Contributed by: Rajendra Kalur, CFA, CFP, Director & CEO TrustPlutus Wealth Managers India
Wealth Management Industry globally is beset with a lot of challenges. Some of these challenges are self created as the Industry mostly ignored client needs and sacrificed prudence & discipline at the altar of greed & profits.
While many blame the low interest rates and mortgage backed derivative instruments for the global financial crisis, there is also a reason to believe that part of the crisis was due to miss allocation of capital due to poor advice.
TrustPlutus began its journey as a “child of this crisis” and wanted to establish Trust & client centricity as the essential pillars of doing business. To do this is not easy essentially in a business where there is no tangible product and where clients are reluctant to pay for advice.
While the wealth management industry is rules based, the true success of a firm lies in having the highest principles and following them. Rules alone may not be sufficient especially when the service revolves around advice.
Much of the ills that beset our industry are on account of the “conflict of interest”. We realized that while it’s impossible to completely remove the “conflict of interest”, it is quite possible to vastly mitigate this.
One way to mitigate this is by ensuring an arms length relationship between sales & advice. Having a separate Advisory team to interact with clients promotes the necessary objectivity and independence as the Team is not charged to deliver revenue. Instead the key function is to see that assets are allocated in line with the Risk bearing capacity, needs and time horizon of the clients. The Advisory Team is guided by an Independent Advisory board rather than the management to make it truly oriented to the clients.
A key disadvantage in this industry is that there is no set qualification required for setting up a business. This is quite in contrast to a legal or an accounting practice where a degree in law or accountancy is a pre-requisite. To offset this, we have encouraged our team to take up either Financial Planning / Chartered Financial Analyst or a Financial Risk Manager qualification. While such qualifications do take a toll on both time & money, we feel that it is a proper way to demonstrate our commitment to the industry and its best practices. To encourage more and more team members to take up these studies, we have established a 3 step process which includes:
- Sanctioned study leave
- Reimbursement of Exam fees
- Reimbursement of Charter / License fees
We are convinced that through these steps, we not only help in bridging the Trust Deficit between the client & advisor but also help establish Industry best practice.