Hrishikesh Parandekar ,CEO, Karvy Private Wealth spoke with Abhay Rao of the Financial Express about the wealth management business, the industry in India, what the rich want and what is needed to boost this advisory segment. Excerpts:
•Why the sudden decision to diversify from broking towards wealth management right now?
There are a couple of reasons for doing this. Firstly, this is not a sudden move but an organised effort of the Karvy Group, to over time move away from a purely transaction-oriented business to an advisory one. For the last four or five years we have been planning and trying to move towards financial advice and wealth management, and, while it may not have taken off earlier, it has been our endeavour to move towards the area of giving advice, selling products, be it mutual funds or insurance. We are into IPO’s as well and are moving away from just being a brokerage. We also do commodities, and are expanding our reach. So, the aspiration to be seen more as an advisor has been there for a while and we believe there is a fundamental shift in the market place that will continue to get even more rapid. So, all we are doing at this point is a logical next step to try and get it all together, especially for the HNI space. We want to call this a focussed effort called private wealth. It’s not an overnight decision.
•Since this is a more focussed effort in the HNI space, are you targeting new clients or do you have an existing customer base already?
We are targeting a combination of clients. We do have a fairly large client base across our depositary and brokerage arms. We do have a fairly large number of relationships, but they are served more on a product by product basis. We will do a combination of what will be up scaling of existing clients to a more advisory platform, as well as try to acquire a lot of new clients to bring on the wealth management platform.
•How does the wealth management business fit in strategically with the rest of the services Karvy offers?
We started out with a couple of existing businesses. We had a private client business, which like a lot of other broking firms is predominantly a broking business in commodities, exchanges, equities for HNI’s. We also have a small financial planning business, which was mainly focussed on professionals. Our move and strategy has been quickly scaled up by the acquisition of Park Financial Advisors, which has been a big financial planning and wealth management firm, which has given us some high quality people as well as clients and assets, which are all on board. So the strategy going forward is to at least segment it within ourselves and try and come up with three clear distinct segments. These segments being, at the lower end of the wealth chain is what we call high net worth individuals or HNIs if you like, is mainly focussed on salaried individuals, people with a steady income who are trying to meet a set of goals in their life in the short-term, medium term and long term. This forms one part of the financial planning and it spans from Rs 10 lakh to Rs 2 crore worth of financial assets to manage, not income, but assets. The Rs 2 crore to Rs 100 crore segment is now what most of the core wealth managers will go after, whether it is foreign or Indian, and, this is a segment that is much more driven by investment strategy, asset allocation, creating investment plans and is usually the ultra high net worth individuals (UHNIs). This would entail also looking for different products like structured products, alternative investments and the likes. The Rs 100 crore-plus segment, which is predominantly business owners, is something we believe is one of the most underserved sectors. People go and serve them the same way they serve everybody else. I believe there is a concept called family office, which is very prevalent as a different order of service for very wealthy families. We are trying to introduce a focus on this Rs 100 crore-plus segment. We do not just want to focus on an asset advisory basis, so it’s not just another cute name for doing advice on a bundle of assets. It is more about helping families think through as to what is their mission. What do they stand for, what kind of legacy do they want to leave, how they think about succession planning are areas which are more important. It is about how do you think about philanthropy and basically how do you feel about things that propagate wealth, and mainly how do you best manage your assets. Those are broadly the different segments we will be targeting. Outwardly, we are very diverse, we are focussed on targeting people such as retirees as a segment. They have very unique needs having retired, or say self employed professionals v/s salaried professionals, or even small business owners, which will have their own unique needs we’ll try to manage. That’s why are we are trying to go about it in a very segmented fashion.
•How many wealth managers would you have in your team?
I would reserve judgment on a particular number. However, we are currently present in eight cities through our broking and financial planning businesses and, we are looking to take high quality financial advice to beyond the obvious candidates and cities. We are looking to get to 20-25 cities over the next few years, which would be tier 2 and tier 3 cities as well.
