Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
The Uncomfortable Truth about your Wealth Management | Manu Awasthy(Centricity WealthTech)
60 Plays9 hours ago
Manu Awasthy spent over two decades managing wealth for India's ultra-rich at Citibank, IIFL Wealth, and 360 ONE before founding Centricity WealthTech in 2022. In under three years, he has built one of India's fastest-growing wealth management platforms, crossing ₹10,000 crore in AUM, onboarding 17,000 financial advisors across 70 cities, and raising a $20 million seed round led by Lightspeed at a $125 million valuation.
In this episode, Manu breaks down why India's wealth management industry is 20 years behind e-commerce, how most PMS and AIF products fail to beat a simple index fund, and why the laziest investors consistently win. He reveals the three levels of conflict of interest hiding inside India's most prestigious wealth firms, the structural reason why every wealth manager eventually becomes an asset manager, and why he has deliberately chosen not to. He shares Centricity's contrarian B2B2C model, his risk-first founder philosophy, and his bold vision for a single-window investment platform for India's global diaspora. He shared the full story in this candid, no-holds-barred conversation with host Akshay Datt.
Here is what you will learn in this episode:
👉Why 80 to 85% of PMS and AIF products underperform a basic index fund over 15 years, and what it means for every Indian investor
👉How Manu grew Centricity WealthTech from ₹20 crore revenue in Year 1 to ₹100 crore in Year 3, with 60% recurring ARR
👉The three hidden conflicts of interest inside India's biggest wealth management firms, and how Centricity is built to eliminate all three
👉Why India's passive investing penetration is near zero compared to 55% in the US, and the massive opportunity this creates
👉How Centricity's B2B2C model is turning 17,000 mutual fund distributors into full-spectrum wealth managers across tier-2 and tier-3 India
👉Manu's risk-first operating philosophy - why he says markets and geopolitics are uncontrollable, but asset allocation always is
If you found this episode valuable, subscribe to Founder Thesis for weekly conversations with India's most ambitious founders and investors. Follow host Akshay Datt on LinkedIn and X for real-time insights, episode drops, and founder stories you won't find anywhere else.
00:00 - Manu Awasthy and Centricity WealthTech Introduction
02:52 - India's Wealth Management Industry Explained Simply
11:20 - 85% of Fund Managers Fail the Index Test
34:50 - The Conflict of Interest Destroying Wealth Firms
47:30 - Wealth Management Is 20 Years Behind E-commerce
58:40 - India's Passive Investing Gap and the Opportunity
01:08:00 - Lazy Investors Win, Here Is the Math
01:13:00 - How Centricity's B2B2C Model Scales to 60,000 Advisors
01:19:30 - The NRI Wealth Corridor, India's Biggest Untapped Market
01:39:00 - Manu's Advice for Founders, Go Slow Grow Big
01:47:55 - Risk First, the Philosophy Behind Centricity's DNA
#ManuAwasthy #CentricityWealthTech #WealthTechIndia #IndiaWealthManagement #FounderThesis #AkshayDatt #PassiveInvestingIndia #IndexFundsIndia #PMSvsIndexFund #AIFIndia #WealthManagementStartup #IndianStartups #FintechIndia #HNIInvestingIndia #B2B2CStartup #IndiaWealthTech2025 #PrivateBankingIndia #MutualFundsIndia #FinancialAdvisorIndia #WealthTechFunding #LightspeedIndia #StartupFounderIndia #IndiaFintech #UHNIIndia #WealthManagementConflictOfInterest Disclaimer: The views expressed are those of the speaker, not necessarily the channel
Recommended
Transcript
Wealth Management's Technological Lag
00:00:00
Speaker
The technology in wealth management or the engagement pattern in wealth management is 20 years behind consumer business. The role of the wealth manager is to then navigate you through those journeys. Lazy investors actually make money. The basic mantra in wealth management is first, don't lose money. Everything else is second, right? Nearly 65 to 70% of the actively managed mutual funds underperform the invests.
00:00:22
Speaker
Investors who came at that 26% and 30% return expectation post-COVID 2-2.5 years of rally are actually all are in red today. Why I find this so unique is because so few founders are working with risk in their mind all the time. Any investor who is investing into a direct quote from the lens of reducing the cost more often than not will end up...
00:00:46
Speaker
Manu Awasti is the founder of Centricity Wealth Tech. It's a platform that is looking to transform the wealth management space. In Manu's opinion, the wealth industry is still stuck in the past. The experience of investing your money to get returns on it has not kept pace with, say, ordering food. And that is what Manu is trying to fix through Centricity. Centricity has raised more than $20 million. dollars They have an AUM m of more than a billion dollars.
Understanding the Wealth Management Ecosystem
00:01:12
Speaker
In this episode, Manu tells me about how the wealth management industry operates and his take on how to disrupt it.
00:01:24
Speaker
Manu Awasthi, you are the founder of Centricity WealthTech. Welcome to the Founder Thesis podcast. Fundamentally, Centricity is a distribution business in the wealth management space. Am I correct in my understanding? yeah Assisted journey business.
00:01:42
Speaker
Okay. So help me understand wealth management, like, you know, supplier, distributor, customer, what is the pipeline like? So you are sitting between the manufacturer financial products and the buyer of financial products. Who are the manufacturers? Who are the buyers?
00:01:59
Speaker
what What does this industry look like? First of all, thank you for having me on on this podcast. ah This is the most basic and fundamental question to be addressed, and it is quite simple.
00:02:12
Speaker
there are three constituents in wealth management business. Constituent number one is the client who has a need to invest money. Then to fulfill that need, there is a manufacturer who creates that product which can fulfill that need.
00:02:29
Speaker
ah That's why there are different asset classes and there are different genre of investment strategies within asset classes, whether it is equity or or debt. And These two um sources, which is the consumer and the manufacturer, they actually build in isolation.
00:02:51
Speaker
How would a manufacturer know that an X person has a need for a particular product strategy? To connect the two and bring the right product solution to fulfill their need, there is a conduit in between, which is the distributor.
00:03:07
Speaker
Now that can happen at three levels. That can happen at a mutual fund distributor level. That can happen at an institution level like ours. And also that can happen through technology now, which has shaped up in last 10 years only in a D2C format where the consumer can directly go to ah a digital platform and fulfill the need or the requirement that he has.
00:03:29
Speaker
So that's that's how the HEARTHI framework works. take So, you know, one of my goals is if, for example, someone is applying for a job to be a wealth manager at Centricity, what would you expect him to already know? Those are the kind of things I want to kind of uncover here. So when you say a manufacturer of...
00:03:51
Speaker
products here what what are the different types of asset classes which a wealth manager i should be aware of I mean if I'm talking to a wealth manager he should know that a b c d these asset classes and some features of each asset class like who is it for etc so broadly there are four asset classes uh the most popular one is equity because obviously the return outcomes are uh highest Second asset class that is known by most of the people and understand because FD is the basic product of that asset category, which is debt.
00:04:26
Speaker
Third asset class is commodities, which has certainly gained some interest with the rising prices of gold and silver. forth And the fourth asset class is real estate. The entire investment ah journey actually for any investor of whatever scale and size it is actually revolves around between these four asset classes. So as a wealth manager, the most important thing, if you are ah evolving or evolved wealth manager, the most important thing is to know these four asset classes very well.
00:04:57
Speaker
Within equity also, there would be different flavors, right? Like a mutual fund is one flavor of equity. um Investing in a startup as an angel investor is also a flavor of equity only. what What are like the range of... yeah options here. What you are calling
Investment Strategies and Risk Management
00:05:17
Speaker
flavor is not the flavor it is a kind of investment strategies which fulfill different return expectation and each of these return expectation actually comes with a different risk profile.
00:05:31
Speaker
So what is to be decoded in wealth management is risk adjusted return. How much risk im I am taking to make what kind of a return. So again, as it is very fundamental for somebody to know the asset classes, it's equally important to know the associated risk.
00:05:51
Speaker
So specific to your question, when it when you talk about different genres of investing options, so basically equity as an asset class starts with a category called mutual fund.
00:06:05
Speaker
okay Within mutual fund, there are broadly two categories on the equity side. One is passive, which is index investing, where you are not taking a call on the fund manager.
00:06:16
Speaker
Now, it is very fundamental, very simple, and the most important category of investing into mutual fund. Then the second category is active my actively managed fund, which are managed by fund managers. We are fund managers, research companies.
00:06:34
Speaker
They buy and sell into the companies. And the objective of of investing through an actively managed fund manager is to generate an alpha over the index. So that's the composition of equity as a category on the mutual fund side.
00:06:49
Speaker
Second category is, which is gaining lot of popularity and access is your direct equity investing or eino FNO. I will not talk about because it's the outcomes of FNO is very much there in the public domain and a regulator is also taking a cognizance of it.
00:07:06
Speaker
But equity investing is all about ah have identifying the companies. And there are two ways to do it. One is self-study and the other way is to go through a registered advisors, RA as we call them, who research the company and have who purely advise. So there, because you are taking calls on companies and a smaller pool of companies, maybe 10, 20 companies, your outcomes can be much better than mutual fund, but the commensurate risk also increases.
00:07:34
Speaker
The third category is specialized category, mutual fund, direct equity, and third is specialized category, where the fund managers actually manage smaller ah pool of money, and which is then ah hosted either in a PMS format or an AIF format.
00:07:54
Speaker
ah PMS is Portfolio Management Service. so it's a Portfolio Management Service where whatever portfolio the fund manager has built for you, the securities sit into your own demand.
00:08:07
Speaker
It is not a pooled way. Mutual fund is a pooled vehicle where do you buy the units. It is one size fit all kind of a thing. PMS is more customized.
00:08:18
Speaker
Because of that customization, your, again, expectation of generating an alpha is higher. But wherever you will look for a higher alpha, usually the risk increases.
00:08:31
Speaker
AIF is almost a quasi mutual fund category, which is a pool category, but there are different share classes. And as you keep increasing your ah investment, your costs as structure and your fee structure keep changing. But it is more also boutique in nature.
00:08:46
Speaker
And there is a minimum threshold to each. So AIF usually is one crore until unless you are an accredited investor. And PMS is 50 lakhs of rupees. So these are specialized vehicles meant for a segment which is like a affluent to H&I segment and above.
00:09:02
Speaker
So this is the third category of investment. Fourth category is what you spoke about in the beginning is these are private investment of into the unlisted companies.
00:09:15
Speaker
Again, two ways to invest. Either you can choose a fund management route through an AIF as a vehicle or you can directly buy these securities.
00:09:26
Speaker
Usually companies which are have matured and have gained substantial ah prominence and who are likely to be IPO'd come in a pre-IPO market, something like an NSE or a SBI AMC, just to take a few examples.
