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WF: What prompted you to move out of an AMC job and set up a financial advisory business, especially in these rather challenging times?
Gajendra: In 2004 I joined UTI Asset Management Company from campus and I was posted at the Juhu Branch of UTI Mutual Fund and this was my first brush with investors. At that time UTI was undergoing a rough patch and a lot of US 64 redemptions were coming. As I was there at the counter, I interacted with many HNI investors bringing reams of papers, with anger, anxiety, frustration at having lost a lot of money. I realized that these HNIs really had no clue about the products and yet had invested a lot of money in them. My effort was to engage them, calm them down. Often, after some time into the conversation, they would say they have some more money to invest and would ask me my advice on what to do. I felt that I had good customer relationship skills. But at that time, I did not have my own resources, capital or work experience and so there was no point in starting on my own. In UTI, I got the opportunity to work in different departments including institutional sales, product sales as well as in UTI international operations. I was posted in UTI's London office for three years and got to know the international markets very well. I used to deal with the portfolio managers in London. I also acquired the CFA charter there thus upgrading my skills. In UK, you have to be a qualified CFA if you wanted to deal with portfolio managers.
I had by then enough experience (8 years of experience with UTI) and felt this is the time to venture into my own setup. Times in UK were not good, Indian funds were not selling well because India as a market was not attractive at that point of time. Back home, in 2007 and 2008, we saw the height of mis-selling be it ULIPs or NFOs. There was lack of quality investment advice as well and I thought it is high time that we should start something and make money for clients as well and make money for ourselves in terms of fees, which we can charge.
I come from a large Marwari family with a business background and we have got good in house talent. My brothers and I have done CFA and CFP and are CAIA charter holders (Chartered Alternate Investment Analysts - this is a specialized certification for the alternative investment industry, which is quiet nascent in India right now but very popular in the UK and US). So we decided to pool in our resources and start a venture.
My brother Virendra took the plunge and started Etica in November 2009 and I joined in August 2011 by when we already had 150 clients. Etica is actually a Spanish and Portuguese word meaning ethics. So that's how we started and it picked up really well. Right from day one we have been charging fees from our clients because they started seeing value in our offerings.
We were clear that we would never indulge in mis-selling and did not want to sell ULIPs or traditional insurance policies. Three other family members who are very experienced in this industry also joined us, as we needed more talent. Two of them were in Assam and Kolkata in the broking services business. Thus we had a lot of knowledge and wisdom in the team of 5 people and that is a very rare fit in the whole industry, as normally it is a one-person show or a partnership, which has its own risks in future.
WF: Why did you decide to specialize in the mass-affluent segment - the 5 lakh to 50-lakh bracket? Isn't this a segment that sees the maximum competition from banks?
Gajendra: In fact the answer lies within the question itself. The challenge itself was an opportunity for us. In the sense these were the customers to whom products were sold wrongly. Most of them had 10 or 12 ULIPs or traditional policies and the entire portfolio was skewed towards those policies. Many of them had their portfolios filled with NFOs and infrastructure funds. They had realized that they were mis sold to and became our immediate clients and through them we got further references from their network.
This is one segment, which normally has only one advisor per investor. HNIs in the bracket of Rs 50 lakhs - Rs. 5 crore or more normally have 3 to 4 advisors. The chances of mis-selling there is rare because the client can get a variety of information and can cross check. But this Rs.5 lakh to Rs.50 lakh segment does not have much time to cross check and deal with many advisors. So that was a sweet spot for us and they are willing to pay the fees. They are not demanding or egocentric like many of the large HNIs. This is also an easy segment to break in and 8 out of 10 times, we crack the deal with the client in the first meeting, which makes it very productive. When I say crack the deal, I mean by the time the meeting is done, we are sure we have made a positive impression and will be able to convert the client.
WF: What is the value proposition that you offer and how do you think it is different from what wealth management units of banks offer?
Gajendra: I follow the KISS approach -Keep it simple stupid. There are three things on which we always advise our clients and that will cover 80% of the financial planning. We start with term insurance. If the client does not have it, we ask him to go for online term insurance. We give him 4 or 5 quotes on brands that he is comfortable with and we charge 50% of the premium as our one time advisory fees that includes advising which is the right insurance for him, what is the right cover, helping them fill the form correctly to avoid settlement issues later on, making sure all the disclosures are given correctly in the form and helping him get the policy.
Clients are very risk averse and their biggest worry is when they are not there tomorrow, how difficult will it be for the nominee to claim the amount. When the client is filling information online, we ensure that the correct information is filled in which is of utmost importance. We also assure him that we will ensure that the nominee gets the sum assured. Clients don't mind paying a one time fee to secure this peace of mind. And besides, there is a recurring annual saving they benefit from every year, because of having bought the policy online.
