Wealth Management: Is your Wealth In Good Hands
Sachin Shah, Fund Manager, Emkay Investment Managers Ltd, shares some cautions and advice on how to select the right wealth managers.
Portfolio Management Services (PMS) have now gone through a full life-cycle of business. The service, which became very popular in their hey-days from 2005-2007, have gone through considerable amount of consolidation in the last five to six years since 2008-2009. Quite a few portfolio managers have surrendered the SEBI licenses and for many of them PMS is no more the focus area of their business operations. Quite a few investors have also exited from PMS. It is my belief that one of the reasons for investor disappointment is linked to miss-selling (like many other financial products) of PMS to wrong profile of investors. PMS is typically for HNI families and large Corporate investors, whereas in the years of 2005-2007, many Portfolio Managers offered the products to retail investors with an investment of just around Rs 5 lakhs (the earlier SEBI limit, the new limit is minimum Rs 25 lakhs), thereby completely defeating the real
purpose of offering personalised and customised service to large investors. Perhaps, it is recommended that PMS should be offered to investors having potential to invest at least Rs 1 crore with each of the portfolio managers they are having accounts. Only than the Portfolio Managers will be able to scale-up the business and at the same time offer personalised customised services to the clients (investors).
Services on Offer
Under SEBI registered PMS license, portfolio managers can offer three kinds of services Discretionary (with the portfolio manager) PMS, Non-Discretionary PMS and Advisory PMS.
Most of the portfolio managers have a few strategies running across Discretionary and Non-Discretionary portfolios. The clients (investors) are offered the options of investing in various strategies, depending on their profile (risk appetite, age curve, return expectations, goals to be achieved in time frame, etc).
The Advisory PMS is something not explored (offered) by many portfolio managers. This can potentially be a highly value-added offering for large family offices / corporate treasuries / FIIs (sub FIIs) / large wealth managers / large retail brokers etc. Under Advisory PMS, the portfolio managers offer non-binding advice to clients and the custody of the assets are also not with portfolio managers, unlike in discretionary and non-discretionary PMS, where assets (DMAT and Bank accounts are under the custody of portfolio managers).
For Family Business
Advisory PMS is best suited for large family offices / corporate treasuries looking to increase their allocations in equities. Due to confidentiality reasons, large family offices and corporate treasuries would like to have under their control the custody of the assets. But they would need the expert advice on picking of stocks / sectors for investing thru direct equities and build the portfolio from their family wealth. Typically, it is expected that family offices / corporate treasuries would allocate Rs 25 crores to Rs 100 crores+ in equities, and portfolio managers would design highly customized portfolio keeping in background the profile and goals of the family offices and corporate treasuries. This is where the Portfolio Management Services converges in to Personalised Managed Services.
FIIs looking to allocate in Indian equities can also take the expertise of local portfolio managers, instead
setting-up a full-fledged desks and incurring heavy fixed expenditure for India allocations.
For Large Family Offices and Family Offices, there are multiple advantages of investing through Advisory PMS, Highly Personalized and Customised Portfolio Building, keeping in background the profile and time-specific goals of client. Under Advisory Portfolio, the portfolio managers could be given the mandate of Absolute Returns (preservation of capital) v/s the mutual funds where the only mandate is to outperform the benchmark indices. For large family offices / corporate treasuries, primary objectives is Absolute Returns and Preservation of Capital v/s mutual funds where investing is largely for relative returns. For large family offices and Corporate treasuries it is about building portfolios with blue-chip because having strong franchise value and enjoy the compounding effect of the wealth creation and long-term capital gains. This is very difficult in mutual funds, particularly with the kind of churnratios they have, trying to play the flavour of the markets on fortnightly basis. The reporting and MIS of portfolios is done on daily basis v/s quarterly disclosure of portfolio holdings in mutual funds. Highly competitive fees and performance linked fees, unlike in mutual funds where investors have to shell out a fixed fee in the range of 2% (irrespective of performance); portfolio managers would charge lower fixed fees and also offer options to pay in-line with performance of the portfolio. Portfolio managers could be incentivised to deliver Risk–Adjusted Returns unlike in mutual funds where sometimes fund managers take high (undue) risks to beat benchmark indices. Overall under Advisory PMS, a lot can be control / designed for Family Offices / Corporate Treasuries with the benefit of advice from Experts for achieving performances.
Sachin Shah Fund Manager, Emkay Investment Managers Ltd,