00:09:41
Speaker
These are companies which have been there for for one decade, two decades, profitable, but you want to own them before the IPO, you can own them. Again the concentration because the the spread is not too large also defines your risk and return.
00:09:57
Speaker
But in this category while it is very sensible to be investing into these companies because these investments into these companies has also been fractionalized a lot.
00:10:08
Speaker
So you don't necessarily need to invest 50 lakhs or 20 lakhs or 1 crore of rupee. You can own these companies with 1 lakh, 2 lakh of rupees also. ah What is important to understand over here is that while these are ah matured companies, there is also a long tail of the companies which are in early stage.
00:10:27
Speaker
That is where the real risk return plays out, where the returns look very, very glamorous and people talk about it, but the mortality rate is also very, very high in there.
00:10:37
Speaker
So for every ah early stage company or ah or a series A growth stage company, the mortality rate could be anywhere between 60% to 80-90%.
00:10:48
Speaker
So that's where you have to be very careful. But yes, if the outcomes are ah in line with the expectation, they become incredible multi-vegas. You can make 4x, 5x, 10x return.
00:11:00
Speaker
So as your index funds large cap, you will expect 10% to 12% return. mid cap 13, 14, small cap 15, 16%. Equity, you will always target 18 to 20%. PMS, you will target north of 20 percentile return.
00:11:14
Speaker
When you come to actually these unlisted companies, then your return expectation is also aligned to 30, 40% CAGR return. So as your risk increases, your return probability also increases. So managing that risk and creating a balance is the job of the wealth manager in a client's portfolio.
00:11:32
Speaker
Interesting. Very interesting. How many, ah like, do they, so index fund is the benchmark, right? It is the lowest cost. It's like mirroring the index.
00:11:44
Speaker
Right, right. ah The lowest cost of, ah the fees that you pay to your wealth manager is also the cheapest in case of an index fund. And that fees keeps going Because it is passive. You are not doing active management. You are not resurging the company. So obviously the cost is relatively low lower.
00:12:01
Speaker
So, it typically do uh like say a PMS service do they beat index fund typically in India in your experience uh the data is very very it is not very encouraging I would say right so it's a public domain data anybody can google it that nearly 65 to 70 percent of the actively managed mutual funds underperform the index it's a hard reality And to our experience, because we are a digital platform and we process a lot of data, nearly a lack of crore of data we would have processed,
00:12:39
Speaker
nearly 80 to 85% of the PMSs and AIFs across genres actually underperform the index. And there are only 10 15 percentile people who are able to beat the index. That's the hardest thing. And one one has to be very cautious.
00:12:57
Speaker
Is this just about time that if you look at last three years, the data will show this, but if you look at last 10 years, then it will be... No, I'm talking about last 10-15 years. Then why why why is there still money going into these... ah No, the money will chase that because there's too much of money in the market and people have different... See, people, especially the H&Is, invest in a very structured format.
00:13:20
Speaker
So they will take exposure to passive funds also. They will have direct equity also and they will have a specialized investment vehicles also. They will use that also, PMS or AIF.
00:13:32
Speaker
The problem is that somebody who is chasing a fad, i have 2 crores of rupees as my portfolio, but because my friend who has 20 crores has invested into PMS, I will have a disproportionate allocation. What people have to understand that a particular fund can never be on the outside more than 5% of the portfolio.
00:13:52
Speaker
So for somebody to be qualified to invest into a PMS, his financial portfolio has to be minimum 50 crores, I would say, or a bare minimum 20 crores, the least.
00:14:05
Speaker
Because you don't want to have one PMS, you want to have at least four PMSs. That is where discipline and judiciousness and impartiality really comes into play. So and there are investors who actually chase high returns.
00:14:23
Speaker
The moment you will broaden your portfolio spectrum to, let's say, 60%, 70% into alternates, your failure rate will always go up. So what one has to really manage very well is that you minimize your failure rate and you you you are above the median.
00:14:42
Speaker
The moment you are able to create a portfolio which is above the median, your probability of outperforming the index will always be higher. ah It is difficult. It requires lot of of work into it, engagement of with the fund managers, understanding the client's persona, oh working around that persona and filtering the strategies for the client.
00:15:08
Speaker
And once you have invested the client's money into those strategies, A very diligent review mechanism of the investments which have been done plays a more important role. Let's say something is not evolving the way one has to. You need to know why it has not evolved. What is the current portfolio looking like? What is the prognosis of that portfolio in the future?
00:15:30
Speaker
And whether you want to take a call of hold, sell or buy more. So for every scheme that is there in the portfolio, the wealth manager should be in a position to answer the client buy, hold or sell.
00:15:45
Speaker
And okay it has to be backed by data. Help me understand what do you mean by above the median. is is Is it a scientifically calculated thing or like what does that mean above the median? It is mathematically called calculated. Scientifically, I would not say.
00:16:00
Speaker
So you your what is your basic benchmark? if See, a lot of people talk about ah risk inequity. We will lose capital. ah I have a very simple mantra for them.
00:16:12
Speaker
If you don't want to lose capital and if you have time horizon, 5 years or 10 years, don't apply your mind. Go ahead and buy the index. Because index is going to go up. Especially next 10 years are fairly safe for India as an economy. and There will be sports of 1 year bear market, 2 year bear market. That's why you need time horizon. Time horizon is very important.
00:16:33
Speaker
ah You yourself think through that when in last rolling five years or 10 years, anybody has made negative return. In fact, the returns are north of 10 percentile. And with the tax advantage, what you get, you make a above par return and superior to inflation, which you will never get it into debt as a category.
00:16:50
Speaker
So literally, you can be principally protected and safe if you do just index investing. That's the most simple and the basic thing. So the median is that whatever, without applying ah my mind, without having a fund manager into play, without even ah somebody guiding me very actively, whatever the index is giving is my base return. Because if somebody is making lesser than the index, then both the fund manager and the wealth manager are not actually justifying the cost of engagement.
Valuation, Transparency, and Industry Evolution
00:17:25
Speaker
So the median is the allocation between the three ah indexes broadly, the last, mid and the small. And very simply, if you put 33, 33, 33% and if you go by the mapping of the historical return, your blended return will be around 14%.
00:17:40
Speaker
fourteen percent Large cap offering you 11-12, mid cap offering you 13-14 and small cap 15-16. If you average it out nearly you will be close to 14%. So the median of your investment becomes 14%. Making 14-15% return you actually just need a wealth manager who can help you balance your allocation to the indexes because indexes also get ah expensive and cheaper.
00:18:04
Speaker
Today the PE of let's say large cap is 21. It's in a very fair price zone. So you should be more into large cap. Small cap is also fairly priced around 26 PE.
00:18:15
Speaker
Mid cap is still very expensive, looks very ah expensive. So this is the role of the mid cap? I think so roughly around 30ish.
00:18:24
Speaker
Okay. I just want to explain this quickly to my audience. So PE is price equity ratio. Price to earning. Price to earning ratio. Right. Price to earning. So for one rupee of earning, how much are you paying? How much premium you are paying?
00:18:38
Speaker
Right. Right. So 20 means that for every rupee of earning, by that portfolio of companies, you are paying 20 rupees, which you feel is a fair price to pay. but Because historically, if you go the best level at which the market operates and gives you an alpha.
00:18:53
Speaker
So, if the market negative, ugile let's say if it gets negative by 10%, your PE will fall to 80%. Same companies, same market in a span of, let's say, a month, if the market corrects by 10%, these businesses are not going to finish. It's not that the businesses, is but the market have discounted that.
00:19:12
Speaker
You invest at an 18 P, your same large cap return expectation will turn to be 13, 14%. You invest at a 21 P, it will become 12 to, and if you invest at 26 P, your probability of losing money is very high.
00:19:27
Speaker
in short term. Okay. So this is the role of the wealth manager. that like They should have this knowledge of ah which asset is well priced and which asset is not. This is at a very high level I am talking about. There are more elements to it as you progress. But this is something very basic for for the wealth manager to know, understand and create a structure around it. And also the client should know.
00:19:51
Speaker
And to navigate through this, believe me, SIP is the best product. Okay, because you are averaging out. Sometimes you will come in at 18 PE. At 18, you might not have the conviction to buy because there is negativity all around.
00:20:06
Speaker
But if you have a decent SIP, you will be actually buying systematically at 26 also. But SIP is also to be managed by a d wealth manager. You can increase your SIP when the markets are cheaper. You can decrease. You don't reduce the fund, but you red play with the amount. So the role of an assisted ah ah journey is is uh inevitable because this is something what a client will not be able to self-manage it very largely ah ah why will the client not be able to self-manage it because you're saying sip is the best way to do it then it's just like you know autopilot there's a very simple logic in life plays out with 80 of the people somebody who has money has not does not have time somebody who has time does not have money
00:20:51
Speaker
yeah ahead It's very fundamental. and very true' why but this is fundamental Because anybody doing a pack of rupee of SIP is actually focused in his career as an entrepreneur or as a professional.
00:21:08
Speaker
And his value of his time and output of his time is greater in terms of achieving ah ah outcomes out of what they are doing. Because it is somebody who has money has to be respected for the fact that they have done something in their life. That's where they have surplus.
00:21:25
Speaker
That is their core domain. if they If they marginalize their core domain and start doing someone else's activity, I mean, ah he they are kind of cannibalizing their own ah pool of of of capital.
00:21:41
Speaker
Very simple example. Me and you know how to drive, but why do have we have a driver? yeah We know how to cook. We have to have household help. So it's as simple as that. We know what is how to invest, but we don't have time.
00:21:54
Speaker
So let somebody else do it with me in a very regulated and a regimented manner. ah What is the cost of wealth management? So if I was to directly say, okay, I'll do 33, 33, 33% into mid cap, small cap, large cap index funds ah ah through the direct plan, I think my cost of wealth management here would be very low, right? Maybe less than ah half a percent or something like that.
00:22:21
Speaker
that yeah ah Whereas if I go with an assisted journey and have a wealth manager, how much would that cost me? And does it pay back? So I'll answer this question with the same, If a good product is expensive, always calculate the price of a bad product.
00:22:41
Speaker
It is to be identified by the client himself, first level, that what is more important to him?
00:22:52
Speaker
Is it his own time and returns on the portfolio or cost? This is a very sensitive question that you have touched upon. and Much of the play that has been done over the last 7-8 years is around cost.
00:23:09
Speaker
You tell me that through a wealth manager, would you prefer to make a 20% return at a 2% cost or a self-managed portfolio at 15% return at let's say half a percent cost?
00:23:21
Speaker
Obviously that additional 5% is just costing you. Whatever. Against 15, it is 17 or whatever it is. Because... What people do not value in wealth management is emotional intelligence.
00:23:40
Speaker
People also take emotional calls. They are emotional about the money. Somebody gets jittery with 5% volatility. Somebody gets jittery with 10% volatility. Somebody does not even get jittery at 50% volatility. We have seen 50% and 30% correction. And they have there are investors who have stayed at course.
