imgbd Gamechangers : Dealing with direct

Sasti cheez mehangi pad gayi

Ashish and Manish Goel, Vista Wealth, Delhi

10th November 2015

In a nutshell

In the previous article of this series, Ashish and Manish Goel stressed the need to sell yourself correctly, to effectively combat direct plans (Click Here). But that's only one part of the process. As they say, story telling is an integral part of selling, and telling the right story at the right time is priceless.

They share 5 real life experiences in a two-part article, where clients fell for the lure of a cheaper alternative, only to repent later as they discovered, at their cost, the true value of good advice.


In the last 3 years after introduction of direct plans, we have seen a variety of customer behaviour. We have seen many clients talk to us about direct, most of them continue with us, but some decided to go direct. Now, after experiencing direct, some are coming back to us. And it is those who come back to us who reinforce our belief that we are on the right track and that client centric distributors will be able to overcome the challenge of direct plans.

Story telling is an integral part of selling and telling theright story at the right time is priceless!

In conversations with clients, we share some of these stories, in a subtle manner. In a world where media is constantly peddling the virtues of going direct, it becomes our job to reinforce our own messages on the value of good advice. We are sharing these stories here, in the Gamechangers column at Wealth Forum, for exactly the same reason. Each one of us has to do our job of reinforcing the value of good advice. Real life stories are the best way to do this, with your clients. We hope that just as we are sharing our experiences, many more distributors will come forward and share their own experiences too in this Gamechangers column, which showcase the value of good advice.

Let media continue propagating cost savings on direct plans. Lets do our bit to propagate the value of good advice. Don't let media run a one sided game that direct is good. Change the game! Direct is cheap, yes. But is cheap good? No. Media focuses on cost. We should focus on value. And value is best demonstrated by sharing real life client experiences, where they have realised that cheap is not always good and that there is considerable value to be attached to good advice.

The lure of higher returns

The first client story we want to talk about is one of our large clients. We are in the retail space, for us, his portfolio qualifies as large. He sold a property for a sizeable amount, which in one shot increased his portfolio by another 50%. He made it clear to us that this amount was intended for his daughter's marriage, and therefore he would require it somewhere between 18 -36 months later.

His entire portfolio with us (prior to this property sale) was in equity funds - he understood equities and had adequate risk appetite. However, for this tranche of money we recommended him a mix of arbitrage funds and debt funds. We considered the time horizon of 18-36 months, taxation and exit loads and therefore recommended a mix of arbitrage and debt funds. The money was invested accordingly, as recommended by us.

This was the time just after the Modi Government was elected and optimism in the market was running high. He read a lot of articles on market projections, and he invited some fund house people to his house to discuss investments. The AMC people met him and advised him that considering the market prospects, he should at least be in balanced funds and not just debt funds, and offered him direct plans in their balanced fund.

The client came to us upset, and asked us why we did not suggest balanced funds for this new tranche of money. We explained our rationale, but he had got swayed by the idea of better returns. He withdrew 50% of the amount we had invested in arbitrage and debt funds, paid the exit loads, suffered short term capital gains tax on the returns, and invested in the direct plan of the balanced fund that was recommended.

A couple of months ago, his daughter's marriage got fixed. He had to accordingly begin the process of withdrawing the money. Unfortunately for him, markets haven't done well, and when he redeemed a large chunk of his balanced fund investment, he suffered a capital loss as well as an exit load.

In the last 15 months, he suffered exit load twice, made a capital loss on his balanced fund investment, and paid short term capital gains tax on his debt fund returns. When we met him recently, he candidly agreed that he got swayed by media articles and the greed for chasing returns. He regretted that the AMC sales people were more focused on sensing a sales opportunity rather than offering him sensible advice. He acknowledged that our advice was indeed in his best interests and that he should not have got swayed. But, somewhere along the line, this episode has also left a bad feeling in him about mutual funds - which is a loss for the industry.

Vista Wealth has over 7000 clients - he is among the top 20% - an A category client for us. For a large client to have a negative feeling towards mutual funds because of an unpleasant experience, does no good to nobody.

Sasti cheez mehangi pad gayi

The second example we want to share is a case we spoke about at Wealth Forum earlier (Click Here). This is a client who we started a relationship with 10 years ago, with a SIP of Rs.1000 per month. Over the last 10 years, the monthly SIP grew to Rs.80,000 and his portfolio with us grew to over Rs. 80 lakhs. Over these 10 years, due to constant interactions with us, he became very knowledgeable and well informed. A couple of years ago, due to constant media attention on direct plans, he came to us one day and said that he wished to transfer all his AuM into direct plans because the annual savings were quite huge. He also pointed out how much more he will save in the next 10 years, if he were to shift now, as media was advising. He went ahead and transferred his assets to direct plans.

He came back to us a couple of months ago and narrated his experience after having gone direct. In end 2013 - early 2014, when there was a lot of uncertainty around election results, with fears of a hung parliament on one hand and worrisome macro economic situation in the country on the other hand, he got nervous and shifted his entire equity fund portfolio to debt funds. When he left us, he had monthly SIPs of Rs.80,000. He had increased this to Rs.125,000 before anxiety pangs hit him, and then he not only shifted his portfolio entirely to debt, but he also stopped his SIPs. He thought it would be a better idea to invest at a better time, when markets fell.

Till date, he has not got back into equity markets, because they are higher than when he exited. His is entirely long term money, but he needlessly panicked. He has not started any SIPs yet. He has been reading and reading about market views from everywhere. He showed us research on US markets, global markets, macro situation - but after all this reading, he is confused, because the more he reads, the more opinions he gathers, and they are all different. In short, he has all the information that an analyst should have but no strategy that an investor should have.

He has long forgotten the goals we were investing regularly for, and that has been substituted in his mind by market views from across the world. Now, the paradox is that he still wants to save money by investing in direct plans, but wants advise also! We have told him clearly that he needs to make a choice - either go direct, or take advice. The issue here is that perhaps somewhere in his heart he knows he has made a mistake, but he is unwilling to accept it. And until he accepts it, we can't really move forward.

We have decided to play a patient waiting game here. There is no point rushing in now, when he is still trying to figure out what is really good for him. Once he makes up his mind, and when he finally sees the value of good advice, we will be there to support him, just as we did for so many years.

When we think of this client, we feel really sad. Here is a client we spent so many years with, educated him, got his portfolio to grow in a steady and healthy manner, and then everything goes for a toss because he decides to save money by going direct. He loses out on the hand holding we had extended for 10 years, panics unnecessarily, shuffles his portfolio, stops his SIPs, and then goes ahead and confuses himself more and more by reading views and more views from media experts. The lure of saving money through direct plans and overdose of media advice has effectively made an investor into a trader and a trader into a confused soul.

This experience really makes us worry that a combination of direct plans and media advice will only result in investors becoming traders. Who is benefitting from this?

Watch this space for more client stories next week from Ashish and Manish Goel

On a lighter note...

Here are some posters that we came across at the WF office, which we thought may be useful for advisors, to showcase the value of good advice, in a light-hearted manner


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