Today in AI post, we want to share our honest & candid discussion with a senior investment banker based in Mumbai. I know him since school days and is one of my good friends. He started his career in sales, later got promoted to wealth manager. A career spanning more than two decades in which he worked in both Indian and MNC financial institutions. So, he has seen working style of different institutions across various levels.
Over last weeks, we met a few times and during the course of our multiple free-flowing discussions, we discussed about various practices in Indian banking industry. Our banking industry is greedy which is a known fact. There are a lot of malpractices but the extent or breadth of it is rather discomforting. I want to share this information with our ace readers so at least you are aware of it. With my friend’s permission, below are the excerpts from our conversation which can be very insightful for innocent investors. For privacy reasons, I will refer him as Mr Banker in this article.
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AI: How did you start your career in banking and any initial struggles in this industry?
Mr Banker: You know, being Sindhi, I was always looking forward to a career which involves people interaction. Working in back office made me sick. So after my MBA, I carefully picked sales role to get an exposure with clients. I got a placement offer from a big private Indian Bank and was posted in Delhi. Orientation period was fun but short-lived. Soon, I was reporting to my branch manager and was tasked to work on HNI (High Networth Individual) sales. Everyone was given a monthly target which was tracked every week. Sometimes even daily. Now Bank has got almost all products from insurance to mutual funds to stocks to loans. However, we have been specifically told to sell products that fetch more margin for the bank. These products were loans & ULIPs. I knew ULIP & endowment policies are not good for investor who wants wealth creation as they hardly give 5-7% returns. This was also contrary to what was told during orientation program. But then you hit the reality, as your boss wants to sell products which can help him achieve his target quicker. Selling more of ULIPs was one of them. Most of us were new joiners and not yet as greedy as senior bankers. With time, we had to give in to the system and engage in selling ULIPs to people who visit our branch for advise. I was not a saint, just a common man who has to earn his bread and butter like everyone else. However on my part, I tried to explain good products to my clients as well but will put a little more emphasis on ULIPs. If they were willing, I have to sell ULIP anyways.
AI: That must have been tough, knowing you are selling wrong products to the customer. Did you try to change the bank?
Mr Banker: Yes, I did. I joined one of the best performing private Indian bank. Its stocks were considered as bluechip and much sought after. I joined as team lead. Now, I was supposed to teach all the malpractices to my juniors. Initially, I was reluctant and got scolded from my bosses as I am not pushing my sales team enough. This Bank had a very smart system. If a HNI client performs a big outgoing transaction, the relationship manager will get system generated inquiry which he has to close with reasonable justification. For example, if you are transferring a big sum of money to some other bank, it will be questioned and considered as his fault since money is moving out of the bank. The philosophy was simple, clients money should keep on rotating within our banks since we have got all the products, why should it move to somewhere else. This gave me a lot of trouble as my team was not able to capture clients needs. Fortunately, my boss got changed. My new boss taught me a lot of things, including how to identify team’s strength and ask them to focus on their areas of strength. I found that out of 5 team members, one was not good in selling insurance but very good in selling loans & credit cards. So, I re-assigned tasks to my team mates and the results were very good. Spending some time in this bank made me good in generating AUM (Asset Under Management) and meeting my targets. My boss also taught me how to gain client’s trust and make a balance between bank’s priorities and client’s priorities. I made a good 50 clients who trusted me completely. I went some extra miles to reach this level of trust. For example, for one of my NRI client with AUM of 30 Crores with my bank, his mother lived alone in Delhi and they had three servants. Every month, I used to distribute salaries to his servants on client’s behalf in cash. His mother had to never visit the branch as I used to deliver cash to her whenever needed. So these were a few things I did going beyond my duties which earned me loyal clients.
AI: That’s interesting. But you will leave your clients if you join another bank, correct?
Mr. Banker: Not really, if a client trusts me, they will prefer to change bank because for them, service is most important. There will be a few clients who will not move with me to a new bank but most loyal clients moves with me sooner or later.
AI: Do you think this problem of mis-selling is only limited to your experience or is this industry wide?