00:23:59
Speaker
This is where there ah there is no substitute to to assisted journey because it is your wealth manager who is able to understand your persona and help you navigate through that situation.
00:24:12
Speaker
Also, on the other hand, there is situations of exuberance where suddenly you see, when I used to talk to new investors 18 months back, they used to say 30% return is very easy. And we used to tell them it's not possible.
00:24:26
Speaker
Okay, all those investors who came at that 26% and 30% return expectation post-COVID two, two and a half years of rally are actually all are in red today.
00:24:37
Speaker
And they don't know how to navigate it through. So you have to instill that a sensibility, understanding that what is the right thing? What is the level? so This is cost is inconsequential, let me tell you.
00:24:54
Speaker
Let me tell you, because there is a price to the service which is being offered. Somebody who feels that he can manage and give that much of time, attention, and his returns will be better than what a wealth manager can drive,
00:25:08
Speaker
should go ahead and do direct code investing. Otherwise, for the cost, like you are paying a cost to you to your driver or your household help, this is a cost and there should be a valid cost.
00:25:22
Speaker
Now that valid cost is a function of the scale of the portfolio. Because wealth management outfits or even a wealth manager as an independent wealth manager or a mutual fund distributor has certain fixed costs.
00:25:41
Speaker
His rental is a fixed cost. His salary to his staff is a fixed cost. Electricity is more or less a fixed cost. They are fixed costs. So those costs have to be taken care And there is a man hour cost. so if I'm coming and meeting you, ah there are two things which are constant.
00:25:58
Speaker
which is my travel time, cost of traveling and travel time, my cost of engaging with you for an hour and my travel time but back for the meeting and my preparation time.
00:26:11
Speaker
So whether I meet a 20 lakh client, 20 crore client or 200 crore client, it remains same. It doesn't change us. But because the scale of the portfolio is getting bigger, the percentage that I need to earn out of that client keeps getting lower. So let's say a 20 lakh rupee client will give me a maximum investment of let's say 1 lakh of rupee.
00:26:40
Speaker
It's 5%. 1 lakh of rupee, I make 1% higher.
00:26:46
Speaker
Okay, so that's 1,000. No, no, 1,000 rupees I make out of it. But if it is an ARR asset where I'm making recurring, so every year I'll make 1%, it is worth it. Okay. ARR asset is a term for like any product where there's recurring investment, like SIPM. Yes, like Giltrify Fund AIF PMS qualifies recurring asset.
00:27:06
Speaker
Okay. Okay. You can 20 crore, a client will give me 1 crore transaction. I'll make 1,000,000 of rupee. A 200 crore client will give me ah a 10 crore transaction where I'll make 10 lakh of rupees. But when it comes to 10 lakh of rupees, my cost is the same.
00:27:22
Speaker
There the cost should not be actually 1%. It should be, let's say, half a percent over there. And that is what AIS and PMSs do as your scale of your transaction keep increasing. They structurally keep reducing the cost.
00:27:36
Speaker
which doesn't happen largely in mutual fund as a category. But any investor who is investing into ah direct code from the lens of reducing the cost, more often than not, will end up making lesser return than other investors. Because that cannot be your priority. That is subsequent when you are in control.
00:27:59
Speaker
Because if your advisor is not earning, he's not being prayed. It's like your driver is driving free for you. ah How is it possible? That is where the actual, I mean, the not so good kind of activities start and those products start where which became opaque in nature.
00:28:16
Speaker
So if you, it is very important to have a very clear discussion with your wealth manager, how much money you want to make. And how what is the justified? And if you have that engagement and a negotiation and you come to a specified number, believe me, the portfolio management will be far more superior because the wealth manager also knows that this is my framework. I'll make 20 lakhs of rupees for managing an X amount of portfolio.
00:28:41
Speaker
You will see the quality of engagement. Unfortunately, neither the wealth manager nor the client, more the client on the client side are open for this clear discussion, which I think should evolve over next 5-10 years, which happens in Singapore and other markets, but less prevalent over here.
00:29:01
Speaker
Okay, fascinating. What are these examples of opaque products or bad for you products? See, unlisted is opaque. See, simple. Unlisted is opaque. You don't know at what price you have bought and what price you have. And there has been a lot said about it, that the margins are 5%, 10%.
00:29:18
Speaker
Those who talk about high heavy margins, they don't account for the losses which... the institution also makes because it's like gold. If you would have bought well ah gold 20 years back, probably the price was 6,500,000 rupees. It is 1.6 lakhs of rupee.
00:29:34
Speaker
So if I'm selling today, the margin is my upside. So it's also a function of of sourcing and procurement, but it remains opaque. And the more opaque is, opaqueness comes into structured transactions.
00:29:47
Speaker
But till that time the quality of the transaction is good, there is nothing wrong about it. The opaqueness comes when the quality of transaction is not good and the client is trusting you and you are selling something which you yourself know is not the um the top quartile investment strategy.
00:30:03
Speaker
ah What's a structured... It's like ah a private investment into a company on the equity side, H&I is investing, unlisted basically. Private investments are unlisted.
00:30:15
Speaker
Till some time back, AIFs was the most used and most misused platform because affronting of revenue was was was allowed. Regulator has now stepped in very wisely and created a lot of simplicity. But still it remains a thing because on the private side, you can host somewhere and then you can move into the fund. There's a lot of gray area in that. So one has to be very careful of that.
Post-Crisis Regulatory Changes and Family Offices
00:30:41
Speaker
uh apart from that mutual fund direct equity direct equity is a business now it has to move to discount broking only because advisory really doesn't uh pay off uh it has become very transparent mutual fund across the spectrum is very transparent pmss are are very transparent and yeah ais now with the new regulations coming in has also become extremely transparent but bonds show here price discovery nahi That always remains transparent. That's why mostly now wealth managers and those products have become wealth vendors because large clients are smart now.
00:31:17
Speaker
So when they have identified a security or a bond, they check up on with five, six people and price discovery happens who's offering what. So even if somebody is offered the lowest price, but if his sourcing is cheaper, he will make a higher margin. Nothing wrong with it.
00:31:31
Speaker
But a controlled ah engagement is very, very important where you know how much of it that I want to buy. Because making a margin of 1% is fine, absolutely fine, because you don't make any recurring income into that and client can hold it perpetually.
00:31:48
Speaker
So 1% to 2% is absolutely if i'm fine and client should be okay. Because otherwise, if you're doing everything in direct code and you are not allowed, how how are you going to justify the engagement? That's where advisory actually comes beautifully, the RIA piece.
00:32:01
Speaker
But RIA is also done 90% by the clients from ah optics of reducing the cost rather than taking the actual advisory. Because they feel the direct code is where I can block my fee at 20 basis point, 10 basis point or whatever.
00:32:18
Speaker
RIA is supposed to be a pay for advice model, right? You don't pay for money management. By regulation, there you cannot earn anything from the product manufacturer.
00:32:29
Speaker
Right. Yeah. There there is no AUM play over there. It is purely an advisory. And you make a fee on the AUM or performance. There are various parameters which have been... It's a very guided ah platform.
00:32:41
Speaker
But the intent... But the cost is going to remain the same. So, RIA is somebody who has, let's say, a 20 crore portfolio and says, manage it for 10 basis points. I don't think so many wealth outfits can...
00:32:56
Speaker
It will be not be viable for them. i but okay Okay. So, RI is not a fixed fees. It's a percentage of a U.M. It could be anything. It could be percentage. It could be fixed also. 1.25 lakhs of rupees is the lowest threshold which has been set.
00:33:10
Speaker
But ah largely the intent of the investor is to reduce the cost rather than taking genuine advisory. Because if you're taking genuine advisory ah and different portfolio levels, but if I again talk about something in between, 40 to 50 business point is the right pricing for the client to pay. Otherwise, your wealth manager will not sustain and inflation adjusted. You increase seventy eight percent every two years, ah let's say.
00:33:37
Speaker
Unfortunately, that doesn't happen. And that's why and RIA, while it is good, it has not scaled in India. It's just not scaled. Active, roughly around like 500 active RIAs in India. Licenses would be 11, 1200 because you are not able to optimize on your operating expenses. And that's why it it tends to die its own death or you remain very, very boutique and manage a few clients.
00:34:04
Speaker
It's not been institutionalized and scaled at institution level. I guess Indians don't like to pay for advice. Yeah, partially I will agree. And the thing is that what is your mindset with you are coming? Are you focusing on your portfolio growth or you are focusing on your cost reduction? And somewhere that is also a reflection of that phase when these H&Is actually got little damned by the kind of products which were given to them 7, 8, 10 years back. And that is that also led to the evolution of family offices and other things self-managed.
00:34:36
Speaker
There is lot to go into the layers. It's a very deep thing that what has led to this kind of a behavior, um actually the business models. So you have to go very deep into it to understand the or decode it.
00:34:52
Speaker
Like, like what what led to this? i'm I'm curious to go deeper. Like, like why did H&Is start doing family offices instead of going... So, you're saying traditionally, Alala, who built a large company, would go with a wealth manager and give him the money. That was the traditional approach, which today is not the case. So, but if you want to go deep, I'll probably take five, seven minutes to help you and take you the through the journey over the last three decades, I would say.
00:35:20
Speaker
So... Decade of 1990 to 2000 when liberalization also happened was wealth. There was nothing like wealth management that existed. Investment was all about Kisan, Vikas, Patra, RBI bonds and deposits and double digit returns was was seen. It was post liberalization that you saw. So double digit returns even on like an FD you would get. RBI bond was 11-12%.
00:35:42
Speaker
Wow. You've so they you've you've been a wealth manager in that era? No, no, I haven't been, but I've seen my father doing it. Okay. Okay. Okay. so Fairly well aware.
00:35:53
Speaker
But post 1992, mutual fund companies, asset management companies started registering and started building the business. So that was a time when seeds were sown. And it was a decade of 2000 to 2010 where wealth management structurally came into India.
00:36:08
Speaker
But this business was spearheaded by foreign banks in India, namely for Citi, HSBC, ABN AMRO, and Standard Chartered. ah So when you say wealth management as a business, you're talking of the advisory business or you're talking of like a mutual wealth management relationship management, manager driven business.
00:36:26
Speaker
Got it. These institutions spearheaded that ah largely in that decade and they were dominating players ah largely because of the global experience, brand, trust, ah capital that is required to build that business.
00:36:41
Speaker
And you're also from one of these four. Yeah, that era I have played it out. So literally, since the time wealth management has been born 2002, I have lived the market every day and I've seen the evolution.
00:36:52
Speaker
That was a time when there was 2% entry load. So there have been in instances where, and the markets were rocking 2005, 2006.