Next is health insurance. If he does not have health insurance we get him the health insurance.
The third aspect is goal based planning. In goal based planning our focus is more on goals rather than comprehensive financial planning. This serves the purpose as most people have two or three common goals -Education for their Children, Marriage of their Children and Retirement. Our approach is to advise them to invest their money in certain investment avenues for certain tenure either via SIPs or lump sum amount and show them the expected returns.
WF: What is the current size of your business in terms of client base and AuM?
Gajendra: We are catering to around 320 families. We have a large retail base in Assam and Kolkata. Typically in one family, three members will be investors/clients. The amount from each member might be small but numbers add up. In Mumbai it is volume based, and the value per ticket relationship is higher. Roughly our AUM is Rs. 52 crores across all assets. Within that we have about Rs. 35 crores in mutual funds, the rest is FDs, stocks, e-gold and e-silver.
WF: Is your customer proposition in Assam and Kolkata sharply different from what you offer in Mumbai?
Gajendra: You are right. In Assam and Kolkata almost all our clients are Marwari family customers and they have a completely different mindset altogether but the good part is that we have been able to charge fees to almost all of them even though in Assam and Kolkata, the rebate culture is very high.
WF: New client acquisition has been a big challenge in the last 2 years, with investor sentiment towards financial assets hitting new lows. How did you go about acquiring so many new clients in this period, especially since your firm is also a new player in the business?
Gajendra: Our investor awareness seminars are our biggest USP. I have conducted seminars for more than 3000 people. There is an instant connect with the people as we get feedback that this is exactly what they had come for. We hit at the core issues without too much jargon. In the presentations I give examples of my investments, my family's investments and people are able to relate to them. For example, I tell them that the day my daughter was born; I started an SIP of Rs.10000 for her education and marriage. Today after about 3 years, I have Rs. 4-5 lakhs accumulated in her account. Now this is very interesting for them and that gives us lot of mileage.
We have done 4 to 5 events in Assam in Rotary clubs, colleges and schools. For example, we had a four-hour event in Assam without any food/drink breaks and there were 500 people who had come for it including 100 ladies. We educated people about investing for the family. We did one or two huge specialized events in Kolkata for 200 Marwari business families. We told them that we want their money to work as hard for them as they work to earn it. We explained that it is better not to put all eggs in one basket and it is important to diversify investments, to ensure that all capital is not lost, should their business see a downturn. The example on investing for marriages also works well with Marwari families. There is typically a lot of money spent on a Marwari wedding.
They really appreciated the event and that gave us good branding and connection with them.
We are running a Rs. 20 lakh SIP book and most of this is from Assam and Kolkata.
Having said that, 80% of our assets are from Mumbai and we do seminars there as well. Mumbai is where ticket sizes are much higher, affluence levels are much higher. We have done a lot of seminars at Housing societies and clubs. BSE has invited us to give seminars as well. We do seminars for corporate groups as well.
WF: You have an active media presence, which undoubtedly helps you in business development. What are some of the strategies that you adopted to cultivate and maintain a media profile? What are the pluses and minuses of maintaining a strong media profile?
Gajendra: We conducted one seminar for a team of journalists from channels like CNBC, NDTV, Indian Express and Doordarshan. Their personal finances were not exactly in good shape as they have ULIPs etc. in their portfolio. Their knowledge of the finer details on investments and insurance was also not very high. Now people from CNBC, Indian Express, Dow Jones and Doordarshan call us and ask us our view on many topical matters. From another event, a correspondent from Business Standard was impressed and started calling on a regular basis for comments on the personal finance industry and we started appearing in the Business Standard, Times of India and Economic Times. It is a small industry so once you are there, people take note and you start receiving calls from other people as well.
So maintaining a strong media profile helps sometimes. For example I wrote one article for Times of India and next day I got a call from a DIG Inspector from Nagpur asking me to help him in planning his finances and he is our client for over 2 years now. I have a database of 3000 people from the seminars and I send them one good article on personal finance on a weekly basis. If this article gets published somewhere, we share the reference with these people which adds to the brand credibility. We are noted well in the industry for the two years we have spent here. We also go to a lot of events and attend a lot of seminars and conferences. I believe at the end of the day this is all about human capital the more you attend these things the more you learn.
WF: How has your experience been over the last 2 years as an entrepreneur? What are some of your biggest learnings in this new role?
Gajendra: First of all I wish I had come earlier. In fact my suggestion is that there is huge talent available in the Asset Management Industry space but people fear to come on this side as they are not sure how the initial two or three years would look like. As we had a joint family, we could take the plunge. It has been an incredible experience so far because my passion was to meet people. Now as an entrepreneur it gives me more freedom to do that.
