Why this Mumbai-based RIA prefers to go with referrals | Mint – Mint

Before he began his own practice in 2003, Rege started out as an insurance advisor with HDFC Life. The company gave him a list of people for cold-calling (the practice of phoning somebody you do not know in order to sell them something) and one such cold call got him his first advisory client. This client has been with him ever since. This happened before market regulator Sebi’s regulations for registered investment advisors (RIAs) were enacted in 2013. Edited excerpts from an interview.

Tell us about your practice as an RIA.

From 2003 to 2008, I was an individual proprietor. In 2008, we set up a private limited company for our practice. I started as an insurance agent and simultaneously commenced distribution of mutual funds. At that time, people were asking questions pertaining to life goals, and for which they never really got an answer. They wanted to know whether they would be able to achieve certain goals in life. Most of these answers were delivered in the form of investment products earlier. That’s when I realized that these clients can be given a sort of roadmap for their goals.

The second aspect was in terms of reporting. We realized that we could come out with a simple spreadsheet where clients are able to see all their holdings in one place.

CAMS Mailback started around this time (2004). I was among the first professionals to opt for it. By 2013 though, giving a report was considered the norm. We were among the first 30 companies to get a licence from Sebi for corporate RIAs back in 2013: we are glad we took that decision early on to apply for a licence.

The global financial crisis of 2008 brought home the importance of risk profiling. Clients tend to say one thing in a risk questionnaire in a bull market and quite another in a bear market. A doctor couple from South Mumbai, in 2005, were insisting on an asset allocation with 75-25 equity debt allocation. When we got the risk profile tool in 2009 and tested them, their risk profile flipped to 80-20 in favour of debt and it has been there that way since then.

Sometimes clients want us to disregard the risk profiler. However, I’m quite strict about it—they must reflect on their answers and only then change them or accept the risk profile result, and the asset allocation should be in sync with their stated risk profile. In 2008, I attended a conference in the US, where I learned about a new planning tool that could be used to provide planning reports to clients. That brought an end to excel sheets, and I was one of the first customers of that software company when they launched in India.

What has been your proudest moment of serving a client?

Recently, one of our clients had to quit his company abruptly. We had worked for a very long time on his goals. He was about three years away from retirement. The client asked us if he can quit his job and retire immediately. We proved to him that it was possible and even today, he thanks us profusely for it.

What was the one mistake you regretted the most?

In the early days, what used to happen was that agents and advisers would promote traditional insurance policies. That time, mutual funds were just starting; everything was very new. Even my own understanding in terms of the markets and the investment options was not so great at that point of time. And when you look back, you realize that we could have maybe avoided the traditional insurance policies for some of our clients.

Your average client investment is ₹5 crore. Can ordinary people seek your advice?

Yes, we definitely look at clients who have a much lesser corpus; what we see is the need for clients to understand and prefer to educate them to opt for advisory.

We have a distribution arm as well which is open for not very evolved clients with small amounts to invest, where advisory may not be suitable. For example, it could be a gym instructor, a hotel waiter or even a small shopkeeper who come for advice. These people are the most vulnerable lot in society today and also need to be protected .

If you’re to think of the industry as a whole, what would be the threshold above which it becomes feasible for someone to go to an RIA?

More than an asset base , it should be the ability and willingness of people to pay a fee . Sometimes, it so happens that people may not yet have created an asset —the asset is a work in progress. But they have the willingness and ability to pay a fee. These two ingredients are essential to dispense an advice as an RIA.

I remember the case of a young couple who approached us. The husband was working with Bain & Co and the wife was with the human resource department of a leading company. They didn’t have significant assets: in fact, they have to pay off a big education loan, which means starting with a negative net worth. But they were willing to seek advice and pay our fees.

What is the minimum fee that you charge?

To start with, we charge a fee of about ₹1 lakh. But if we feel that the client still needs to mature, then we may lower the fee and allow them to be in the system. In such a case, we may have a fixed fee of ₹50,000 for up to two years and then hike it.