00:37:01
Speaker
Every time you will see 15% return making. So if you sell and buy even the third day, you make additional 2%. So that was the era where... And regulator has played an amazing role over these last 20-25 years to take care of the interest of the end consumer.
00:37:19
Speaker
So it got abolished. So no entry load. And then so more and more guide to guidelines kept coming in. ah But if you see that that era, there was a time where ah the knowledge or the awareness level was very, very minimal.
00:37:36
Speaker
And very largely trusted ah relationship managers were there and the institutions were were there. And the product category was a very simple, ah mutual fund and insurance. Even PMSs started evolving 2007-2008 onwards, largely. And there was nothing like AIF. AIF came in 2013.
00:37:54
Speaker
Is insurance a wealth product? ah ULIPs were sold like wealth products, equity-linked product. And they were... Regular plants also, traditional plants. probably some tax incentives that made them. Tax incentives, very heavy revenues. I mean, there were policies which used to give 50-70%. All that has been ah clipped by the regulator now. Thankfully, we are we our regulators are amazing, I would say. They always take care of the end consumer interest.
00:38:23
Speaker
ah So what happened? ah And then 2008 happened and people realized it is only when the market corrects, you tend to figure out the difference between good and bad. And that is where lot of things got unearthed in terms of quality of the fund, timing of the fund.
00:38:40
Speaker
And that's where ah value of of advice and engagement started to increase. And this there was a massive shift of wealth management industry,
00:38:50
Speaker
ah engagement from foreign banks in India to private wealth setups in India because they were more nimble, more aligned to the client, more products came into forefront, MLDs came, structured debt came.
00:39:03
Speaker
All this started to evolve, started to shape up once a market recovered after 2018, 2011 onwards. What is MLD? Market linked debentures. They're like publicly traded bonds. Publicly traded, yes. Listed debentures.
00:39:19
Speaker
So it started it started meeting the rest of requirements in a more customized manner. And this when you say the Indian ah ah advisory players, you're talking of like, say, Ed Elwes, Motilal Oswal, these kind of... All of them who existed at that point in time.
00:39:34
Speaker
So that was a time where these papers become very attractive. They were real estate papers offering 17% to 20%, 25% real estate AIFs came in. aif sching but what What does the word paper mean here? Sorry, I'm asking you very basic questions. Please, please. I'm just taking few of the terms for granted. So, please stop me. in and Papers mean that you are a real estate developer and you are saying that I'm raising money. I'm giving issuing you a bond.
00:40:01
Speaker
That this is the periodicity of payment of of interest and principal. Now what happened, ah because these were first timers, so there was very decent margin for the for the wealth manager in this and are very lucrative things.
00:40:17
Speaker
But if you see the initial journey of 2012-13 onwards on the AIF and the real estate papers especially 2018-19-20 I would say.
00:40:30
Speaker
almost two-third of the AIFs on the private equity, private credit, and the real estate side did not perform anything closer closer to the the promises that it made. ah A 17% real estate fund did not even return principal or principal plus 2%, 3%, 4%.
00:40:50
Speaker
That is the time where large family offices ah woke up to the reality that I need to use my ecosystem and my brain into it. And 1819 is the time where ah family office concept started to shape up. Now it has become very, very problematic.
00:41:09
Speaker
Unfortunately, that loss of trust and faith that happened in that phase actually started to make clients largely believe that wealth managers are there to make money out of out of me And that is where people said that I have my understanding ecosystem. Let me do it in a direct code. Now that is also getting getting counterproductive now for them. Because if you are stopping the avenue of making money, in any case, they will make money ah out of you. Now making money out of you as a client, there's nothing wrong. it should not be construed in a negative manner because for any business to sustain and survive yeah and
00:41:51
Speaker
Wealth management is a business which operates at the lowest margin. I mean, we have to believe it that it operates at the lowest margin. But what happened is a structural issue now with the wealth management companies and their business models.
00:42:07
Speaker
Now, this is the layer which has to be decoded and understood very well. Wealth management is basically an engagement model where a wealth manager, an individual is going and meeting with a client and engaging with with him.
00:42:20
Speaker
So to build a wealth management business, either it can be an individual business, IFA, independent financial advisor, one man, a lone wolf, or it can be an institutional play. So when it comes to an institutional play, there are... What are institutional institutions called? like da if it ah There is a company, there is an institution.
00:42:40
Speaker
Okay. It's not an individual body, it's a corporate body. Okay. The corporate body, then depending upon the money they have on their balance sheet, They hire relationship managers. That number could be two and that number could be 200 or a 500 number.
00:42:56
Speaker
So the wealth management scalability issue is is the biggest challenge for the kind of engagement ah persona that has been created. And that starts from from the three factors that govern the wealth management business. That is, first is relationship manager or number of relationship managers, which will always have a finite value.
00:43:18
Speaker
Second is the assets under manage, or ah sorry, second is the number of clients that you can acquire and manage. Because our individual can manage and that is also a function of the time that you are addressing. So if you are into a let's say ah emerging to a mass affluent, you can probably manage two, three hundred clients. If you are into an affluent to a HNI, you probably will manage 150 to 100 clients. If you are into HNI, you will manage 100 clients.
00:43:47
Speaker
But you can't go beyond that. Humanly, it's not possible. um That is where, and the third thing is the assets under management, which you can get from these clients. So number of R&s, number of clients and assets under management.
00:44:00
Speaker
And there is a certain percentage that you make in the assets under management, which which defines your revenue stream. And the first input factor is finite, which is number of relationship manager. Your revenue factor is also very finite because you are not able to scale because you can hire 10, 15, 20, 100, 200. The maximum I've seen is that some wealth management company at their peak going to 300 relationship manager in the UHNI segment.
00:44:29
Speaker
Mass segment, it could be 500, it could be 1000. And India is a big geography. It can be much larger number. You tend to opt and with the heat coming on direct code also, your revenues are in the basic core product is coming down.
00:44:43
Speaker
That is the time where you see most of these wealth management companies actually shaping up to become asset managers, which is their non-core competency, I would say. So either the asset management company on the alternate side become wealth management company, which is their non-core competency or the wealth management company become ah asset managers. So that at least they ensure that they are earning on the manufacturing side because client will always compromise. Direct code, may distributor is eliminated, but the manufacturer is making money.
00:45:15
Speaker
So if you control manufacturing, at least you are controlling a part of the which is non-core activity and which actually also leads to, I'm not talking about those companies which have a mutual fund which because mutual fund is very democratized.
00:45:29
Speaker
On the alternate side, unfortunately, it leads to a conflict of interest. And there are three levels of conflict of interest that arises. Level one, because you have to sell your product, you block the Discovery or the visibility of competing asset managers at first level. Best is that my client should not come to know about it.
00:45:48
Speaker
So, uscupa i geila gigavo mary misati invest cara because not everybody has the wherewithal to figure out, meet 10 people. Second level of conflict of interest is that obviously I am better remunerated for my own product.
00:46:04
Speaker
But the third level of conflict of interest is the most ah discomforting. That is, if what if if my product is not doing well? How will I be impartial and judicious about telling the client that my product is not doing well?
00:46:18
Speaker
Please sell this and buy something else. Because while you are arened on both sides of the income, you are also losing on both the sides of the income.
00:46:28
Speaker
So the lack of scalability of private wealth or wealth business is actually the biggest devil about the kind of engagement happens. And it is further topped up by the fact that the clients start choosing direct code.
00:46:43
Speaker
I think so the clients also have to realize and understand that there is certain level of remiteation my wealth manager has to earn to sustain and survive himself and grow as a business over a period of time and should have a very defined charter in terms of outcomes.
00:46:59
Speaker
You must look at the charter, which is called an IPS, Investment Policy Statement. You must give them three to five year time horizon. If you don't control all of these things, ah the experiences will always remain very, very uneven.
00:47:16
Speaker
that was That was phenomenal. There is so much that I want to kind of break down for my audience. um So you're saying the this fundamental...
00:47:28
Speaker
challenge plaguing this industry's scalability of the wealth management business.
Scalability and Digital Integration Challenges
00:47:32
Speaker
And one, ah because of margin pressures, because it is still very much a relationship manager driven business. and you want to get You want to control. So if I bring technology, how I will lose the control.
00:47:46
Speaker
So there is a reason why technology in wealth management hasn't been adopted. I mean, it's it's scary and it is real. The technology in wealth management or the engagement pattern in wealth management is 20 years behind consumer business. in In what way? Give me an example. like It is true to you and to the viewers also. Anything what you can see, including the phone on which or the tab or the laptop you are viewing this, anything what you can see in your room right now, where you are sitting, you can...
00:48:19
Speaker
Discover these products on some e-commerce platform, be it Amazon, Flipkart or Walmart. You will get it. The first thing is discovery. here Now I am giving you an equal to it.
00:48:31
Speaker
Can you discover all wealth management products at one platform as we speak right now? No chance. Only the products for like say mass affluent, ad vest. It is siloed. Broking, you go to certain platforms. Bonds, you go to certain platforms.
00:48:48
Speaker
ah ah Deposit, you go to certain platform. Mutual fund, it is all ah but ah ah bifurcated. And HNI products though are not even listed only online, right? Like if you want to invest in an AIF. So something which is physical in nature, these are products.
00:49:05
Speaker
is there is a discovery, but in wealth, everything thing underlying is digital because it is transfer of capital into a certain product category. So underlying is digital. There you don't have a discovery where everything is physical. There you have a discovery level one issue.
00:49:21
Speaker
Level two, let's say even if you identify In e-commerce, you make a payment. There are payment gateways. Over here, barring equity mutual fund and direct equity through broking platforms, few bond platforms, few FD platforms, you do not have even a mechanism ah of making payments properly.
00:49:42
Speaker
And it is all bifurcated. It is not consolidated. na So, imagine payment third is delivery. So, there are logistics companies which into play, which take the product from the manufacturer and and deliver it.
00:49:56
Speaker
Here the delivery in wealth management is equivalent to MISing and reporting. I have identified the product, I have invested into the product, now I need a reporting MISing. That is also highly, highly subpar.
00:50:08
Speaker
Large number of wealth managers across small, medium size, big size, do not even represent relative return which is against the benchmark very, very properly.
00:50:21
Speaker
It's a huge issue and somewhere I think so someday regulator will come in and ensure that it is benchmarked and very clearly shown are you underperforming, outperforming the benchmark because that's the the basic genesis of having a wealth manager to outperform.
00:50:36
Speaker
Okay. Or an asset manager to outperform. Otherwise, you go to index investing and sit in index, very simple. Life will be very peaceful. Yeah. So this is how. so While you can do all of this, right, from discovery to payment, execution to delivery on e-commerce, in wealth management, it does not even exist.
00:50:57
Speaker
So that's why I'm saying it is 20 years behind. And discovery also, see how it has evolved in consumer business from a merchant store to mega store, your Walmarts and your big bazaars and rela and and other other setups.