The biggest learning is that in this industry, knowledge is supreme and you should always be one step up the curve above your clients. The client should feel that you have knowledge about everything. For example, a client of mine is in the shipping industry and before meeting him for the first time, I did some research on the shipping industry, merchant navy etc. and he was amazed to see the kind of information I had. This becomes an icebreaker and you can easily enter into his comfort zone and then the business happens automatically.
Another big learning is technology. Technology can shape up our landscape in the next five years. Most of my clients are in their 30s, 40s and 50s. Many of them are not used to credit cards or debit cards and in online term insurance you have to pay compulsorily via debit and credit cards. I teach them how to make payments. I show them apps that can be downloaded in smart phones to manage finances better. Whenever I meet my clients, they see my mobile and try to learn what apps have I downloaded and this is amazing as the focus shifts from investments to all other factors of life as well.
The other learning is to have processes in place. Tomorrow if we grow to a 50 member team or a 100 member team, we will need to have processes in place else it will be difficult. We use technology now to manage things systematically.
WF: Is there some readymade software that you use or have you custom developed something for Etica?
Gajendra: We are using a few things now. We are planning to tie up with Next Advisors. I am not sure when the MF Utility will come but it will at least give us flexibility to do transactions at all places and particularly for the NRI segment.
We are getting another product for goal based planning. Right now, most of the SIPs stop, as people don't see returns in 2-3 years time frames. We are encouraging a complete shift from a returns based discussion to a goal-based discussion. When we talk to clients, we can show them that the goal for example is 10 years down the line and now only 20% of the goal is completed and so we should not be worried about the returns now as if it is a good product, it will deliver returns provided you stay the course. All our SIPs are perpetual SIPs except for 1%-2% of them and so that way stoppages and leakages are very much minimal. The goal based tracking utility will further enhance this focus.
WF: What is your take on EUIN and product suitability responsibility that distributors have been asked to take on?
Gajendra: I have a very different take on this one and you may not agree, but I believe this is all a kind of eyewash. How many cancellations or suspensions of license have you really seen from AMFI or any other regulatory body in the last 5-6 years? Do we not know that in this industry a lot of pass back and other malpractices also happen but there are not too many enforcements?
Coming to EUIN, the relationship managers are targeted. But the relationship mangers are not really responsible for mis-selling : the target pressure, which is the root cause of mis-selling comes from the top - from the senior management of companies and banks. The sales targets are determined at the top and are drilled down to the last mile.
EUIN will not solve the problem. The best suggestion I would give which I saw in UK was name and shame the entity that mis-sells a product. For example, HSBC Bank in UK mis-sold some pension products - they were fined over £10 million and it was all over in the press. This is a huge deterrent to all other players in the industry. So the name and shame policy will help.
A few years back, when the Citibank fraud happened, had SEBI and RBI barred their license to sell any third party products for two years, it would have sent a strong signal to all players in the market. But there was no action.
WF: How do you view the Registered Investment Advisor (RIA) regulations? Is this something that Etica will be keen to take up or would you rather wait and watch before committing to any decisive action?
Gajendra: I always believe that the proof of the pudding is in the eating. If my clients are happy with the way I am serving them and if I am getting references from my clients, I think that is the biggest laurel I can get. I don't need to advertise that I am a SEBI registered advisor and so I am the best. It will help but we are already using our processes to the next level, and so even if these regulations are on today we are one up above the curve.
We are open to it, but we want to wait and watch because as things stand right now many things are ambiguous. We are not in a hurry, we are doing good business so we will wait for about six months to one year and see how things shape up.
If tomorrow SEBI starts advertising in the newspapers that retail investors should deal only with registered investment advisors, then people may ask for it. We would then perhaps look at it. But till then we will try to follow the processes SEBI had laid down in our own way.
WF: Where do you see Etica Wealth 5 years from today and what do you see as your key growth drivers?
Gajendra: I clearly see a huge potential for the future. Competition is not an issue - the market is vast and untapped - even in a city like Mumbai. In the area that we are operating from - Andheri West - there are five top end good advisors around us in the same locality - and yet, in the last 3 years I have bumped into only 1 customer who was with one of these advisors and I told him to continue with them - which means 99% market is still left for me. So I think there is a tremendous potential out there.
Leveraging technology will be required to scale up. Going forward we would work to partner on a sub broker model with like-minded people. If they share the same vision they can tie up with Etica as a partner and grow the business together.
The other big area that I am looking at is the NRI space. My dream is that, five years down the line I should be should be traveling to ten different countries to meet my clients all across. In terms of numbers, five years down the line, we are at least expecting to grow to Rs.180 crores AUM from the mutual fund space, and have a well-diversified business by clients and products.
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