imgbd Gamechangers: Dealing with direct

3 stories that showcase the value of good advice

Gajendra Kothari, Etica Wealth Management, Mumbai

1st December 2015

In a nutshell

Etica Wealth represents India's new age financial advisory business: young and dynamic team, tech savvy, media savvy, highly focused on delivering lasting value to clients, and very successful in a highly competitive and increasingly regulated environment. Gajendra today heads a 15 member team that serves over 300 families across Mumbai, Delhi and Assam, with an AuM of over Rs.120 crores. His mantra for dealing with direct plans is simple: keep learning, keep teaching, keep adding value to your clients, and they will always be with you. Gajendra shares his strategies that help him win and retain clients in the mass-affluent as well as HNI segments, and also takes us through 3 live client stories that underscore that everyone actually needs good advice - even successful financial services experts.


Set expectations correctly, at the outset

I think the key to dealing effectively with competition from direct plans is to set expectations correctly at the outset of the relationship. In our initial years, most of our prospects came through our education seminars that we have been regularly conducting. After going through a 3-4 hour session where we explain how to create wealth in a simple and disciplined manner, and the role we play in helping investors achieve this, prospects are very happy with the proposition. When they sit with us for a detailed understanding of our proposition, prior to signing up as clients, they are generally quite impressed with the breadth and depth of the offering, and usually ask us upfront how much our services will cost them. Clients see value in the proposition and are therefore ready to actually pay a fee for the service. We take them through our schedule of fees for different transactions and activities, and they sign up for this before we commence a relationship. The question of direct plans therefore doesn't really feature in our discussions with them. I suppose this is primarily because we ensure that we demonstrate the value proposition adequately, before they come on board as clients.

These days, a large part of our new clients come through referrals from satisfied clients. Here again, we rarely encounter conversations around direct plans. Client who refer are happy with our advice and service, and we take these referred prospects through the proposition in some detail, which gives them a lot more insight into how we will serve them in the years ahead. Each such meeting lasts 2-3 hours. Here again, the key in my view, is to describe the value proposition appropriately at the outset and set expectations correctly upfront. If you do this and you are genuinely adding value, my experience suggests that clients will be happy to pay you for the service, rather than asking you about cheaper alternatives like direct plans.

Become the master planner for your top clients

For the top 10% of our clients, we ensure that we create a comprehensive financial plan for them. This gives them and us a 360 degree view of their entire financial picture, consolidated across all sources. This gives us an opportunity to become their master planner - we take care of everything from funds to insurance to wills to even banking interface. This develops a much closer relationship with these big clients, much beyond just mutual funds. When your relationship extends across all financial products and services, it automatically reduces the urge to consider cheaper alternatives for one product within the bouquet. Clients take a holistic view of your services, and don't then look at individual products.

Three client stories

1. Senior AMC professional

I know there is a general belief that all AMC senior executives would have gone direct - after all, they understand mutual funds very well, they don't need an advisor's handholding. We are in fact privileged to be advisors to some prominent senior AMC executives. Recently, one such senior executive who was in the midst of a job change, actually had a 4 hour meeting with us where we discussed threadbare implications of this career move on his financial plan. Its only when he was satisfied that his plan will not be destabilized in any way, that he gave the green signal to his career move. This is a gentleman who had all his investments in direct plans earlier, but then decided to consolidate everything with us. He told us that while he certainly knew enough about products and markets, he found sometimes his own biases impacting his investment decisions, and saw value in leaving his personal finances in the hands of an unbiased professional. For us, the fact that he chose to review his financial plan before giving a green signal to his career move, was a big validation of the value that we add in our clients' financial lives.

2. Successful investment banker

We recently met a prospect who was referred to us. He is a senior investment banker, has worked with some of the biggest investment banks in India for over 20 years, and knows most of the CIOs of fund houses on a first name basis - they are all his friends. He has a 15 crore portfolio, and was initially reluctant to meet us, because he thought he didn't really need an advisor. He anyway met us, and the meeting lasted over 2 hours. During our discussions, I made a simple point to him - I said, "Sir, if you have so many parameters to evaluate an investment option, you are needlessly complicating your life, and actually reducing the wealth creation potential of your portfolio." I took him through our simple, yet time tested investment philosophy and process, and showed him that there is actually a simpler and surer path to wealth creation. That got him thinking, and we went to the next stage of discussing his portfolio in detail. We saw that his portfolio had 30 different MF schemes, it had too much debt for his risk profile, he had way too much money lying idle in his savings bank account, and the overall portfolio lacked a structure and a plan. After all our deliberations, he has now decided to come on board as a client and entrust us with his portfolio. He is fully aware of the existence of direct plans, and he is not only coming on board, but has also seen and agreed to our fee structure. Of course, he has bluntly told us to expect tough questions from him on all our recommendations, but he clearly sees value in professional help in structuring and guiding his portfolio, despite the fact that he himself is a market participant.

3. Our largest client

Our largest client has a portfolio of around Rs. 15 crores with us. We advise on around 70% of his portfolio and he has another advisor for the balance 30%. Our share has been growing steadily in his overall portfolio. With the other advisor, I understand there is some form of a pass back arrangement on commissions. With us, there is of course no passback. We don't charge him a fee, given the size of the portfolio. One day, there was a large article in ET featuring direct plans and showcasing how much money you can save by going direct. He had kept a cutting of this article, and showed it to me the next time we met. After showing it, he actually tore up the article and told me, "Gajendra, I am not leaving you." This is a client we have spent a huge amount of time on, educating him on simple wealth creation strategies, and helping him stay focused on what really matters for the portfolio, and avoid distractions from what does not matter. He reads 5 newspapers every day - he is very well informed. Yet, he says he enjoys meeting us as every time he interacts with us, he learns something new, he gets some new insights. What this incident underscores for me as an advisor is the importance of keeping on learning and keeping on teaching. We cannot afford to stop either. Keep learning, keep teaching, keep adding value - and your clients will always remain with you.

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