Love of Money. In fact all generations had its heroes – and for this generation the ‘rich’ man is the hero. However do not forget what Mahatma Gandhi said – the journey is as important as the destination, so Kiddo do not take short cuts. As doctors your Dad, Mom and I could have taken short cuts – but would not have the kind of respect that our family name carries.

Among the news items I see people with a net woth of $ 1 billion CHEAT their own fund off $ 600,000 – to me this is amusing – not worrisome. I remember a few years ago the Indian CEO of a brokerage house was seen cheating his OWN client off Rs. 58,000 – when he was being paid a salary of Rs. 38 lakhs. Again is this because money is not means to an end but a scorecard? Be careful of the people you meet.

Also compared to many of your classmates your salary of US $ 64,000 looks small, but comparisons are so foolish. I charged my patient Rs. 8000 for a bypass operation – because that is all he could afford. Your mother teaches in a government medical college – for a princely sum of Rs. 235 per lecture. Surely we ‘deserve’ more, but can live with this can we not? You also need to remember she paid almost no fees for the medical post graduation! You were still in school when a man named Grasso said “I have done great things for the New York Stock exchange – so why is there a furore over my $ 140 Million salary?”

I think there is a crisis out there – the sense of entitlement – especially in the financial services industry world wide – is assuming terrible proportions. Yesterday I had dinner with Mahendra Bhai who happily sold off his financial service business for US $ 180 million – he himself found the valuation laughable. Of course as a shareholder of private company I am entitled to about $ 10 Million – which your Dad, Mom and I have decided to give it to Mahendra Bhai’s charitable school. I hope you earn enough to laugh off this donation when you are my age. However I will always love you for what you are not what you earn.

So go and earn your spurs. Do remember if you wish to be a school teacher you inherit my Defence Colony bunglow – or it becomes the HQ for Mahendra Bhai’s school. Mahendra Bhai was just a graduate when his father asked him to take over his family brokerage business, but he did a great job. He used to say “Business is about creating value for society through cooperation – which I cannot create alone”. When you are as successful as Mahendra Bhai your Board will be too scared to argue with you – so be careful. It is your duty to be able to hear criticism, so welcome colleagues who criticize you.

Also remember most people are Honest when they are being watched – it is not only easy, but also necessary. However at 12am if you enter a One-way street at 80 kmph and find a truck coming from the opposite side, you were only being practical. You knew there would be no policeman, so …..Similarly in the Highway of investing life – start early, invest smartly, believe in compounding, and avoid short cuts. It does not matter if the policeman is not watching – No entry is a No entry. It kills. You remember your classmates in class XII who banged their Merc and lost their own lives. I still meet Chandrakant Bhai who lost his grandson and the Merc. You know which asset he misses more.

Do not judge yourself by the amount of money you earn. Success to me is if kids want to emulate your behaviour – not if they want to buy a Merc if you have one. As a family we do not have a Mercedes – do you have any doubt about our ability to own one? I get a greater pleasure travelling in my 4 year old Honda City!

What is a couple of crores for a Wall Street Hot Shot executive? But hey Kid do not play this game of self delusion for too long. Keep questioning your contribution to your employer, your customer (he pays your salary, your employer is just an aggreagator) your contribution to society. Ask why your mother spends more on petrol than the ‘fee’ she gets paid for teaching in a government hospital. Or why your father charges only Rs. 15 per visit for slum dwellers? Not that doctors are paid more or paid less – your Dad, your Mom and me took the “Enough” route. However thanks to the fund management skills of Mahendra Bhai, Magic of Compounding, a booming stock market, and our own disciplined investments, we have more than what we require. So will you by sheer hard work – yours and your Money’s!

Go and have fun. You should see the whole of USA – the infrastructure they have created is awesome. If time permits see Europe too – those are great investments too!

However my training has ensured me to be skeptical. So when I see the ‘richest’ list in India, world, etc. and do not see Ratan Tata’s name, it looks funny to me. Surely many of you must be wondering if a group had vision to enter all the infrastructure industries – steel, locomotives, trucks, power, banking, airline, textiles, hotels…come on you have to be on every damn rich list. Correct? Well read on…it is an adaptation of a mail from a friend (he says he picked it from somewhere on google – so the author is unknown)

Here is a Real Story of Ratan Tata.
So many people around the world want to know that “What is the Net Worth of Ratan Tata”? or is he really the richest man in the world? Well most of the wealth is calculated by imputing a %age of the net worth. Which means if all the Tata companies earn Re 1 and the group gets an average p/e of 30, it will have a market cap of Rs. 30. If Mr. Tata controlled (remember you need to control not own) 60% of this, he would be worth Rs. 18. Have not added any unit to this – you could add million, billion, or trillion…so read on..

TATA Group is running 96 businesses and out of which 28 Companies are publically listed on the various stock exchanges. Tata Group is world’s top 50 Group according to Market capitalization and Reputation.

TATA Group’s 96 companies are held by its main Company “TATA Sons” and the main owner of this TATA Sons is not Ratan Tata but various charitable organizations developed and run by TATA Group.

Out of which JRD TATA Trust & Sir Ratan Tata Trust are the main. 65% ownership of TATA Sons which is the key holding company of the other 96 TATA Group Company is held by various charitable organizations.

