THE wealth management industry, though nascent, is growing at a fast pace in the country. As per a Karvy Private Wealth Report, wealth in India held by individuals will double from the present . 73 lakh crore to . 144 lakh crore by 2012-13. HNIs are defined as individuals having an investible asset of $1 million (4.5 crore). No wonder, the recent Citibank fraud, where investors are estimated to have lost around . 400 crore due to a fraud allegedly committed by a relationship manager, has been attracting a lot of attention. Due to the high value of the HNI portfolio, every intermediary is trying to woo this segment.
Be it an independent financial planner, or a brokerage house's private client group, the wealth department of a bank or boutique investment advisory firm,
all of them want a share of the pie. While the regulator will do things to tie up the loose ends, what is it that you, as an HNI investor, can do to ensure that your portfolio is in the right hands?
Choose the right financial advisor:
The wealth management industry is fragmented and highly unregulated in India. Hence, it is very difficult to check the credentials of any wealth manager. The first thing that investors must do is choose the right financial advisor. Investors should select reputed wealth managers who are client-centric and are aligned to the client's long term goals. Simply put, it is important that you know the certifications and qualifications of your advisor. Also, you should check his capabilities and credentials and actively question before engaging a person. "In countries like the US, Securities Exchange Commission (SEC) regulates advisors and each advisor has a registered number. So, it is very easy to track the past credentials, and things like if there are any complaints against the advisor. However, in India, there is no such agency tracking wealth managers. Therefore, investors have no other option but to do their own homework. "Ask for references from your investment advisor, and see whether he has demonstrated capabilities across bull and bear markets. If necessary, you could also insist on meeting seniors in the organisation to gain that extra comfort.
Select the right product:
Many a time, banks or wealth management firms devise or manufacture certain products exclusively for HNIs. These may sound exotic and the threshold limit for investment may be as high as . 25-50 lakhs, depending on the bank. So, your relationship manager may peddle you products such as private equity funds, real estate funds, structured products, overseas properties or even investment in art. Investors should convince themselves before opting for any such product.
Be very clear before investing in any such product. Understand the timeframe required to invest in the product and invest accordingly. Be careful of any product that promises a guaranteed return. As per Sebi laws, no one can offer guarantee on any market-linked product.
So, if your advisor comes to you with a product which promises or indicates high returns, it should strike an alarm bell. It's time for you to dig further in such a scenario. If you do not like exotic products, make it very clear to your wealth manager that you would like to invest only in products that are simple to understand and execute.
Take control of your finances:
Typically, HNI clients are busy people. They do not have the time and energy to manage my finances, hence I entrust it to a wealth manager. Typically, he is travelling about 15-20 days a month, and does not have the time to track his finances. But such a casual attitude to your portfolio could invite trouble.
Often HNIs find the process for offline investing cumbersome. They have to fill up forms and sign cheques, which then have to be collected by the relationship manager and subsequently lodged with the AMC or mutual fund. Many a time, such HNIs would be travelling or are too busy with their day-to-day work to take care of these transactions. Hence, they end up signing blank forms, or even blank cheques, in anticipation of a future transaction. If the market moves down as they anticipated, they telephonically inform their relationship manager to do the necessary transaction. Do not sign blank instruction slips or blank letter of instructions. In the past, there have been cases where blank instruction slips have been misused by relationship managers. As an investor, you should be involved in your portfolio.
Often investors tell their relationship manager to buy and sell stocks, since they are busy in their work, trusting them. Depository participants and brokers give you SMS alerts. So, whenever shares move in and out of your account, you get an SMS alert. Most big brokerages today give you a web login. Even if as an HNI you are busy and travelling across the globe, whenever you get time, log on to the web and check your statements. Any inconsistencies should be pointed out immediately.
At the end of every month, investors should do simple things like reconciling their equity statement with the depository participant or the mutual fund statement with the registrar. He suggests HNIs have a monthly meeting with their relationship manager, in which they should also reconcile their holdings. Another way, in which HNIs can derisk themselves from their broker in the case of equities, is appoint a custodian. While portfolio management services (PMS) providers are mandated to have a custodian for assets above . 500 crore, there is no custodian mandated for wealth management despite the assets running into thousands of crores. While the broker merely buys and sells stocks for you, the trade settlement is done by the custodian. So, this acts as a double check. When you buy shares, the custodian, on your behalf, makes two payments — one to the exchange for the shares bought and second to the broker for his brokerage charges.
HNIs need to take control of their wealth and go through their transaction statements at least once a month. Ultimately, it's your personal wealth, you have worked hard to earn it, take some time off to grow and preserve it as well.
CHECK LIST
• Question your relationship manager when he asks for a signature. Do not sign blank documents, forms or cheques or things that you do not understand
• Signing a power of attorney that grants broad authority is very much like signing a blank check — so make sure you understand the laws that apply to the document
• Do not invest in Ponzi schemes or schemes that promise you a very high return
• Stay in tune with your asset allocation
• Understand that products like real estate funds, PE funds are long-term investments with tenures of 5-7 years
• Structured products could be risky as one is not aware of the debt portfolio
