The Telegraph
Since 1st March, 1999
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Enter the portfolio adviser

If you don’t know who you are, the stock market is an expensive place to find out”

George Goodman

Savitri Guha, a young successful interior designer, discovered the truth of this aphorism much to her chagrin.

Years of toil had finally started paying off and Dame Fortune seemed to be on her side, except for a niggling bit from the past. We will come to this later.

Her business as an independent professional designing offices and homes had reached a stage when she could afford to politely turn away some prospective clients.

But one problem continues to dog her. Her investments have not kept pace with her professional success. Being young and successful, she wants somebody to manage her investments.

She tried to invest on her own, but lost heavily in the process. She tried her hand at mutual funds but the returns till recently were average. She needed someone to manage her money. Someone trustworthy and dependable!

It was then that she discovered a small tribe of financial intermediaries who offer Portfolio Management Services (PMS) to prospective clients like her who prefer customised investment plans. PMS is still nascent in India.

Though the concept is fast picking up, very few are aware of it. Gul Tekchandani, chief investment officer (CIO) of Sun F&C, says it is still in the “embryonic stage waiting to explode”.

Opportunities afforded by people like Savitri have forced investment firms to sit up and take notice.

“Our services are based on absolute returns,” says Hrishi Modi, associate vice-president at ASKRJ Wealth Management Portfolio Services, which is a premier portfolio management services firm led by Bharat Shah and foreign investment advisory firm Raymond James.

Bharat Shah was responsible for managing the assets of $ 1.2 billion as CIO of a leading mutual fund in India. Private firms like ASKRJ focus on well-heeled investors.

But there are others sniffing at this big opportunity. Hrishi estimates the PMS market at Rs 4000-5000 crore, and “we haven’t even scratched the surface”.

“Getting corporates to invest would be the next big opportunity,” Hrishi adds.

But for now, the focus is on the retail investors. While portfolio advisory services are not regulated by Sebi, portfolio management services are mandated under the eagle eye of the market regulator.

UTI Asset Management Company, the largest asset manager in India, hopes to enter the ring. If the firm gets in on the act, it will be able to garner a lot of clients through tailor-made schemes because of the enormous reach it enjoys.

While UTI is firming up plans, there are arms of several bulge bracket stock brokerages offering portfolio advisory services in India. To wit: Motilal Oswal, Prabhudhar Liladher, DSP Merrill Lynch, Parag Parikh and J M Morgan Stanley Direct.

Then there are affiliates of asset management companies like Franklin Templeton and ICICI Prudential who have in place offerings to manage an investor’s portfolio.

There are two kinds of services they offer: investment advisory and portfolio management.

Advisory services give recommendations and the investor has to use his discretion to act on them.

Portfolio advisory services offer stock recommendations to clients for a fixed fee. The client — and not the broker — is in total control of the shares and the money. The client will act on the advice of the portfolio manager.

Some portfolio advisers offer one-time advice as well. A client can take his entire portfolio to the investment adviser and ask him to rejig it if he feels the returns aren’t good enough. After trawling the list, the adviser recommends changes in the investment portfolio for a one-time fee.

But investors like Savitri find it difficult to act on the advice of portfolio advisers. Her work takes up most of her time and energy, leaving little time for anything else. What people like her need is a portfolio management service outfit that is willing to shoulder the responsibility.

A portfolio management service like ASKRJ Wealth Management Services claims to have outperformed markets, indices and mutual funds consistently. But some of them have a high entry barrier. An investor should be ready to stump up almost Rs 1 crore for their services, but some haggling could persuade them to bring down the service charge.

Portfolio advisers like Parag Parikh Financial Advisory Services even take clients for as little as Rs 5-10 lakh.

Selecting a good PMS firm is the most difficult part of the exercise. Check out how many booms and busts the adviser has experienced, says Gul Tekchandani. What he means is that like old wine, even portfolio managers mature by age. “Never trust your money with a greenhorn,” warns Gul.

Hrishi concurs. He says one ought to check out the past experience and client references to find out how dependable a PMS firm is.

Gul sees red when investment firms promise mind-boggling returns to the prospective client. Stay away from these guys. Gul knows. After all he has spent more than 17-18 years in the stock markets.

After fixing the quantum of funds to be invested, what you have to do is issue a limited power of attorney in favour of the investment firm. It is the duty of the firm to handle all the little details of investment, including receipts for filing returns, depositing shares in your demat account and keeping you posted regularly on the progress of your investments.

What you get are absolute returns. After drawing your risk appetite, firms like ASK RJ give a choice of two schemes: a growth portfolio or a dividend yield portfolio. The growth portfolio is for investors with an appetite for greater risks in the hope of reaping better returns, if the strategy pays off.

“We interact with our clients to understand and also help them define their investment goals,” says Hrishi.

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