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Describe your career before you registered as an RIA in 2013.
I started advisory practice in 2004. Obviously, the fee that I could charge was less. That was because of my own understanding of financial planning, and the nascent stage of the market at that time. So, I had a fee and commission model. Over a period of time, I developed some maturity in the financial advisory business and my fees also went up. I was also a mutual fund distributor at the time and this was supporting me financially. We had a gentlemanly understanding with the client that if I do their financial planning, they will come to me for whatever products had been recommended. And the clients were also okay because ultimately, they had to go to somebody for this.
In 2010, we moved towards the advisory model. We told our clients that we would charge a financial planning fee, make a plan and give it to them. If they wanted to come to us (for products), they’re welcome, but if they wanted to go elsewhere, it was up to them. It was not exactly a fee-only model, because at that point, the enabling products, that is commission-free products, were not available anywhere. So, maybe around 50- 60% of our clients continued to stay with us, some people chose to do it on their own or did it through certain other people. In the meantime, the advisory landscape was also undergoing a change, and anticipating these changes, we segregated the distribution business and advisory business even before the regulations came through. Now, while we had started fee-only advisory, we had not gone into direct plans because though direct plans had been introduced in 2013, the feeds were not available to the advisory community. This happened only in 2016.
So, there were two fundamental changes that happened—one on 31 December 2015 and the other on 1 January 2016. So, one, there was an enabling clause by Sebi which said that both advisory feeds and direct feeds have to be given to RIAs, and MFU (MF Utility) started offering direct plans on its advisory platform. After that we slowly started onboarding clients, and I say slowly, because there were lots of problems and lots of missing data, but by 2018, it was kind of okay. So, we decided to go the whole hog into advisory in 2018. We told all our clients that we are going to be in advisory only, and that there would be no regular products and no commission-based products. Plus, we had to convince the clients that we were going to advise them on all these things and would give them a whole set of services, and for this, we would be charging a fee. So, we were able to get more than 90% of the clients into advisory, and from that point onwards, all new clients were only via advisory and direct plans. It has scaled up fine since then.
And then in 2020, this regulation came out which had its own set of googlies. For a long time, we had wanted to convert into a corporate. So, we had formed a private limited company in 2016 itself. At that time, the individual RIA net worth requirement was raised from ₹1 lakh to ₹5 lakh. And anyway, from a regulation point of view, the 150-client criteria also came in (registration as non-individual advisor for those managing over 150 clients). So, in 2021, we corporatized our practice.
What was the industry landscape before 2013? What were the issues that consumers faced then, and has that changed?
I don’t think there is any major change in the way consumers are looking at things. The problems are still the same. People are earning money; financial awareness is not that very high. They still have goals and want to invest their money so that they can retire appropriately. The only thing is that the advisory landscape has changed significantly. So, 10-15 years ago, we had to tell some people what is financial advisory and why you should go for it. Now, people who are coming to us know precisely what we are talking about, and they also know terms like fiduciary, etc. That’s a huge change.
How have things changed over time, in terms of the kind of people who come to you, their wealth and goals or anything else?
So initially, because I was approaching people myself and those who became my clients were also referring some clients, so all kinds of people were coming.
We don’t discriminate among our clients at all. But typically, what has happened is that people who are coming to us now have a certain level of assets. Broadly speaking, ₹2-3 crore is the average asset size. Those who have much more assets also come to us. These days we are not really going and acquiring clients. Primarily, there are people who searched for us online or are referred to us by some existing client.
Has the client profile become younger? Do you see more young people from the IT sector?
Yes, we have young people also coming to us. Typically, 70% of our clients will be those nearing 40 and going up to 55 years of age.
What I understand from this is that, in the initial stages of life, people are not really focusing too much on planning. They are investing wherever they want to and they have many goals. They’re also okay spending money on vacations, vehicles, etc. At some point in time that hits them – I have not done anything, now I have a family, and I have some loans too, so I have to have a plan. That’s when people actually approach us.
How many clients do you have?
Over a period of time, we have been whittling down the clients. We have consciously taken a call to take only those clients who are suitable for an advisory practice. Once upon a time, we used to have far more clients who were suitable for our distribution practice. Since 2013 onwards, since we have been purely an advisory practice, we have gone down from 400 clients to 160.
Apart from not saving enough, what is the one common financial mistake that you see people make?
The flip side of not saving enough is expenses. So, suppose somebody is earning ₹2 lakh and their expenses are ₹1.5 lakh, then they are saving ₹50,000 a month. This ₹50,000 is 10 days’ expenses for them. For someone else, who is earning ₹80,000 and saving ₹ 40,000 a month, it means their savings are worth one month’s expenses. We have to look at everything from the point of view of how many days of expenses you can save because ultimately, for retirement, we need to see how many years of expenses do you have. The problem is people are not saving enough or rather, the expenses are too high.
What has been your proudest moment of serving a client?
There are several clients where we have made a massive impact. I’ll tell you one case. We had a client who used to work for Idea, and after it merged with Vodafone India, he was not given a great role to play in the merged entity (Vodafone Idea). The quality of work was very poor, and he was asked to work at all times. He had been with us for 8-10 years at that time itself. So, he wanted to know whether it was going to be feasible for him to leave the job. So, we ran the numbers and found that it would be possible for him to retire. But he was not willing to give up the job since he was not very sure. But at the same time, it was sapping his life itself. After talking to us for two and a half years, he finally put in his papers. And after that, he was so relieved. We are still managing his portfolio, and he says, “the kind of courage you gave me at that time, that has transformed my life".
Any regrets? Any advice given in good faith but in hindsight, you feel you should have advised differently?
So, 2008 was a very, very difficult time for all of us in the financial services industry. It was a frightening time for everyone, and somebody actually said the Sensex would go to zero.
So, at that time, three of our clients were very insistent on exiting out of equity. So, they moved to liquid funds. The problem was the market stabilized over a period of time and then it started moving up. So, we were looking back and wondering if this was a dead cat bounce. The market situation at the time was not stable at all and it could have potentially gone down further and nobody knew. So, we were kept waiting, and some of these clients entered back much later. So, the clients who just stayed put did much better 3-4 years from 2008 compared to these three clients. While the clients were panicking, I think we also panicked. Also, they were a bit pushy so in hindsight, we should have done the same thing for these clients also.
Is there any thing in the Sebi regulations that you would like to change?
One pain point which all of us are feeling is that we have to write the same gatekeeper exam again and again. This is unprecedented in India in any profession, and it is unprecedented anywhere in the world. If they want us to take a few days’ bridge course or they want us to watch a video and even give a test after that, I am okay with that. But we are not achieving anything by making that advisor go through the same gatekeeper exam. I have been doing financial planning for 18 years, now don’t ask me what is financial planning. This is not required. You should test me on something new. And if you want to tighten the continuing professional education (CPE) criteria, tighten it somewhat and make it known to all the education providers what the criteria is and let them award the CPE points based on those criteria. From our point of view, it is a business continuity risk and for the rest of my team, this is a headache.
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