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After I graduated as an engineer, I started out in search of an appropriate business for myself. I searched high and low, far and wide, but just couldn't zero in to a business that I thought was right for me. I gave up my quest for a business and signed up for an MBA program at Symbiosis, Pune. My first failure in not being able to find a good business, introduced me to the world of finance at Symbiosis - and I knew I had finally found my calling. Finance became my chosen field, and I resolved to spurn overseas job offers and set out into a business venture in financial services in India after my MBA.
Our first foray in financial services was not financial advisory - it was an NBFC. Hexagon Credit, armed with support from leading families from Pune and Bangalore, began its journey in consumer credit in 1998. Those were heady days for consumer lending - fat margins, thin competition. But soon enough, banks started getting active in consumer lending and we started finding ourselves unable to compete with their cost of funds. If we stuck to our yields, we got poor credit quality, and if we sacrificed yields, we made no money.
I realised there was no way to compete with the big boys in a capital intensive business - the only way to compete with them is to move into a field where it is the brain and not money power that matters. My failure no 2 led me into the field of financial advisory services.
It was the early days of private sector mutual funds in India and we were one of the early adopters. I studied about mutual funds, observed international best practices and figured out that there was a large gap in the field of research oriented distribution services. Our first port of call were institutions - who really appreciated our research and gave us business on the strength of our advice.
Just when it looked like I had found my niche after all, I saw the advent of the "pass back" culture in the institutional segment. Research took a back seat, the "deal" became primary. I always saw myself as a professional, not as a pass back dealer. We lost share in the institutional segment and I realized that beyond research, to be successful in this business, you need to look for a client segment where relationships and loyalty count. My failure No 3 led me to individual investors, and away from the institutional segment.
We started with retail clients, but I soon realised that for the amount of time I ideally wanted to spend with each client in my quest to add value, the retail segment would simply be unviable. So, we migrated to the HNI segment - and have stayed with this segment ever since.
I was proud of the work we were doing, my team was very happy with the rich learning environment they got in our office. But that became a double edged sword - our wonderful training ground became a happy poaching ground for banks and large wealth managers. Employee attrition became a big irritant for me - as it disrupted client service and put a huge and ongoing load on me to keep hiring and training more and more talent.
My failure No 4 taught me the virtues of building robust client management processes, to insulate clients from employee attrition. We didn't have sophisticated CRM systems in those days - we created our own system in 2001 - which lasted us a good 10 years before we finally found a good scalable off-the-shelf product that we eventually switched to.
This failure also taught me to be market competitive in RM remuneration, and the value of going beyond remuneration into profit sharing for key members, as an effective retention strategy.
We clearly didn't see the 2008 upfront removal coming, and like everyone else, we watched helplessly as our revenues shrank. That failure to anticipate and insulate our business model galvanized us into action. We took an important call right then - its now or never to make the transition to a fee based model.
We debated internally on different fee models and on different ways of communicating to our clients. Finally what we did was not to tell our clients what we have decided, but ask our clients what we should do. We organised focus groups of our clients in our office and shared with them our dilemma. We asked them what they thought was the right thing to do. Our clients took over the meetings, discussed alternatives and finally told us to charge an AuM based fee - irrespective of asset class. We rolled out a fee model that our clients advised us to. 90% of our clients stayed with us, 10% went away. Today, around 50% of our income comes from fees and 50% from commissions. We are a SEBI registered investment advisor with separate divisions for distribution and advice.
As part of the process, we sign an agreement with our clients, and the agreement documents our deliverables very clearly. That ensures that every one of us is always on the ball, always on our toes. We have emerged with a far more robust model, after the decision to bite the bullet and commence charging fees.
No jokes - I am lazy and I am not the most disciplined person. But this failure prompted me to ensure that I create a team that functions smoothly with or without me. I value my "me time" - but for me to cherish and enjoy it, it became necessary for me to create a strong process based organisation that can run smoothly with or without me.
Some say that our team size of 15 is a bit much for the AuM we manage - which is in the region of Rs.250 crores. But I don't fret about this - my clients are well served at all times, and my firm can run independent of me. That counts a lot, in my scheme of things.
My firm is not scorching any growth charts, we are not racing ahead on AuM. Ours is a steady, organic growth. What this failure to clamber onto a high growth mode has done for me is that it has enabled me to continue to do business my way - with the values and ethics that I hold dear to me. I have never compromised on values and ethics for growth - and I sleep peacefully at night, with that knowledge.
I find myself unable to make excuses - what I think is what I say. My inability to come up with excuses has made our firm absolutely transparent. If we made a mistake, I openly acknowledge it. I remember once a client had invested a substantial amount in a liquid fund and inadvertently, we ticked the wrong option which meant higher tax on dividends. I couldn't sleep that night, I went to him next morning, wrote out a cheque for Rs.125,000 which was a big amount for me at that time, told him about our mistake, made him aware that he will be losing Rs.125,000 because of this error, apologized for the error and handed over the cheque to him. He took the cheque from me, looked at me and then tore up the cheque in front of me. Today, he is one of the biggest sources of referrals for my firm.
Yes, I have had a number of failures. Each failure taught me a valuable lesson. I learnt from my failures and have created a practice today that my clients are confident about, my team is happy working in and one that gives me a sense of satisfaction that it will continue to serve our clients beyond my time as well.
Content is prepared by Wealth Forum and should not be construed as an opinion of HDFC Mutual Fund.
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