``With the advent of gold ETFs, things did change a bit but still there is a long way to go as investors at large are not yet ready to accept gold in the demat form,`` says Virendra Kothari, Managing Director (MD), Etica Wealth Management in an interview with Yogita Khatri of myiris.com.
> Could you share with us your background, and what led you to set up Etica Wealth Management? What kind of business model you are currently operating in?
I started my career with Anand Rathi and later joined Sharekhan and worked there for 3 years as a financial advisor. During this period, I realized that the whole distribution industry works on the `Monthly / Quarterly Business Target` model which I believe is not in sync with client`s interest. The entire model is flawed as the so called relationship managers whose main task is to advise the client in an independent manner are nothing but product peddlers in the garb of financial advisors. During that time I was also pursuing certified financial planner (CFP), chartered alternative investment analyst (CAIA) and charter financial analyst (CFA) programs to strengthen my skills and concepts so that I gain complete understanding of the kind of financial instruments I am advising to my clients.
The whole idea of starting up Etica Wealth Management came from the inspiration from the legendary US investor Thomas Rowe Price Jr who once said `What is good for the client is also good for the firm`. With this thought in mind, an idea called `Etica` was born. Infact the word `etica` comes from Spanish / Portuguese language and means ethics. This one word describes our whole business model and is the USP of our venture. Our approach is simply that we advise only those actions/products which we implement for our own portfolio. If our client wins, we win too and today this philosophy is the fulcrum of our business model.
We offer 360 degree financial planning & wealth management solutions to our clients and we charge fee for these services.
> What is the profile of clients that you mange today? What`s the size of the business if you define it by AUM and by number of clients and product mix?
We are currently managing around 140 clients having a mix of 60% retail and 40% HNIs. We are also focusing on clients from smaller towns and cities as we strongly believe they are being left out or shortchanged. Currently our AUM is little above 3 crores and 60% of our business focus is on mutual funds which I believe is a wonderful vehicle for wealth creation in the long term and within this space our prime focus is on SIPs / STPs spanning a 10 year or more time horizon. The rest 40% is divided equally between direct equity investments and other fixed income instruments (fixed deposits / infrastructure bonds etc).
> What is your view on direction of interest rates in India over the course of 2011, and which debt mutual fund products/categories would you recommend for retail investors in the current context and why?
The Reserve Bank of India (RBI) is in completely catch-22 situation the way it has been juggling with the tough job of managing both inflation and growth. Inflation has been a major worry for both government as well as the central bank. RBI has already raised the projection of March`11 inflation from 6% to 8% in last few policy meets. With eight straight rate hikes done by RBI and tight liquidity condition prevailing in the market, the short term rates have inched up quite a bit in last few months. With regard to my views for rest of 2011, I believe that RBI may hike the rates by a maximum of 50 basis points (bps) and then rates would start tapering down. So I believe investors looking to park short term surplus for fixed horizon should look at fixed maturity plans (FMPs) offered by mutual funds. However if investor is not certain of time horizon he can look at ultra short term and short term funds. For long term debt funds, we would advise investors to wait and watch for some more time as 10 year G-Sec yield has been trading in a narrow zone for quite some time. Investors can look at investing in a staggered manner in long tenure debt fund, if yield on 10 year G-Sec crosses 8.25% to 8.5% levels.
> Exchange traded funds (ETFs) are not so popular amongst retail investors in India. Of late, Kotak, Reliance, etc have launched gold ETFs. How good is this particular concept according to you and would you advise it?
It is true that ETFs are not very popular because the Indian markets are not very efficient and active fund manager are able to generate alpha for the investors. ETFs are a wonderful vehicle to start investing in the capital markets and since they are less expensive it`s really suitable to the retail investors. But we have observed that there is disconnect here. The brokers / sub-brokers are focused largely on direct equity clients and they would prod them to pick stocks directly based on some `Tip` rather than buying the ETFs and pocket more brokerage in the process by way of frequent churning. On the other end, the mutual fund agents do not have any incentive on advising ETFs to their clients as they would not get any commission and since most of them do not have equity terminal, they are better off advising them to invest in diversified equity funds.
With the advent of gold ETFs, things did change a bit but still there is a long way to go as investors at large are not yet ready to accept gold in the demat form and moreover many MF investors do not have demat accounts, hence the recent launches by Reliance and Kotak MF are wonderful steps in this direction since investor can now take SIP route for investment which is one of the best way to create wealth over long term and they don`t need to have demat account also. We personally are not very bullish on gold as an asset class as compared to equity, however if clients insists then we may look on a case to case basis.