00:51:09
Speaker
to e-commerce, your Amazon and Flipkart and now QuickCommerce, everything delivered in 10-20 minutes to you. look at Look at the state of wealth management. There is no discovery because I have a small base of client. I have number of relationship manager. I do not want the client to be aware or exposed of the products that are available in the market because then I will not be able to control my margins and the product I want to see.
00:51:35
Speaker
So that's the level of divergence between a consumer business and wealth business, where I say that wealth business is 20 years behind consumer business in terms of technology and discovery.
00:51:46
Speaker
So a lot of wealth business is still information arbitrage. Like you are playing on that information. ah You are aware of some products which your clients are not aware of.
00:51:57
Speaker
And they are busy with their priorities, so they don't even care about it. And those are the most ah enjoyed clients by the... Because he is excelling what is doing.
00:52:08
Speaker
give us tiny names farre bini perhas client call because he's excelling in in what he's doing So it doesn't matter. And those who have the scale size are now setting up their own family offices. You act like a vendor. I will tell you what is to be done. You bring me the product and I will negotiate the price.
00:52:27
Speaker
to it Because in their mind, the cost of hiring an investment manager is same as the cost that you would pay to ah the the commission you would pay to a wealth advisor. So because the size of the capital that they're handling is so large. so Precisely. And when you have a family office, they don't only manage your financial wealth. They have their real estate assets. And so they operate in a... And obviously the confidentiality of their data and information rests with them, which they don't want to have in their public. them Nobody would want to others to know the real estate assets or global assets. So there is a reason. and
00:53:04
Speaker
And this is only going to get keep getting bigger and bigger. while people say there is Paucity of talent in terms of wealth management. Believe me, there is a greater paucity of talent in the family office infrastructure. So one of the most valued people I see in the industry are people with experience of managing large family offices.
00:53:23
Speaker
These would be portfolio managers? A lot of them have shaped up from wealth management industry. Some of my colleagues ah who were wealth managers, who were asset managers with AMC have shape evolved to become family office heads.
00:53:37
Speaker
A lot of them come from accounting background. They have been CFOs. So, obviously, people who have domain understanding can only do it. Okay. Okay. So, that's why there is a paucity of talent even on that side.
00:53:51
Speaker
How important is it for a family office manager to have access to deals? Very important. Because it's a part of their IPS, investment policy statement. There are family offices which do not have a pot for unlisted. So, there is no need.
00:54:07
Speaker
But where it is. And structurally, people are investing into unlisted and deals. Because obviously, they also want. So, they know their risk capital. 5%, 10% is my risk capital. I'll take a risk. So, they are very judicious. They are very organized. And some of the family office people I come and interact, they are very, very smart.
00:54:25
Speaker
Why is access to deals a problem? Wouldn't somebody who wants money be shouting from the rooftop, that I'll give money? How would I know that who's interested in investing? So that's where the wealth manager comes.
00:54:37
Speaker
So as I said, there is a manufacturer and there is a consumer. How would in India, if we are not Dubai, a small city or European country. We are not a country of 29 states. We have 29 countries within within the country. Socioeconomic behavior persona keeps on changing.
00:54:56
Speaker
So, ah somebody has may has a good transaction, let's say, in Indore, how would somebody sitting in Trichy would know? So, that's the institutional wealth management framework counts. Who adopts the transaction at an institution level and has the reach and bandwidth to disperse it out and connect with the end client.
00:55:15
Speaker
but What's an example of having a good transaction in Indore? that's Like a pre-IPO investment opportunity? No, pre-IPO. Deal. The deal word which you used. A good pre-IPO transaction or a growth stage transaction, early stage transaction. There is somebody who is building business. Like say Kunal Chai is starting a new startup, then that would be a good deal. This is how India has changed. And much of the better transactions are actually coming from tier 2, tier 3 cities.
00:55:41
Speaker
Because till about 10, 15 years back, startup meant large city, Delhi, Bombay, Bangalore. Now people are sitting locally. Like Jaipur has seen so many companies and they're getting listed and some major stake sales have happened. Similarly, it is happening in Punjab. It's happening in Indore. It's a very beautiful city.
00:55:58
Speaker
ah So I travel. We have offices in 66 cities. So i I travel length and breadth of the country. I've seen India now after the age of 45, I would say.
00:56:09
Speaker
And people are doing such amazing work and even many ah times they don't even really know the value of of what they're doing. so So deals can come from any place, but how do you take it to the the relevant person is is the question.
00:56:26
Speaker
okay Okay. You mentioned about the conflict of interest for wealth managers to become asset managers.
Conflicts of Interest and Passive Funds
00:56:33
Speaker
ah Like a perfect example would be like, say, I will IFL bought out that Mumbai Angels. So that's like an angel investing fund or something like that. mean, I would refrain from a specific transactions, but there is. And if you open your eyes and and see it around, there is enough and more.
00:56:50
Speaker
But almost every advisory company, like say Motilal, whatever, all of them also run funds, like especially private credit. So Motilal and others are basically, their core competency is asset management.
00:57:04
Speaker
Oh, they're not distributors. Okay. No, no. So asset management, mutual fund asset management is highly scalable business. But alternate, which is PMS and AIF is not a very scalable business. So once you attain, let's say, a 20, 30, 40,000 crore of AUM, because your idea is being boutique, being very specific to stocks.
00:57:24
Speaker
So you run a 25 stock portfolio. You can't manage 20,000 crores in that 25 stocks.
00:57:31
Speaker
In mutual fund with 200 stocks, it can be managed. Okay. But when you attain a certain scale and you have a certain thesis of the fund manager, large cap, mid cap, small cap, or whatever it is, or multi cap, you realize that, okay, while I'm doing well, but my scalability is not there, but I have client engagement through my asset management. So for me, the natural progression is to become a wealth manager.
00:57:54
Speaker
so So there is always a situation where large asset managers on, on, non-mutual fund side or managed account side tend to become asset managers, wealth managers. And wealth managers, after achieving, let's say, 50, 60, 70,000 crore of AEL, further scale, they become asset managers. And that leads to a clear conflict of interest. They try to cover it up, OK, not more than 10% product of a certain single AMC.
00:58:21
Speaker
Which is all fine. am saying till the time you are delivering the returns, it is fine. What happens once your fund is not delivering returns? That is where the real test of character and judiciousness and impartiality comes into play.
00:58:35
Speaker
Because by moving asset out from your AMC is not making you lose only the distribution income. Distribution income you can compensate by putting it in other funds. You lose only manufacturing income. That is very big for them to let go.
00:58:52
Speaker
Give me some examples of wealth managers and asset managers. Like who are wealth managers traditionally and who are asset managers? So traditional wealth managers are but like Edelweiss earlier, now Nuama traditional.
00:59:05
Speaker
They always had ah asset management, but let's say Nuama is more of a wealth manager, shaping up to become an asset manager. 360 very prominently has been earlier IFL wealth was prominently a wealth manager core wealth manager shaped up to become an asset manager doing well as an asset manager also similarly asset manager like an ASK or a Motilal became a wealth manager so There are always ah players in the market. Nothing wrong about it. But somewhere the industry very badly needs wealth managers who are absolutely impartial. They are not manufacturing anything and they are creating the discovery for the clients.
00:59:47
Speaker
Are you saying this because you are currently a pure wealth manager? At scale, you will also want to be an asset manager. See, um I would be very honest about this. ah We will never be the asset manager on the managed account side.
01:00:03
Speaker
But we definitely, I and it is it is a part of our playbook that mutual fund passive asset management is something which we can do and but it would be largely for scale and more for the direct consumers.
01:00:16
Speaker
We might not even choose to have a distribution side also because we very strongly believe in passive. Because the data says 65%, 70% mutual fund underperform, 80%, 85% asset managers. Because one thing top line return. Then you take cost or tax, so that's the index funds.
01:00:34
Speaker
Because in AIFs, especially on the debt side and other, almost 40 to 50% of your top line return gets polished off in terms of your ah fees, revenue share, which which is your huddle rate, carry, then your taxes.
01:00:53
Speaker
So if it's so gone, underperformance is very natural. la If any of your transaction defaults, it's the highest risk. Private equity and private credit is highest risk. Default rate is very high. Basically, you are managing the defaults only.
01:01:09
Speaker
You are managing the risk only. And if you are there, 20 fund managers, believe me, not more than two or three will be able to really navigate it through, you will get one bad transaction. And one bad transaction means if it is 20% of your portfolio, 20% gets wiped off. So IRR will be reduced.
01:01:27
Speaker
So for us, and passives have not been have not been proposed and and put up in the right way to the clients. I believe that is one one thing which is going to become very, very big. So for us, yes, on the passive side, a digital AMC is something which is definitely on the horizon.
01:01:43
Speaker
but nothing on the managed account side. We are okay to let go 20% of the asset managers who are wealth managers or wealth managers who are asset managers who are doing transactions solely for their own clients.
01:01:55
Speaker
We are okay. We are happy giving 80% discovery in the market because that's a much bigger pie than boutique 10%, 20% transactions. Okay. So, compared to US and India, passives penetration is low. Like, I think in US, a massive part of the investment goes into passives. Nearly 55%. In India, what is the number? India, it is inconsequential.
01:02:18
Speaker
It's inconsequential. Not in even in single digit, decimals. a So, this was Sachin Bansal's thesis, right? When he started Navi about this only. I think Navi is very focused on passives.
01:02:33
Speaker
So it is Navi, it is Zerodha small cap. They all are focusing on. See, only digital... Why hasn't it scaled? Like like this is a massive gap, right? 55% and you're saying inconsequential.
01:02:44
Speaker
Arbitrage, as you said, see, I will only invest into what my... manager is telling me, so if you're not even presenting the data and the information, you're not showing how much outperformance and underperformance the portfolio. Now we're talking about gross Actual outperformance, underperformance is on a net of tax level.
01:03:04
Speaker
If you start showing, believe me, the 65 percentile number will will will go to 75, 80 percentile. If you show on a net of basis, that is cannibalizing your own business. So you don't want to do it.
01:03:17
Speaker
And the also the challenge is that somewhere while passives are great and you make great returns, intuitively client or somebody will come up and say, now why do you need a ah wealth manager to do passives, which is absolutely incorrect.
01:03:34
Speaker
Hmm. Then it happens that if I have trained a client in passives and I am making money and client says, now I want to switch. So I am cannibalizing my own business. So clients have to be very conscious of the fact that there is a certain level of ah retention which the wealth manager should be making.
01:03:52
Speaker
That could be any number, but that should be a clear discussion, a very transparent thing, ah kind of a signed agreement. This is what I'm going to going to make out of you for the services and track your wealth manager on the performance and outperformance that they are doing.