It is going to be different for each different segment. The scaling model, which will decide how many managers are required for each client and segment of clients will depend on the needs of each client. So, in the family office space we would expect there to be one person who will be the face of Karvy private wealth and he will have no more than three to five clients, with a team supporting him. In the middle or UHNI segment we would like to team up people. So one person will face the client and one will do more service-related jobs and these managers will have more like 20-30 clients. In the HNI segment we will most likely centralise a lot of intelligence, however, still managing to customise it according to individual needs when required, and at this level a manager may have anywhere between 30-50 clients. The key here is the kind of people, quality of training and centralised information backing them up.
•How come you decided to go into specific wealth management? Is it because of a market opportunity you spotted?
Wealth management broadly speaking is a big opportunity. Everyone recognises the fact that it is a trillion dollar plus industry or Rs 60 lakh crore and most of it are with people in the Rs 10 lakh-plus asset class category. This is also growing and hence the opportunity is very much there. We believe that advice is going to be the future and the transactory business needs to migrate to platforms and not just people. We have been fortunate to build a team and this has been propelling us.
•What will differentiate your firm from other wealth management firms?
We have a pretty strong starting pace in the sense of the brand, reach and a strong operating platform. We also know whom to approach and already have started of with a lot of latent assets and information, which we have collected over the last 25 years through our various platforms, and this is not true for a lot of other players entering the market. This is a good starting point. The differentiation is going to be at a micro strategy level. Are we going to have a completely different approach? Probably not. It is true that this is still a very nascent industry. What I would like to do personally, is use stuff and transfer things we have learnt from the West out here so as to not go through the same hassles. For example, the notion of saying we will build a capability around high quality money management, which is related to mutual funds and PMS’s is common. However, the ability to build third party investing consulting is something we have seen evolve over time in the West, but it is something which will happen way quicker here. At the end of the day, this business has very little strategic differentiation. It is more meaningful micro level differentiation and high quality performance and execution.
•Are there any areas you feel where people have blundered, where you feel you can better?
For a fairly new industry, we have already seen some booms and busts. Some firms have built up quickly and some have tanked. I want to get away from the equity bias. So when the markets are good, business is good and when it’s bad, business is bad. This is easier said than done and one way to do this is to give advice based on solid research and two is to have high quality people. It may not sound like a lot but these will make a difference and we want to get this right. We want to build over the long term. This is a patient business and we will go about it that way. I would like to be innovative and take some product ideas from the West.
•After the recent phase India has seen, people are way more skeptical about taking advice from anyone and investing. How do you plan to overcome these barriers?
Most firms offer people the same thing that everyone else does. While yes, there is a broader amount of skepticism and while some quarters feel wealth management is a dirty word, we have found that if you put the right resources, plans and expertise in front of people and not just try to get to their assets and are genuinely trying to help families sort their issues, people are open. I would be happy to have a small niche and high quality business and we have found a decent amount of receptivity.
•What do you feel are investors in the country looking for at the moment? The equity markets have see-sawed and debt markets went through a major boom, so now where would you advice people to focus?
The right answer to this is independence. Every client has a unique set of circumstances and situations. What is often ignored is that a lot of business owners who are wealthy are already sitting on a large amount of equity like risk and this is often not factored into when you give advice to these people. Therefore, to tell them to go take equity risks in a big way is potentially wrong. What people are looking for, I feel, is not to get sold something, or some product only. This is as a lot of people have been burnt before due to this. Also, people want to be sure that there are no conflicts of interest. There are cases where the products pay people and hence the latent or active motivation to sell a particular product is high and people do not like this lack of transparency. People are starting to recognise that this is a problem. Clients at the end of the day want help to achieve what they want with a set amount of money. I would like to give product neutral advice as that is what I feel people are looking for. We have had decent receptivity so far to this.