The Citibank fraud has brought the role of a relationship manager in banks and other financial institutions into sharp focus. Shivraj Puri, a relationship manager at Citibank’s Gurgaon branch, has been arrested for allegedly duping some high net worth individuals into investing their money in bogus schemes. Puri was found to be channelling money from the investors into other accounts.

The fraud raises an obvious question: can you trust your relationship manager (RM), who is supposed to be a person dedicated to managing your funds, informing and counselling you on investment schemes, and maintaining the relationship between you and his bank or firm?

Not always.

Take Pinaki Dasgupta (name changed on request). The professor at a Calcutta college curses the day he reposed his trust in his relationship manager at the brokerage firm where he has his demat account. Dasgupta says he has incurred losses of up to a couple of lakh of rupees, thanks to the aggressive intra-day trading (buying and selling shares in a day) he was advised to opt for.

“The RM I was dealing with told me that he was a master of online trading and that there were no hidden risks,” he says. “When I started suffering consistent losses, I realised that he had traded in untrustworthy stocks on my behalf.”

Despite Dasgupta’s repeated complaints to the brokerage firm’s top management, no action was taken against the RM. “They just said that he had left his job at the firm,” he says. It’s difficult for him to take legal action as the firm has kept the records of his consent for trading, but not of their advice — or “coaxing”, as Dasgupta puts it — when it came to buying dud shares.

Most banks or brokerage firms appoint relationship managers for various categories of individuals — very high income, high income and so on — who hold accounts with them, though they usually specify a minimum qualifying point in terms of deposits or income.

But cases of misconduct on the part of RMs are not uncommon. Like Dasgupta, Mahindra, a young techie with an information technology company in Pune, says he was cheated of Rs 4.5 lakh by his brokerage firm, thanks to the aggressive intra-day trading advised by his relationship manager. “That’s a huge amount for an ordinary person like me. The relationship manager wiped out all my money in months,” he says.

Of course, one cannot always blame relationship managers alone for the losses one suffers in the stock market. A senior banker with a leading global bank says on condition of anonymity that it would be unfair to single out RMs for everything that goes awry for an account holder. “Markets can confound even the soundest advisor. So consumers need to be on their guard.”

Still, insiders do admit that misguidance or even mis-selling on the part of RMs in banks and elsewhere is a matter of concern. “It’s a fact that the job of a relationship manager is target driven. In other words, his performance depends on the amount of business he brings to the bank,” says Saikat Kumar, senior director at an international asset management house based in Luxembourg. The problem is compounded by the fact that most relationship managers are not really qualified to perform their investment advice function efficiently, says Kumar. “Even a few years ago, only experts would have functioned as relationship managers in Indian banks. But now the position has been sort of degraded — people who are not really experts in the field are being recruited as relationship managers for retail or consumer banking in India. And they are making a lot of mistakes.”

Although it did not specifically cover relationship management in financial institutions, KPMG’s India Fraud Survey 2010 observes a rise in the incidence of white collar fraud in Indian firms. It says, “Whatever be the type of fraud, internal parties (management and non-management employees) tend to have a higher propensity to commit fraudulent activities than external parties (customer, vendor or business associate)”.

Says Deepankar Sanwalka, head, forensic, KPMG India, “The need of the hour is for organisations to realise the importance of putting effective internal control mechanisms in place. Banks need to be more vigilant since their reputation can be at stake.”

Agrees Arup Dutta, managing consultant, PricewaterhouseCoopers (PWC), “Formal training, service guidelines, ethics and codes of conduct for relationship managers will improve relationship management. Every firm should have risk management practices reviewing the deals entered into by relationship managers to protect the consumer’s interests.”

Some point out that most banks have enough checks and balances in place already. Stresses Amitava Guha, former senior banker at the State Bank of India and currently the non-executive chairman of South Indian Bank, “All banks train their relationship managers in handling clients. After all, this is a highly specialised job where you need to maintain the confidentiality of financial transactions.” Adds a senior official of a private bank who refuses to be named, “All banks have strict guidelines on how a relationship manager should liaise with clients. Adequate training is also given. But if some one gives blank cheques to RMs blindly, no law can redeem that.”

But how can consumers seek redress if they are deliberately misguided by their RMs? “Any aggression, if seen as an ‘undue influence’ or ‘coercion’, is a punishable offence under the Indian Contract Act,” says Dutta of PWC. “Banks and brokerage firms should also clearly specify the mechanism available to an ordinary person in such a situation so that he or she can approach higher authorities and seek redress for the grievance.”

But most important of all, consumers have to be careful about where they are putting their money. “An individual should use his or her prudence while taking any decision based on the advice given by a relationship manager. We advise a person to exercise the ‘stop, think, get the advice vetted by a proper investment advisor, and then proceed’ approach. In other words, one should bear in mind the fact that there’s a significant difference between a financial advisor or counsellor and a relationship manager, who mainly acts as a conduit,” says Dutta.

But Dasgupta is not convinced. “That doesn’t mean banks should unleash dishonest or ill-informed relationship managers on the unsuspecting public,” he exclaims.

Are the authorities listening?

Dos & Don’ts

Ask for as much information as possible about the financial products being offered by RMs

Remember your RM may not always be an expert in fund management

Seek the advice of senior investment advisors if you are not convinced about a product

Never sign any blank document or cheque without reading the fine print

If you feel that your RM is pushing you into aggressive trading or you are suffering persistent losses, inform senior officials of the firm immediately.