What HNIs look for in a financial advisor

Managing a high net worth individual's (HNI) account is a lucrative job for any wealth manager. After all, the stakes involved are high and the sums involved are huge.

According to the 2011 Asia Pacific Wealth report from Merrill Lynch and Capgemini, high net worth individuals' (HNIs) wealth in India grew by 22% in 2009-10 accounting to $582 billion ( 28.4 trillion). India's HNIpopulation grew to 1.53 lakh from 1.27 lakh during the same period.

Looking at this huge growth and future potential, every intermediary is keen to grab a share of this growing pie. A number of brokerages, banks or boutique firms are expanding their reach beyond the metros by entering Tier II and even Tier III cities. So how do these HNIs choose their wealth managers?

"HNI needs are very different as compared to normal investors. Besides traditional products such as equities, mutual fund and insurance, HNIs may also need business funding, or advice on succession planning or formation of a trust.

They would consider things like capability and reputation of the organisation/wealth manager, bouquet of products on offer, before selecting a wealth manager," says Sunil Mishra, CEO, Karvy Private Wealth.

Why HNI needs are different

"A general investor's first priority is tax planning, followed by child's needs and financial planning to meet goals such as buying a home or a car or an overseas holiday," says Rajev B Sharma, an independent wealth manager. Basic products such as mutual funds, bonds and insurance would often help meet these needs.

However, in the case of most HNIs, many would have met these goals and would be looking beyond these. So HNI needs could include the likes of buying a property in Dubai, buying a structured product, picking up a stake in a promising or upcoming business, funding a real estate project through debt or could be even looking at the idea of buying into a distressed asset, or writing a complex will.

"These needs are far different from investment needs of a regular retail investor. Hence, they need someone with greater depth, understanding and necessary skill sets to meet these needs," says Rajesh Saluja, MD & CEO, ASK Wealth Advisors.

Choosing an organisation

Choosing a wealth manager is not an easy task, given that the wealth management industry in India is fragmented and highly unregulated. Since all big brokerages along with private banks as well as foreign banks offer wealth management, making a choice gets that much tougher.

Given the busy schedule of most HNIs, it is important to choose someone who can devote time and attention to minute details and handle things with confidentiality. The task becomes all the more difficult since wealth management firms do not have any audited or published performance report in the public domain. Hence, HNIs have to rely on their own judgment or seek references.

Larger organisations may have an edge since they can offer in-depth research and views from the best analysts in the industry. Smaller organisations may score on account of their flexibility and ability to offer personalised service to their customers.

Organisations have different ways of classifying HNIs. Some foreign banks ask for higher threshold levels, while some banks may call you an HNI if you have 50 lakh in deposit, or a brokerage house may call you an HNI if you hold more than 10-lakh worth of stocks in your portfolio

If you have specific needs such as succession planning or overseas investing, then choose your organisation accordingly. "Go with an organisation that has a longstanding track record and one which can cater to your specific need," says Rajev B Sharma.

Alignment of interest & trust

Since most organisations link a wealth manager's incentive to the amount of revenue he generates, often the wealth manager ends up selling high-revenue products irrespective of the fact whether that product fits in the client's portfolio or not.

This could expose you to higher risk or tilt your asset allocation. "Ask questions like what is the incentive structure for the wealth manager? Is it merely on revenue achieved or also on basis of clients' asset appreciation?" suggests Sunil Mishra.

This will give you an idea whether the organisation is looking to merely increase its profits by taking you as a client or there is more to it. At the same time, also see that the fees charged or charges are reasonable and is in line with industry trends.

According to the PWC Global Private Banking Report 2011: "In wealth management, reputation is everything. It is the foundation of trust, bringing successive generations to an institution for vision and advice."

"Finally, ensure that there is alignment of interest," says AV Srikanth, executive director, Anand Rathi Wealth Managers. Essentially, this means, for the wealth manager, the clients' wealth and objectives should always come first.