6th Aug 2011

WF : What brought you into the financial advisory profession? Weren't you nervous of starting off an advisory business from a conservative small town like Tezpur?

Pallav : I belong to a small town of Tezpur in Assam, my family being into trading business, running a departmental store. Being from a Marwadi Business family, it was deemed that I would get into business very early, but that was not the case and I was pushed into studies and was sent to the capital city of Guwahati from where I did my graduation and started my CA course. After graduation i went to Mumbai and cleared my CA( Inter ), did my internship from Deloitte and an executive program in Investment Management from SPJIMR. Two years in Mumbai were an eye-opener, I got to know how corporates work, and being in the financial capital, I could not stay away from the capital markets. I was hooked to stocks and I saw real time how people made and lost money.

I came back home for a break in the summers of 2005 before I could appear for my CA final examinations. This 1 month changed everything. I never went back, dropped my CA. I saw a huge opportunity, people were investing tons and tons of money into fixed deposits and post office. I found that there was practically no financial advisor in Tezpur. I actually saw that as a huge opportunity rather than as a difficult market. What worked for us was the timing of when we started our business. In 2005 - 06, markets were taking off, equities started giving handsome returns.

I started as an advisory role on equites for a few investors and charged on profits and I made a fortune. I never started this as a stock broking business - I rather started it as an equity advisory business, where we would get a share in profits if we beat agreed benchmarks on a periodic basis.

Slowly I took up mutual funds, first as a sub broker and then my own ARN. We used to sell a lot of Car Loans and Personal Loans. The business was good and from there I never looked back. I started building a team and also took up selling health insurance, motor insurance and fire insurance seriously. I named my company as Brand New Day, it was unique because I thought somebody has to show these people how investment has to be looked into.

WF : How has your journey progessed over the last 5 years in this profession?

Pallav : In March, 2007 I started a small office in Guwahati and recruited a few people. In June, 2009 we took the big step of starting our Kolkata office. Now we are a 40 people team put together in all three locations. We are very strong in General Insurance, our annual retail premium being approx 3 Cr. which is significant in north east. We are the only member of MCX in north east and have a very strong commodities trading desk in Kolkata and Guwahati. Our major revenues come from advisory in equities. We recommend stocks to our investors and charge on profits.

Our mutual fund business has grown over the last 3 years. We are now at approx 60 Crs and of which approx 50% is in equities and we have a mix of HNI and Retail clients. We have a focus on investment awareness programs and investment seminars, here we are not focussed on what returns we get from these programs, but making people aware of how to go about investments. We are only into term insurance and try and sell SIPs with term insurance.

Now, the reason i am saying we is because in 2007 i was joined by Mudit Bansal who is also a CA ( inter ) and i got him into this business and he also ended up not appearing for his CA ( finals ). Mudit takes care of the entire operations in Guwahati and Tezpur.

WF: Your business straddles a wide breadth of products - from equities and commodities to health and fire insurance. Isn't it difficult to manage such a diverse product suite?

Pallav : Yes, I agree it can be a challenge. But frankly, we started with a small number of clients and we kept expanding our product suite as and when we saw parts of our clients' portfolios unserviced or serviced poorly. When we started general insurance, there was practically no competition from any private sector players - it was just the big government owned insurance companies who were present, and their service was poor. We saw an opportunity and got into that business. As our business grew, we recruited experienced people for each vertical - now we have different heads for each vertical.

WF: What is the market like for mutual funds and equities in Tezpur?

Pallav : Tezpur is a retail oriented market but it has a big Army and Air force base. So when I initially started of, I had lot of Army and Air force clients. And people in Army and Air force have good surpluses which they want to invest. Their savings from their salaries are quite substantial as many of their requirements are taken care of. They are quite equity driven.

WF: What makes the Army and Air Force servicemen more equity oriented than civilians?

Pallav : Their work timings are from 7 am to 3 pm. After 3 pm, they have a lot of free time. They live in camps, where in your free time, one of the best ways to utilize that time is net surfing. They are quite well educated. They have good surpluses. So, very often, they spend a lot of time surfing the net, during research on equities and investment opportunities.

WF: How did you manage to penetrate the Guwahati market, which is much bigger than Tezpur?

