Skip to main content

An eye-opener for High Networth Individuals (HNIs)

The fraud case involving a Citibank employee should be an eye-opener for HNIs

HNIs should opt for SMS alerts that companies provide for any transaction taking place

For high net worth individuals (HNIs), who hire wealth managers to take investment decisions on their behalf, the alleged `400 crore-fraud by Citibank's wealth management team employee should come as a wake-up call.

With more than $1 million (`4.5 crore) of average investible assets each, HNIs are sought after by private bankers and stock brokers. Portfolio management services (PMS) offered by brokers invest in equities, and aim to give returns four five per cent ahead of their benchmark. Wealth managers or private bankers invest across asset classes. In a good year, the returns can be excellent.

Re-looking at privileges

Besides higher returns, it is the exclusivity tag attached to wealth management — having a dedicated relationship manager (RM) to service needs —which makes HNIs opt for such services. But this can be a double-edged sword, with too much information passed to an individual.

Although providing customised service is the key to winning clients, the onus of doing the due diligence on their RM is with the client. Most clients take precautions while running an identity check on the RM when they sign up. But they forget, most frauds are committed in the later years, once the clients start trusting their managers implicitly.

So, a good idea is to schedule meetings (without the RM in tow) with department heads and other officials at the wealth management company. Ideally, the seniors should be aware of products and the returns promised by the RM.

Given the amount of money an HNI invests, he/she has the right to demand a meeting with seniors at the company.

Lessen the leeway

Most HNIs empower their wealth or portfolio management companies with a power of attorney (POA). This allows the company to go ahead and invest on behalf of their clients, instead of waiting for their approval.

The POA with a portfolio services company is limited in its mandate and used for settlement of the client's shares in his DP account. In case of a private banker, since it covers a wider gamut of services provided, the POA also allows transfer of money from a client's bank account.

Most HNIs have more money than time to peruse their paperwork. Such complacence works in favour of fraudsters, who get emboldened when they are sure the client won't cross-check the paperwork.

With growing proximity, clients are prone to blindly signing cheques and expecting the RM to fill up other details. Handing over a POA with a free mandate in such cases can be potent.

Advice to HNIs:

Limit the leeway wealth managers have over your money and issue cheques to companies, not intermediaries. Any person from the wealth management firm asking you to do it should be enough to raise suspicion.

Other ways to keep track of the paperwork is by paying attention to the statement of accounts. Some firms send a statement after every transaction. Also, once a product is bought, companies issue contract notes and these should reach you within 24 hours or a maximum of two to three days. Do not depend on an individual's word for it. Rather, check with the centralised help desk of the broker, mutual fund house, insurance company and others to confirm the purchase. HNIs should opt for the SMS alerts that companies provide for any transaction that takes place.

More cross-checking

Wealth managers are meant to dispense financial advice that suits the HNI's profile, but mis-selling of products or even selling the wrong product, irrespective of the person's risk profile, is not uncommon. When managers propose schemes with lucrative returns, you need to ask the right questions. Ask for information about other investment options with similar returns. If it is an existing scheme, ask for research reports to check past performance.

Even then, depending on the size of the investments, clients must insist on meeting at least two senior officials before actually putting the money on the table.

Another point to be noted is that no regulatory body endorses any individual scheme. If it is still done, as in the Citibank fraud where the employee showed an alleged Securities and Exchange Board of India endorsement of an investment product to win over clients, it takes only a few minutes to check this on the official website.

Pedigree wealth managers?

Choosing the right wealth management firm also requires some study. According to a head of a wealth management firm, It's frightening because the latest Citibank fraud that has come to light shows that even a big name is no guarantee to protect your money against human greed. How safe an HNI's money is will depend on how vigilant the HNI is.

Popular posts from this blog

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...

Birla Sun Life Mutual Fund Launches Birla Sun Life NIFTY ETF

Birla Sun Life has launched a new fund namely, Birla Sun Life Nifty ETF, an open ended exchange traded fund. The new fund will be open for subscription from 4th July to 18th July 2011, at an offer price of Rs 10 per unit. The investment objective of the scheme is to generate returns that closely correspond to the total returns of securities as represented by S&P CNX Nifty, subject to tracking errors. No exit load will be charged under the scheme. The performance of the scheme will be benchmarked against S&P CNX Nifty and will be managed by Satyabrata Mohanty.   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   1) DSP BlackRock Mutual Funds: http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html   2) Reliance Mutual Funds: http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html   3) Birla Sunlife Mutual Funds: http://prajnacapital.blogspot.com/2011/...

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...

Mutual Fund Reivew: Birla Sun Life Asset Allocation Conservative

Birla Sun Life Asset Allocation Conservative has numbers on its side to prove its credibility… Don't be surprised to find this Fund of Funds ( FoF ) in our recommendations. It has earned its place. And despite the difference in the structure of the product, there is no arguing with the numbers.   Of the total 6 years of its existence, the fund has been among the top 10 funds in its category in four of them. Last year it put up an average show and the only year it underperformed its peers was in 2008.   One aspect to look at when investing in an FoF is the expense ratio. The expense ratio of an FoF is capped at a lower limit of 0.75 per cent (2.50% for an actively managed fund). However, the FoF not only has its own expense (though lower) but even the expense ratio of the fund it is investing into. Fortunately, the fund manager takes that into account. "Expense is one of the important criteria used for fund selection and is the main reason for our investment in BSL Ind...

Short-Term Investment Options in Mutual Funds

Mutual funds offer liquid funds and ultra short term funds in the debt category, which are suitable for short investment periods. Ultra short-term funds were earlier known as liquid plus funds. Liquid funds invest in money market instruments with a maturity of 91 days or less. However, there are no such restrictions for ultra short-term funds. Who should invest in these? These are open-ended schemes. Investors with a short investment horizon or with surplus cash and low risk appetite should look at these. These could include corporate as well as retail investors. Those interested in staying invested for less than 15 days can opt for liquid funds. Retail investors who want to remain invested for two-four months, can look at ultra short-term funds. The short duration for both liquid and ultra short-term funds shields them from any interest rate volatility.   What kind of returns do they offer? In terms of an investment period less than 15 days, these funds are comparable to a ba...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now