01:04:08
Speaker
And that's where you can create a very, very healthy and a long lasting ecosystem. Otherwise, that transactional behavior will not go away. It will, in fact, increase over a period of time. If you are closing all the avenues of of making money and choking the the wealth manager, more uncalled for innovations will happen.
01:04:29
Speaker
um Okay, okay. This statistics that in India, 70% is underperforming the index. Is this true even for like say a US market? It is true everywhere. See, there are human calls taken on companies.
01:04:44
Speaker
See, also people don't have to understand the end client has to understand. your returns come out of the companies, not by the wealth managers or the asset. The wealth manager job is to identify a good asset manager who is competent and there could be various parameters.
01:04:59
Speaker
Asset managers job is to identify the companies. Okay. And they invest into those companies. Companies always have two, three things which which have to be tracked. One is the business performance, which the asset managers does.
01:05:16
Speaker
There are a lot of instances where the asset manager is doing a great job, but there are regulatory issues. Some government regulation comes, which is not so good, like tariff increase for exporters. It has impacted them.
01:05:30
Speaker
There is a situation where there could be an intent issue with the promoter, what he is doing. And i mean, some kind of irregularities have been. Most of these are unknown, unknown events where even the asset manager is is very, very limited by that.
01:05:46
Speaker
So if that percentage is high in the portfolio and event occurs, you tend to underperform. Now that underperformance is beyond the control of the asset manager and even more out of the control out of the wealth manager.
01:06:00
Speaker
But unfortunately, the client will say that you did not do your job right. Point is that the event that happened, a special situations event, some taxes being increased on the company or additional regulation comes from the government side, tends to impact. But the expectation is that you should know.
01:06:19
Speaker
Fact is that these are unknown unknown events. You cannot know and the impact. So passive funds, what they do, then they normalize all of that by investing into index and you are not tracking the companies.
01:06:30
Speaker
You're tracking the index on ah on its own. And historically, you look at rolling returns of 5 years, 10 years, any any ah point point, you will always see that the index has always been in the grave.
01:06:41
Speaker
So the more realization that will come, you have to see which index is expensive, which index is cheaper. Anything which is cheaper will come to fair value. Something which is expensive will also come to the fair value.
01:06:51
Speaker
Expensive to fair value is a Cheap to a fair value is always a positive. That is something where you actually even need ah asset manager i have a wealth manager.
01:07:02
Speaker
And the role of the wealth manager is to then navigate you through those journeys. you Lazy investors actually make money. and okay So you have to appreciate the laziness and this it is in in your benefit.
01:07:18
Speaker
Every time doing a transaction or buying and selling and trading, you I mean, SEBI data is there on trading. How much money you make? You actually don't make. One of my clients back when I was very early in the days of my career in 2005 and he was obviously then he was 65 years old. So he has seen and he was a chartered accountant and working with Deloitte or someone.
01:07:38
Speaker
He gave me the mantra. He said that Manu I've seen it all and he was a CA from London. I have realized invest and wait.
01:07:49
Speaker
Companies will go through the cycle. The more impatient you will become, the more Incorrect tactical calls you would be taking. And his thesis over 20 years has just played out amazingly well.
01:08:04
Speaker
Yeah, this is also Warren Buffett's philosophy, right? That you invest and you hold the course. yeah Don't be swayed. I'm talking about a normal investor who then had a 25 crore portfolio.
01:08:16
Speaker
But his portfolio compounds at nearly what people have to focus, investors have to focus is compounding. Today you have 100 crore portfolio, your portfolio compounds at 15% and it becomes 400 crores in 10 years.
01:08:29
Speaker
Is that the battle, of war you want to win or every year you want to track yourself making 10% or 15% or Amazing, amazing. Help me understand the consumer base for wealth services in India. Before we started recording, you had kind of broken down different categories of wealth consumers, like how you define them, like from a DIY category to a family office. ah Just can you break that down?
01:08:56
Speaker
Okay, before I break that down, ill let me ah help you understand the persona
Investor Personas and Centricity's Approach
01:09:01
Speaker
of the investor. There are broadly three persona buckets of investor. Persona bucket number one is the person who says, I know what to do.
01:09:11
Speaker
And there are two very extreme ends of this persona. ah One end of this persona is the long tail of the India market. which is usually DIY thing because their ticket size is so nominal that ah assisted journey engagement is not viable for the person who is assist assisting.
01:09:30
Speaker
That's where they first decide I want to do broking, then they identify a broking platform. They first decide I want to do an FD, they identify a FD platform. They first decide I want to do a bond, they identify a bond. So the decision has been taken. And the other extreme end is what we spoke at length about the family offices.
01:09:47
Speaker
They are also because their ecosystem is so strong and the very smart and intelligent people are sitting over there. They internally decide as per the IPS what we need to do. So they don't know what to do. that's So that's one one segment, which is to my understanding is around 20-25% India segment.
01:10:05
Speaker
okay index segment Then the other persona is the next one. I know what to do, but I don't have time, which is typically a wealth client. I chugging along in my professional journey as a professional or an entrepreneur and I'm making money, but I really don't have the time to invest this money. That is where I know, but I have the intelligence to make. We have to respect the fact somebody who has made 50 crores, 100 crores is above par in yeah in his intelligence. We have to respect that fact. But I don't have time. My priorities are different.
01:10:35
Speaker
That's around 6 to 8% of the, ah or maybe maximum 10% of the investable base. And the third persona is that which is the largest, which is around 60-65% of India, which is, I don't know what to do. I've never done anything. I have not done my mutual fund KYC. I've only done PIF, AFD.
01:10:55
Speaker
Now, these three personas actually rest across the pyramid, the wealth pyramid. So long tail is the one which is DIY, which will become more and more DIY. And I know what to do category because they have no choice but to do it by themselves.
01:11:10
Speaker
And long tail would be like early professionals. source Not even early professionals. I would say lower income group or it's more like income group ah segmentation, not the profile segmentation.
01:11:24
Speaker
Second would be emerging affluent and mass affluent. These are people earning 50,000 rupees a month to let's say 2 lakh rupees a month. Affluent to HNI is somebody who is earning let's say 4-5 lakh of rupees a month going up to 10-20 lakhs of rupees a month.
01:11:40
Speaker
Super H&I is already somebody who has created wealth. Now there the income does not, he does not live on his income as Super H&I. He already has created ah a buffer and has a house and has everything, a car.
01:11:52
Speaker
And he has then 10, 20, 50, 100 crores of portfolio. And then the tip of that pyramid is the first family as we call them, which are the ones who have 100 crores plus of financial portfolio.
01:12:04
Speaker
There are three segments. 100 to 200 crore. Which one does after? Then there is a and plus. Usually anybody and everybody who has five hundred corro plus usually has a Family office. 100 to 200 crore, it is like the the the principal or the promoter and then comes with an accountant or some person.
01:12:32
Speaker
Usually engages with three, four wealth managers in India because of product discovery. Everybody comes with the flavor of the month, season, quarter or mostly on the unlisted side, whether it is equity or debt.
01:12:44
Speaker
200 to 500 crore actually builds a one or two person team internally. 500 crore it becomes an ecosystem they will have an equity analyst also they will have a trader also u up knight ua management that that is where they don't need wealth management they need wealth rendering give me the right price for the product because i have decided what i need to do and that they are the ones who are open to meeting the um asset managers independently taking a call most of all Okay. ah Which categories is centricity going after from this? So centricity but in odd so eccentricity is an outcome of this status quo, which I said that scale is ah is an issue. That's why they pivot to become asset managers.
01:13:27
Speaker
We said, if we don't want to become asset managers and we want to maintain our our DNA as core wealth managers and being impartial, we need to play on profit on on scalability.
01:13:39
Speaker
And a scalability, which is also not a treadmill business, but a flywheel business. And also as a business, it should remain extremely resilient against two things, markets and regulatory impact. As I mentioned a couple of times, regulators are very vigilant. They always will do things which are favoring the end consumer, but it will not be liked by the businesses. It impacts the business revenue. revenue So it it is a given that regulator will do. And I have seen it over well over the last 20 years.
01:14:05
Speaker
ah For us, we have we have created a cross-sectional operating leverage business, as ah we call it, where we are the first ones to actually use technology in the wealth management at the forefront. It is just not a choice.
01:14:22
Speaker
It is part of our proposition now okay that we are anchored around technology. So we have created product discovery. We are the only ones we work with nearly 80 to 85 alternate asset managers. And in every genre of our category of investing, we have eight to 10 asset managers to to work with.
01:14:39
Speaker
Biggest product repertoire created in the country. Second is a digital journey for execution, which is equivalent to to wealth, manager to consumer business. And the third is state of the art reporting, a iing which creates incredible amount of trust and transparency and objectify trust and transparency with numbers and sliced and diced in manner which the industry has not seen till date.
01:15:04
Speaker
We even show you what is the cost of your portfolio, how much we are earning. Even if the client doesn't ask us, we show. and the performance and other things. So this is one core stack.
01:15:18
Speaker
Now we are building different channel of sales. So in our initial journey, we have left the long tail of the India market because the technology has not evolved to a level where one can create a kind of an assisted journey. Otherwise, it will become a thematic play. I am doing bond. I am doing FD. I am doing broking.
01:15:33
Speaker
We didn't want to enter that space because we wanted to stick to core wealth management. So we said that for scalability and especially to take high quality wealth management practice to tier two, tier three cities, we need to adopt a B2B2C model where we have a business and there is another business intermediary in between, which is ah usually a mutual fund distributor or a financial product distributor.
01:15:56
Speaker
who is based in a particular particular geography and who in turn manages the client. And we offer him that he has been traditionally doing mutual fund. He has been a mutual fund distributor. We evolved him to become a wealth manager by offering products, training on those products. Training is 40% of our proposition.
01:16:15
Speaker
And on top of that, offer him technology to execute, report, and MIS the investment. So full plug and play, like a... I would say a co-working space. You take your laptop, go and sit. Everything is available.
01:16:31
Speaker
ah So that's one. So that is where on that line of business, we started in April 23, three years back. And we said first phase, we will build Centricity on that. Because once your distribution is built, you can do multiple things on top of that. And probably we have set up offices in 66 cities in India, which is a very fast.
01:16:48
Speaker
Why are you setting up? These wealth managers are independent workers. So the reason is that they are independent, as you rightly said, they are independent people. They need handholding and assistance and they need a brand if affiliation that who am I engaged with? And they also bring their clients because our 40-50% job is knowledge transfer.
01:17:11
Speaker
So mutual fund was very easy. AMCs have built infrastructure for 20 years. Your SBI, your HDFC, your ICSS, they have more than 200-300 touch points. So that knowledge transfer has happened.
01:17:22
Speaker
But a managed account asset manager who is doing AIF or a PMS does not have the wherewithal because his business will never scale to 2 lakh crore of AEM where he can do distribution.