Pallav : Guwahati is a much bigger market, it has many financial advisors, many distributors, lot more competition. We looked for an opportunity to spot under-serviced clients. In 2006, a lot of money that was stuck in the US-64 scheme matured and was available for redeployment. We seized that opportunity and began recommending equities to those investors. We got a lot of conversions by focusing on that set of investors. We started a small office in Guwahati in 2007 and then grew it as our business grew.

WF: Deciding to set up an office in Kolkata was a huge and bold move…..

Pallav : Our strategy was similar - to look for under-serviced or poorly serviced investors. We started off with a couple of Kolkata based clients who we acquired in Guwahati itself. But in 2009, when the market again started picking up after the 2008 crash, there were many investors who had burned their fingers. Many HNIs had a very bad experience with bank RMs rampantly churning their portfolios. We started acquiring these dis-satisfied clients and offered them superior service and a profit share based advisory service. That worked very well for us. Kolkata is a huge market, we are still a new player - but it is not very difficult to win business if you have a motto which puts the client's interest first.

That has been our motto from day 1. We never got into ULIPs though the commissions were huge. We have always looked at the clients interest first - and are able to pick up business wherever our competition did not put their clients interest above their own.

WF: What is your overall AuM and which are your biggest markets at present?

Pallav : Our MF AuM is around Rs.65 crores. The direct equity book we advise on is bigger - around Rs. 110 crores. For us today, Guwahati is the largest contributor to AuM, followed by Tezpur, followed by Kolkata. We are still new in Kolkata, but our business there is growing quite well.

WF: For your equity advisory business, you have a profit sharing model in place. How has that held up through the recent ups and downs in the market?

Pallav : Our experience has been very good. We are very transparent. We evaluate portfolios either on a half yearly or a quarterly basis - as the client desires. We agree the benchmark - Nifty or Sensex that we have to beat in order for the profit share to kick in. If we exceed the benchmark, we get a percentage of the total profit - typically 15% of profits. If there is a loss, we don't charge until the client comes into a profit.

WF: Lets say in the first six months, there is a 10% loss in the portfolio then obviously you don't charge anything. But he has lost 10%. In the second six months lets say you made 40% and the benchmark was up 25%. So you made a excess return of 15%. How would you charge in the second period?

Pallav : We will charge 15% of 30% and not 15% of 40% because the client has to first make money only then will we make money.

WF: Do you charge a similar fee on mutual funds also?

Pallav : There is no profit sharing on mutual funds. We charge 0.5% p.a. on AuM on a trailing basis. We started this charge in 2008, before the ban on entry loads. We have stuck to that model right through.

WF: You serve a wide spectrum of clients - from servicemen in Tezpur to HNIs in Kolkata. What are client expectations from their advisor - do they vary very much based on geography or net worth?

Pallav : Expectations from advisors in large markets like Kolkata is actually not very high - mainly because many HNIs are deeply disillusioned with the way their portfolios have been mis-managed by bank RMs. Somebody who offers good service and honest advice is quite welcome.

But I must say, when you first posed this question to me, I kept thinking a lot - what do clients really want from us? I decided to ask some of my big clients and the answers that came through were a revelation : more than 70% of clients said that what they expected was a 10%-11% after tax return on their corpus. The rest were looking for a 15% after tax return. In terms of service, while all obviously expect good service, there was nothing in particular that was a common feature across all. I must say, knowing what my clients expect out of us is a big load off my back - thanks for asking the question.

WF: You have charted a remarkable journey so far - from a small town like Tezpur in Assam to a big metro like Kolkata. What are the biggest challenges you faced when converting your model to a multi-city operation?

Pallav : The biggest challenge is manpower. You can expand as much as you want but the biggest problem in any business now is manpower. You must have quality manpower to back you and your growth plans. One of the big reasons to move to Kolkata was the search for quality manpower. When we first set up our Kolkata office, it was more of an infrastructure office - we get good quality trained research analysts, dealers etc in Kolkata. Only later did we start marketing for business in Kolkata. I have been lucky - I have a team with me that has been with me from day 1. They never left me, touchwood. Having a good quality team is a big plus when you want to expand.