Very high returns have never been sustainable in the long run

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‘People still prefer piracy to paying for world ci...

: •Raj Majumder, CEO, iMetanoia Financial Services

How is the wealth management market in India faring currently?

In India, it is only the sentiment that is affected. In terms of fundamentals, there seems to be no perceptible diminution. India is going through a cyclical downturn and not a structural one that the US is. This is important to understand because it has a direct bearing on investment decisions. Investors have to get used to 15% returns, which are terrific by global standards and not the 30-60% returns that they have seen lately. There is high demand for people looking to make sense of the market and being guided on what to do next. Therefore, there is a stronger demand currently for customised advice, as advisors who were talking up stocks don’t know how to fix the problems they have got their clients into. There is a very welcome return to fundamentals, which means that if you do your homework well, there is very low probability of losing money with an 18-month investment horizon.

What are the areas investors are concerned about or skeptical on?

At the height of the bull market, financial services firms began to look at themselves at a ’sales-force-for-hire’, this has had a strong impact on the people they hire and consequently the kind of advice that is being delivered. Now that the focus is back on empirical evidence to structure portfolios and balance risk, most of them are ill-prepared for the task.

What are the norms or practices that Sebi asks wealth managers to follow? Is there anything that investors should be careful about ?

Wealth management in India is in the nascent stages, where the norms of practice are getting developed. There is a body that is working to formalise some of these, including certification. In the absence of widely held norms for practice in this industry the instances of double-dealing are high. Things that customers should be looking out for:

• How are you being compensated (It is perfectly polite to ask this question and imperative to you getting the right service) Free can be very expensive for the client.

• Having financial manufacturers compensate the advisor means that he would recommend products with the highest commissions and churn the portfolio to increase his returns.

• The client gets stuck with high operating expenses and taxes.

• Give me specific reasons for churning the portfolio.