Mr. Banker: Not only industry wide, this problem is perhaps worldwide. Root cause of mis-selling is different incentives attached to different products. Why will you sell a product with less incentive if some other products can easily help you to achieve your targets and also gives you a handsome commission. Put yourself into the shoes of a relationship manager. If every Friday, your boss is scolding you for not selling high margin products and you miss your promotions and incentives due to that, how long can one fight such situations. Either to quit the job or join the party. I am not a saint but also not as greedy as others. I don’t want to generalize as there are both good and bad people in this industry but majority of them are devils as per my experience over the past two decades. To give you an example, one day an old lady came to bank with ₹1 crore which she received after death of her husband. The branch executive (devil) sold her ULIP worth ₹75 lakhs which became ₹50 lakhs after 1 year. That old lady came back to the branch but that executive had left the bank. Courtesy to that deal, the executive got praise from cluster head and a good annual hike using which he switched jobs. This sets bad example for others to follow. I highlighted this to my managers & HRs during my discussions but nothing changes. Apparently, it fell to deaf ears. Whenever I think of a devil, I imagine this executive’s face.
AI: Ok, apart from ULIPS, do you also get incentives to sell mutual funds?
Mr. Banker: Of course as I told you, every products has some commission more or less. With clients who are aware of ULIP’s drawback, we sell them mutual funds to retain their relationship with us. The commission on mutual funds varies depending on fund house. There is an interesting story on it. For few of my clients, I asked them to invest in DSP Small Cap fund in the middle of small cap market rally. By Dec 2017, one of the balance fund increased agent commission on it. I switched all funds from small cap to balanced fund. Within a month, market crashed but my clients were able to book good gains. I switched their fund purely due to commission but they felt I made this switch based on my market understanding. Now, they are my clients for life.
AI: Any incidents where you pulled your client back last minute?
Mr. Banker: Once there was a rich lady investor to whom I sold debt mutual funds to the tunes of crores. What happens nowadays is that people try their hand at google to research on their own. This lady soon learned that direct mutual funds gives better returns than regular (agent based) mutual funds. Just before three years, she switched her debt mutual funds to direct scheme. I immediately got to know as my commission stopped. She was also not picking calls. All signs of a lost client. But since she switched funds before 3 years, it became short term gains and she got a huge bill from income tax. After getting panicked, she called me and I told her that you should have consulted your agent before committing any transaction. I could have saved you from this tax burden. I told her that don’t trust everything on internet. We don’t take medicines from internet research, we still take a doctor’s advice before taking medicines. This logic closed the discussion in my favor. So this is how fortunately, I got my client back.
AI: Do you guys do your own research, how do you recommend a fund or stock?
Mr. Banker: Honestly, we are working 8 to 8 just like any other normal people. There is no time to do research like you guys do. Whatever little time we get, we also surf moneycontrol like everyone. Most of the time, we are given reports from our research teams or bosses. We are given clear instruction to sell such & such products which is invariably based on how much commission that products is going to gives us back. So even if I do research, I will be able to apply only to my portfolio.
AI: So what should a person do in such hostile banking environment?
Mr. Banker: Trust no one, especially the big brands who sell multiple products. You think from their perspective and it will be very easy to make a decision if this person is trustworthy or not? Find out if your adviser is independent or affiliated to any financial institutions. Never go to banks, they will sell you their own products. Broker houses will want you to do a lot of transactions for brokerage gains. LIC agent will only sell LIC policy so on & so forth. There are a very few advisers who are truly independent.
AI: Like AI? An independent adviser with no affiliations what so ever.
Mr. Banker: Yes, like AI. However there is problem in your business model. Indian investors don’t like to pay upfront fee for advice. For them, advice should be free. I can very easily convert your client to my client if I talk to them for 5 minutes.
AI: Really, and what will you tell them?
Mr. Banker: Easy. I will tell them why are you paying fee for just advice. Come to me I will work for such & such investment bank and will offer you world class products with no fee for advice. Here, I will not charge them any upfront advisory fee but will get lots and lots of commission which is invisible to the client. Believe me it works. As Indians, we don’t want to pay anything for advice. The fee-only independent advisory is yet to evolve in India.
AI: That is worrying but I think with trust and transparency, business models like AI will sustain despite honey tongued relationship wealth managers like you 🙂 Can you tell me, where do you park your own money?
Mr. Banker: My own money goes into equities in the form of direct mutual funds and stocks. I don’t have any loans or ULIPs. Just a term life insurance plan and company provided health insurance.
AI: Thanks for candidly sharing your experience & allowing us to post this on internet via AI post.
Mr. Banker: See it also gives me happiness that at least a few people will benefit by knowing the truth behind sales practices of big names. At least a few will be saved and I will get their blessings. Please keep the names of my employer & myself private.
AI: Rest assured of it.
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