01:17:35
Speaker
So to take his product and to explain that product you need and also they need to be sure of whether you are serious player, not serious player and long distance relationship actually doesn't work on this. You need to have that engagement over there.
01:17:52
Speaker
Training as I said is repeatedly happening. They have queries. Now every time you will not pick up the phone and call to a call center because of the the queries can be very different.
01:18:05
Speaker
So that's where, so that's the first part where we wanted to bring best quality wealth management practice to tier two, tier three cities in India. So we continue we started with that and I think in 2025. This is catering to Affluent?
01:18:21
Speaker
We are agnostic. We are agnostic because the distributor has to or the mutual fund distributor has is engaging. So we are not engaging with the clients. We are not going and talking. We are assisting them. We have an IC. We have a relationship manager. It's an assisted journey, pure assisted journey, operating leverage.
01:18:38
Speaker
ah we so We had ah three bankers ah when we started in 23. We continued with that. We we remained very, very passive. We were testing our strategy product prop solutioning on the technology side for last two, two and a half years.
01:18:52
Speaker
And it was in July, August of 25 that we hired a large private banking your team in phase one, which were a 30 member private banking team.
01:19:03
Speaker
cater to which is segment this team will only cater to the first families so we have very clear segmentation in Delhi Bombay Bangalore we will engage with families who have minimum 100 crores of financial portfolio other cities minimum 50 crores reason being that it is a boutique business it is non scalable so we don't want to challenge that and try to do something if it is boutique we will remain boutique if it is non scalable we are okay with it it is a good business to engage ah for from a longevity standpoint. So we are playing it out. It is more tactical in nature for us.
01:19:34
Speaker
Because your innovation actually happens at in that segment. The first new product will come in that segment. The best transaction will come in that segment. And we are able to so we we are able to source the transactions at that level and bring it down with zero lag to the long tail of the India market or the mid-market segment. And that is our USP. And that's something which is very unique to us in terms of a business structuring.
01:19:56
Speaker
ah Third platform that we are building is now a D2C, which is for global Indians to invest into India. We will launch probably in the third quarter of FY27. Because again, the NRIs of the global Indians do not have a single window approach and there the private wealth piece has not worked. Somebody has done something, put 5-10 managers in Dubai, 5-10 managers. But the but the the landscape is much bigger. If you put to put all the wealth of all the global Indians together, it will probably make the 30th or the 35th richest country in the world. So that is the amount of money.
01:20:30
Speaker
And there that also has a very good long tail. So we want to create an India corridor. And that is being done on a D2C format. And the fourth thing, which again, we have started to work and that's op purely on agenting AI, is a D2C wealth management platform, a super app, I would say, where the same discovery platform which we have created, same execution platform which we have created, will be hosted on a D2C format with the AI-led assisted journey. Because the moment you bring multiple products, you need to have assistance.
01:21:01
Speaker
And the time that we are trying to address is the somebody who says, I don't know what to do. So your navigation is there. There, it doesn't matter. Somebody is doing a 500 rupees IP or 100 rupees IP or 5,000 rupees.
01:21:12
Speaker
But in all of this, our operating structure on the technology, product, and service in operation is 80% common. So we are not diverging from our core DNA of wealth management. We are building cross-sectional channels But those cross section at the cross section, the technology, product and service and operation is 80% common.
Distributor Challenges and Technological Solutions
01:21:33
Speaker
That's where we see massive scalability in times to come, massive compounding without creating any conflict of interest. So somebody who will stay only in B2C, whether it is mid-market or H&I, there will always be a finite number to the number of relationship managers you can hire.
01:21:51
Speaker
We want to break that mold. We have already broken that mold. Today we have more than 17,000 financial product distributors with us. We add 7,800. That number we see scaling to fifty sixty thousand and perpetually scaling. The rate of scale will change.
01:22:06
Speaker
But that is a far bigger business than any private wealth business that can be built. And the other hand, we are going D2C in the global market and also for the India market. So that's where we can sustain and survive and scale without creating an AMC.
01:22:23
Speaker
OK. I want to go a little deeper into these numbers. So you said 17,000 distributors. Yeah, distributors working with you ah Are they... ah What is the level of engagement? Are they getting 100% of their clients to you or what, like, you know? It will never happen. 100% will never happen. And that's not something which we are trying to even achieve.
01:22:53
Speaker
uh it's a journey of evolution see what we have really cracked the code is to offer them a bigger repertoire of product so our journey for initial 18 months was to get them acquainted with the products What is an AIF? What is a PMS? The way we started at the beginning and your first question is that if you are a wealth manager, what is the basic thing?
01:23:16
Speaker
Risk adjusted return. What is the risk way which is coming? So we are a mini ed tech company. We have a channel called Century Shala. More than three, four hundred videos are uploaded every day. We upload.
01:23:27
Speaker
So knowledge is the most important thing. So for for us, ah these mutual fund distributors are shaping up to become wealth manager is a very, very ah tedious journey. it's It's very grilling because you are trying to and thanks to technology, the way it has uplifted because Zoom and all started. We are doing this podcast like this. this was We would not have even thought in 2020 pre-COVID.
01:23:55
Speaker
So now the because the tech adaption at the ground level is also very good, the engagement and speed of communication and transfer of knowledge is also fast-tracked. But you have to make a very concerted effort and it is a highly painful job because you don't see any outcomes.
01:24:12
Speaker
In wealth business, outcomes are very evident. It's front ended in terms of revenue and growth. I come to you, either you like me or don't like me. If you like me, you give me money. I come back as a winner. The fact is that you are running 100 meter sprint in that business.
01:24:27
Speaker
If you want to run a marathon, then you have to slow down. So we slowed down. We didn't get tempted in the very beginning. We said that ah we don't want to chase big numbers, but we want to build a massive operating infrastructure.
01:24:44
Speaker
And These gentlemen, ladies and gentlemen who are our financial product distributor are very hungry for knowledge also. They also want to shape up because these are micro entrepreneur entrepreneurs. And the instinct of an entrepreneur is to always evolve more than a salaried employee, the intuitiveness or the eagerness of of a uh independent person is very high and there are challenges they which they face there are four level of challenges which they face which we try to work around with them challenge number one that they face is obviously the the clients are aware their clients are aware of digital engagement digital platform why can't i go and do a mutual fund transaction in direct code that's a challenge
01:25:27
Speaker
Second, banks are also upping their game. They have the data of that same client. They know that SIP is going through. So their relationship managers are chasing the same client. Third is ah more evolved professionals are converting the themselves. Bankers are converting the themselves into independent advisors because they feel they can make more money and a more sustainable, which is the right thing also. I don't think a banker should be working beyond 15 years. They should all become independent advisors and manage the client. The ecosystem will be able to become much, much better.
01:25:57
Speaker
And the fourth challenge that they face is the continuous pressure on the TER, the expense ratio, which is the regulator. So if the TER comes down by 20%, it is like a pay cut of 20% who will live.
01:26:09
Speaker
So the only way you can navigate through all of this is bigger by becoming multi-product, multi-asset, managing highership higher share of wallet. And that higher share of wallet can only happen when you have products and you have knowledge.
01:26:22
Speaker
It's a basic thing I am saying, but very hard to implement. And I think so what we have done successfully is is a great implementation of that. Amazing. ah Do they also switch ah to you for mutual funds?
01:26:34
Speaker
Yes, they do. Now they are alternate. Mutual funds say this is BAU, business as usual. So what's the difference between A and they should They should. But we don't insist upon them ah shifting it at first go. We want them to establish their trust into us and our believe in our capability. And that then Mutual Fund is a natural drawdown process for for us. We don't have to ah make any effort.
01:27:02
Speaker
And what percentage of your AUM comes from these independent ah distributors? 50%. Okay. yeah okay and The remaining 50% is from the first families? Yes, first families. Correct.
01:27:14
Speaker
Okay. Okay. And so the first families are, you said, 100 crore plus? Yeah, 100 crore. We have nearly 140, 150, 100 crore families as our client. So we have already gained...
01:27:26
Speaker
1% market share, our our three-year goal is to get to 10%. So around 1,200 to 1,500 families is what we need to, we are planning to engage. Now, ah you are hiring private bankers for that. um You know, so then my question is this, that ah you said the private banker who's working with the first family can only handle X number of clients at a time, whatever, 20 or whatever, there must be some number. Yeah.
01:27:54
Speaker
when you are like say hiring a big team away from an existing player you would probably be giving them a significant bump on their pay etc ah how does the economics of that work that you know because the number of clients they can handle remain the same so the asset and the management will probably not change so how does that work It's a very sensitive question. which yeah You only hinted at it. I just picked up your hints.
01:28:25
Speaker
ah so So actually, this is a huge ah area of concern and cautiousness for the end client.
01:28:38
Speaker
Somewhere, I think so, here ah we have been blessed ah in some form and and and manner and we have a path to navigate through it.
01:28:49
Speaker
ah You are very right that the banker comes and they come at a certain growth in their monetary side.
01:29:00
Speaker
And there are certain wealth setups who have created new benchmarks, which is 2x and 3x of their compensation and very hefty joining bonuses, all of that. I think these first families is are everyone's dream client, right? Everyone wants just everyone's dream client, but you have to be different or to engage with them.
Sustaining Growth and Risk Management
01:29:22
Speaker
Thankfully, we ah we are doing and I'm proud to say that our strike rate is 50%. If we meet 10 of these first families, five start with us. Because what we offer is something. But coming back to the question which you asked.
01:29:34
Speaker
So see, yes, let's say somebody is making is earning 10 lakhs of rupees and gets a jump and moves at 20 lakhs of rupees. The first challenge is that his client base at 10 lakhs of rupees is, let's say, 20 crores.
01:29:50
Speaker
When he but moves to 20 lakhs of rupees overnight, his client base doesn't change. but as You're saying like the AUM, m his AUM. You make 1% out of it and then you you your salary is 20 lakhs.
01:30:03
Speaker
Usually these companies, all wealth management companies give 12 to 18 months. And that is the period you have to... absorb the burn, which everybody does. And so we also do absorb that burn. We are ready that the person will not even do 1x.
01:30:19
Speaker
But our roadmap is that we are ready to absorb it for two to three years period. But our outcomes after two to three years period are going to be much bigger because where the the remunerations are ah abnormally high and this has been I would say redefined of late in 25 by some of the wealth management companies there to justify and sustain and survive you have no choice but to do non-ARR products which are more on transactional side which you said now transactions after transactions because that is where you can make three percent four percent whatever that number could be one percent is also a justified number
01:30:56
Speaker
But you are doing it with the same set of clients. So you are again and again going back to in the same example to to do justify your 20 lakhs or rupees, you are going back to the same set of clients who have 20 crore. While you will be acquiring and managing, but acquiring and managing is a process. It doesn't happen overnight.