> Equity-linked savings schemes (ELSSs) are the best initiators for investments in mutual funds but after the direct taxes code (DTC) they will become irrelevant. How is it going to impact the industry? Please share your thoughts with us on same.
Though as of current draft DTC guidelines, ELSS would not avail the exemption benefit under sec 80C, however as finance minister in his budget speech has mentioned that he would place the DTC for final discussion before implementation, I am optimistic that he would give a serious thought on ELSS to continue to enjoy the current benefit. However, if the DTC is implemented the way it stands currently, I guess this is going to be the biggest setback for the Indian retail investors. Right from 2004, I personally have been investing 100% of my 80C limit into ELSS (after deducting my PF and insurance premium) and have seen spectacular returns across my investments. It will be a big blow as I guess this is the only tax saving instrument which can provide much higher inflation adjusted returns in the long term with the advantage of being the most liquid investment in its category.
In last 5 years as of December 10, ELSS as a category has seen AUM growth of 47% CAGR and currently boasts of 3% of Industry AUM and around 12% of Equity AUM. With ELSS category removed from the benefit exemption, there would not be further inflow in this category which would be huge damper for the industry. Moreover ELSS help lots of first time investor to mutual fund and with the benefits being taken away, new investors would continue to shy away from Mutual Funds.
> Financial literacy and customer education is seen as a step towards helping the common man take right investment decisions. Are you planning any initiative in this regard?
We have been very vocal about this right from beginning as we believe that the client education and understanding is the focal point of our business. We have been conducting various financial literacy workshops in Mumbai through various forums / institutions over the last 4 years. Recently we organized a large investor education workshop in the North Eastern state of Assam where more than 100 investors participated and it was a complete eye opener for them. We are scheduled to do another such event in Kolkata on April 24 wherein we are expecting around 150 participants. These workshops have been highly appreciated.
We intend to make this a regular event so we can reach out to more and more first time investors and make them financial literate. We also have one on one session for our clients and encourage them to bring their spouse / children also for such discussions.
> What are your business plans for Etica Wealth Management in the next three years?
We are very bullish on the long term prospects of Etica Wealth Management. We want to build our business bit by bit just like an SIP investment. In terms of AUM, frankly speaking we do not have any numbers in mind nor do we really want to focus on this at this point in time. Our only objective is to see as many happy and satisfied clients as possible at the end of the day. Currently we have offices in Jorhat, Kolkata and Delhi apart from our presence in Mumbai and we want to scale up gradually. In terms of manpower, we have a highly talented pool within our extended family. We are five brothers in the family with three having completed CAIA while two have done CFA & CFP and we believe that having more than 40 years of diversified experience amongst us can add a lot of value in overall client`s portfolio.
> Is there a global benchmark for planners that can be immediately applied to India?
CFP is considered as a global certified course for planners and it should certainly be considered by all wannabe financial planners as a first step towards this noble profession. Having said that I believe wealth managers need to continue upgrade themselves and should go for other advance courses like CFA which will help them gain valuable insights in the area of investment analysis and portfolio management. Both the courses strongly emphasize on the code of ethics which needs to be religiously followed by every financial professional and is the need of the hour in the wake of recent financial crisis.
> What are your views on the future of financial planning and wealth management profession in India?
Indian financial market is flooded with wide gamut of products be it mutual funds, NSC, PPF , fixed deposits, government securities, Equities, ULIPs etc each clamoring for the share of your wallet. But this is acting as a double edge sword as you have plenty of options and choosing the right product which suits your profile is becoming immensely difficult for a common man. And that is where the financial planner comes into picture. Just the way, a doctor takes care of your health, a financial planner takes care of your wealth and today wealth is as important as health if not more.
The financial literacy is at a nascent stage in India and is growing. There is a long way to go and a lot to do in this area. With organization like FPSB at helm and more and more young people taking up this profession, I certainly see this as a sunrise industry for the next 20 years or so.
> Any additional thoughts, comments you would like to address?
I would like to take this opportunity through Myiris platform to thank C B Bhave, former SEBI chairman for his crusade against the malpractices happening in the financial markets. He came as a messiah for the retail investors and has cleaned up a lot of mess during his short but very active tenure and because of his bold steps; I can proudly say that today we are having one of the finest capital market regulations in the world. I am eager to see a day in my life when other developed markets will take a cue from our regulators and our path breaking initiatives will be discussed as case studies at the Ivy Leagues schools across the world.
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