So this 65% ownership ownership of Tata Sons Limited is not reflected on Ratan Tata’s personal Financial Statement but on the various charitable organizations. and this is the reason why Ratan Tata is not in the list of Billionaire club. Remember he controls the Trusts, but not necessarily the Income and Expenditure Account!

If we put this 65% ownership of Tata Sons in Ratan TATA’s own personal financial statement then Ratan Tata’s Net worth can become more than $70 billion. and that’s much more than the Warren Buffet’s Current Net Worth of $ 62 billion, the world’s richest person according to Forbes magazine. Of course this figure keeps changing from time to time, but Ratan Tata continues to be head and shoulder ahead of the others.

However, it doesn’t mean that Ratan Tata is poor. In one interviews he had told the reporter that, “I have my own Capital”. He is the chairman of Tata Group so obviously he earns lots of money every year as a bonus, remuneration and salary. However, Ratan Tata’s Net worth is not $ 1 Billion.

One person who would have called Mr. Ratan Tata the world’s richest man is the author of the book “To have or to be” – Erich Fromm. Not sure about the spelling- though.

He is not a billionaire on paper. but in reality he is the richest person of the world. His net worth in reality is more than Bill Gates and Warren Buffet. Of course Bill Gates and Warren Buffet do a lot of Charity too.

So the good thing about Tata Group is that, They do Charity out of their Money.  Imagine in a country where businessmen do not like 30% income tax, here is a man who KNOWS that out of every rupee that he earns after tax 65% money HAS ALREADY BEEN EARMARKED FOR CHARITY (BY right, not as a favor as in other cases!). This brings me to another famous statement by Mr. JRD Tata. He said our Vision is ‘To Do things good for the Country”. He said when I do a project and I am in doubt whether I should go ahead with the project, I look at the Vision statement (drafted by Mr. Jamshetji Tata) and then decide. So simple!

And that is the reason TATA Group has generated so much of Goodwill over last ………..so many years.

Tags:

richest, Forbes, Richest Man, Ratan Tata, steel, trucks, power, Dorab tata, Dorab Tata Trust, JRD Tata Trust, net worth of ratan tata, Mr. Tata, Tata group, market capitalisation, reputation, Tata Sons, billionaire club, bill gates, warren buffet, Income and Expenditure Account, Forbes magazine,

R bhai is his name and was a typical old school broker – the word mattered – it did not matter whether it was written down or not. Very, very conservative his bank balance would be a banker’s delight. Never would he borrow, but he used to do a lot of lending in ‘badla’ which meant his interest income was very high. Taking a client on meant 2 directors had to check the credentials of the customer. From 1993 to 2000 we had NO BAD debts, and all our BAD DELIVERY problems would get sorted out in 15 days – and we had an exemplary track record with NSE.

However, we got the electrical work done by an electrician who also sold some shares through our company. Those shares came back as ‘fake’ and we had a huge ‘reputation’ crisis – remember this was a 100 year old firm! The electrician could not pay the money and ‘R’ bhai paid from his pocket (how can I tell the other shareholders that the people whom I recruited did not know the difference between a good share and a bad one? was his argument). So technically the company did not suffer any loss – he was only a 20% shareholder but took 100% of the loss. He felt it was ‘reputation premium’. The company had to pay the electrician Rs. 140,000 – which got adjusted so the loss was reduced to Rs. 160,000. This electrician was a young boy so ‘R’ bhai warned him and let him go.

About 6 months later the electrician’s father came with a bundle of Rs. 160,000 – offering to pay for his son’s loss. R bhai heard him out – the money came from selling the old man’s house – as he was now going back to his village, and he could afford to pay. R bhai smiled at him and said “I was greedy for brokerage, your son was greedy to make a quick buck. So both of us took risks. We need to pay the ‘risk premium’. You cannot suffer, take your money and go with a clean conscience. You OWE ME NOTHING. And ah yes…if your son at some stage in life can afford to pay me, I will take it from him.

Ethics and good behaviour is ‘caught’ not ‘taught’. R bhai is not even a graduate. On that day in R bhai’s cabin I graduated about 10 years after Bombay University had given me a Bcom degree.

A friend who heads wealth in a big branded organisation was sitting in his office…and I was one of the persons in the room when this happened. We were having coffee when his immediate assisstant came asking him to come along for a meet. My friend said all the right words..You must learn to make big calls, this bank encourages people to grow…and actually pushed him off alone.

I wondered why. I must have wondered aloud! He immediately said “I know too much about the product, market and the clients needs..if I go my body language will spoil the sale..but he may be able to bring the Rs. 10 crore cheque. Not bad I thought!

The second friend was talking to me about how one product – a pretty convulted mutual fund operating from Dubai with a choice of 350 fund schemes etc. I violently protested saying that putting away that kind of money over the next 3 years was not exactly my way of managing my money. Then I asked him whether there was any conflict of interest. He said only if you can prove that I have YOUR interest at heart, is there a conflict against my bank’s interest….Oh la la la I said.

But this one takes the cake!

Having spent a lot of time in a wealth advisory job. Collected contacts, established credibility, pushed products….now  has quit and started own wealth advisory firm. The reason for creating own outfit has been given as ‘conflict of interest in the previous job’ – having spent 5 years there….!!

So, God bless!