01:31:12
Speaker
So I think more than anyone else, the clients have to be very cautious. of the fact that if my relationship manager is is moving and he is moving at something which is very oh abnormally disillusioned, 20-30% increment is fine. the lot of bankers move at 20-30%. But somebody ah who's moving at a disproportionate growth, and these informations are available, kind will get to know.
01:31:43
Speaker
He's going to just have come back to to him only and justify that part. And that is where actually the the quality of engagement gets compromised in terms of product solutioning. And that is where you are so desperate to ensure that I sell the product, which is a good product, but is more aligned to me.
01:32:01
Speaker
ah That becomes a very difficult part. But what is your playbook? you You clearly have a playbook saying that we will hire. a So actually, we have a dual engine business. Already, the the retail business is chugging along well. We have a private wealth.
01:32:15
Speaker
We are largely focusing on ARR assets. We are not focusing on perishable business, which is your transactional business of unlisted and bonds. We are focusing on non-perishable business, which is ARR driven business. That's where retail kicks in beautifully. Like our SIP, STP book on a monthly basis is crossing 50 crores a month.
01:32:37
Speaker
So even if I don't do anything, 50 crores, our bankers are focusing on passive, lesser income, but longer engagement, because I want to earn 50 basis point in a passive fund. vis-a-vis 80 basis point in a let's say i actively managed fund because I will generate a better performance at least no underperformance I will stay longer with the client and I'm okay I'll make two and a half percent over five years period and I will garner higher share of wallet with superior return so our playbook is very simple but and where our investors also very strongly aligned playbook is essentially higher share of wallet higher share of wallet lower margins higher share of wallet
01:33:16
Speaker
and more passive and predictable strategies. And in order to build it, we will also burn. And we our investors are very aligned. Okay, you burn but build a scalable so and sustainable ah business.
01:33:29
Speaker
Because for us to turn profitable is very easy. In wealth business, you will not see anybody making a loss because otherwise IFAs or the mutual fund distributor cannot survive. So everybody is profitable over here because you're direct. But it is not scalable. Because it is not scalable, you start doing activities which are not core to the to the business. We want to stick to the core.
01:33:49
Speaker
um We will play out this period and our bankers have time and our KRAs also are defined in the in a manner where we are supporting them more on on aggregating ARR assets between mutual fund, AIF, PMS. And we are very honest with our clients. We tell them, why are you doing direct what you allow me to earn?
01:34:07
Speaker
And if somebody has an intent of off of allowing not allowing you to earn over performance, I think so that's not the right client. And because on a B2C side, we are working in a very niche time or a perito of 15,000 families, 12,000 to 15,000 families.
01:34:25
Speaker
We are assuming 90% of them will not work with us. So we are very happy with 10%, 12% market share. So there will always be two situations where in situation one, the client will say no to us.
01:34:37
Speaker
In situation two, we will also pick and choose our client. And our banker, which you mentioned, our banker is mandated to only work with 20 families. So what is boutique? We will remain boutique. We don't want to create or re-engineer that that piece. What is scalable? B2B2C, we will scale. D2C scalable, we will scale.
01:34:56
Speaker
So we have chosen our pockets very judiciously. Most tech founders would have said that because of technology, my private banker can manage 40 instead of 20.
01:35:08
Speaker
That's what I would have expected to hear from a lot of other founders. So I'm a little surprised. That will happen over a period of time ah because technology is going to do 70% of heavy lifting right from execution, reporting and MISing. And the role of the relationship manager will become of that of...
01:35:27
Speaker
last mile connect again, who is offering superior ah advice to the client basis technology. And yes, potentially it can become 40. But I know the complexities of large family offices or first families.
01:35:44
Speaker
ah And our simple thesis is that we actually don't want people to manage 40 structurally. I'll tell you today, if the market is down by 2%, can you call 40 people? You have to call them.
01:35:56
Speaker
If market is down, do this. Here we structurally don't want to scale. 20 people you can call. 10 people you can call and have that 15 minutes. Because market is open for a couple of hours.
01:36:07
Speaker
Good market, bad market. And also you remember you have 22 working days in a month. oh Working days in a month. Can you review 40 clients in a month? In person?
01:36:19
Speaker
The answer is no. But yes, you can review 20 clients in a month. So there is a reason we have sticked to. Because we are bankers. We have lived this thing. So we understand the... the real side of the business. So it is very thoughtfully decoded that the number should be 20.
01:36:34
Speaker
And if you have 100 families and if even even you have 10 families who have 100 crores and you are managing 1000 crores, your bandwidth gets choked. If you offering a quality engagement, you are offering a superficial engagement and you are fair weather friend. Because banking know the character when the when you know there is a liquidity, the the car will stop at the client's address.
01:36:58
Speaker
We want bankers whose car is going and and stopping at the client interest, even he is not transacting. That is in the journey of managing the portfolio. It's a very hard call which we have taken, but it is the green shoots are already there and there is no reason that we should not be building and scaling on that in the boutique manner. And luckily, we are also getting bankers who are joining us are the ones who believe in the boutique manners. People who are more transactional in nature ah will not work with us. They will work with the other setup. We ah but want people who believe in ARR asset longevity, outperformance. And we have to handpick 100 people. We have done 30, 70 more is not a big number for us. So we...
01:37:36
Speaker
But yes, if tomorrow I had to do 300, I would have no choice but to go for masses. Got it. So, ah you know, a lot of D2C founders discovered that it's possible to buy sales revenue through pumping in money into meta ads, whatever, and your product starts selling. But the moment you stop your ads, your sales also falls down. um Is there a risk that ah you are buying revenue?
01:38:04
Speaker
by acquiring these wealth managers and they can walk out with that AUM if somebody else offers them a higher. That risk will always be there. But very tough to imagine a situation where 100% of the people will move.
01:38:20
Speaker
You have to live with 10-20 percentile and that's the ah nature of the beast.
01:38:28
Speaker
um you can't do much about it. and Does 100% of the client best move when a wealth manager moves? and The best wealth manager will be able to move 30-40% of the client.
01:38:39
Speaker
Clients just don't move. Especially if you have two changes, you will be completely finished. There are VC series where every three years Anybody who is moving every three years, he doesn't have client control. A good wealth manager will always have 10, 20 clients who will give his initial 20, 30% of sustenance and survival a year. But many of the firm but ah wealth managers believe that they have great client engagement. But then when they move, clients actually don't move. It's it's it's it's a partial myth, I would say, that everything will move. It doesn't doesn't move.
01:39:14
Speaker
but One of the unfair advantages you have is your ability to pick wealth managers. I'm assuming that's like a massive... That unfair advantage I will concede to. Amazing, amazing, amazing. This was a wonderful chat, Manu. I truly enjoyed. I learned so much from you about how the wealth industry works and how founders should think about growing in this space. Superb. Any last words of advice for the young aspiring founders who are listening to this show?
01:39:46
Speaker
See, if um they are very smart people outside, so I don't know what advice to give. But I would say that be very realistic about your business model.
Advice for D2C Founders and Wealth Managers
01:39:55
Speaker
Businesses are meant to generate revenue and profitability at certain point in time.
01:40:00
Speaker
ah While we have very crazy ideas which we feel disruptive in nature, backtest those ideas and be more realistic about it. Because like we were talking about D2C and you were talking about spending on meta and other things.
01:40:14
Speaker
The fact is that while there are few North Star companies which are shining stars, which we really talk about, but behind those companies, the mortality rate is exceptionally high.
01:40:25
Speaker
So D2C is a very, very difficult business. It has exceptionally high mortality rate, but it is the most scalable. So anybody who finds the right ah fit or the right solutioning will will tend to become the biggest company in ah in its segment.
01:40:41
Speaker
But look at the mortality rate that that is around that. So one has to be very cautious and judicious about D to C businesses, especially on the financial services side. side And ah on the assisted journey side, especially with the UHNI clients, ah avoid in order to maximizing their your revenue and growth.
01:41:04
Speaker
a avoid doing leverage trades for the client. ah There are bankers which we know in the industry, they do insane amount of business and revenue, 20, 30, 40, 50 crores. But when you peel the onion and you see on a high risk product, because only something which has high risk can promise a 15, 18, 20%.
01:41:25
Speaker
You tell the client that give me 20% margin, 30% margin, rest I will do an Excel sheet, it looks very good. ah fact is that you're playing with fire and it is a ticking time bomb and you don't have the control, as I mentioned, about the business which the fund manager is investing.
01:41:41
Speaker
And one bad transaction actually takes away the entire wealth and money of the client. ah Even I would say that is one parameter of of ah for the client also to understand the intent of the of the wealth manager. If a wealth manager is talking about leverage,
01:41:59
Speaker
on the on this part. Client asking, it is fine. Client is saying, I want leverage. I know the risk. I understand. It is fine. But if the wealth manager is even advising to do leverage on these kinds of high risk products, it is very fine. And this is not something which should be idealized.
01:42:18
Speaker
e usni i sayki orni Because this is very short term. So two things very clearly. Be very sure when you are D2C about your business model revenue and how well you can grow without spending too much of money on ads because that really kills the business. There is no outcome rather than spend money on on people.
01:42:36
Speaker
And on the physical side or or the physical side, please be sure that you are not advising anything which is giving you too much of front-ended ah income just to sustain and survive.
01:42:47
Speaker
Go slow, grow big. That is a better way to do it rather than trying to do it too fast. I think the basic mantra in wealth management is first, don't lose money. You will not lose money. wealth management is a business, you can't lose money. There's something very wrong if you end up losing money in wealth management, especially in an assisted journey.
01:43:05
Speaker
There's no way you can lose money because whether it is a partner or it is your RM, everybody is there to justify their cost. It is a function of scale, what you can achieve.
01:43:17
Speaker
There are things which can be scaled up. There are things which cannot be scaled up. B2C is a non-scalable business. To accept that and don't do anything around it like leveraging or asset management and creating conflict of interest and creating bogus transactions where you are making a large amount of money.
01:43:32
Speaker
B2B2C is very scalable, but D2C will always remain scalable because there is no human intervention, highest probability, but the mortality rate will always be greater than 90%. So you have to That's why we have chosen the last part of
Transition to Digital-First Approach and Growth Strategies
01:43:45
Speaker
our journey. We are moving from being a digital to a pure digital company, D2C for NRI, D2C for India market.
01:43:52
Speaker
ah After stabilizing our revenues and profitability, so that even if there are jerks over there, we have the ability to absorb. Otherwise, we will collapse. We could have done it in a fancier way at the beginning. So we we have re-architected the wealth management business in simple terms. And we are seeing very good outcomes of our business architecture.
01:44:15
Speaker
We are north of $1.2 billion dollars of AUM. Out of that, 60% is recurring. We add nearly crores of recurring asset ah every month. We have 17,000 distributors. From a revenue perspective, our first year of operation, 23-24, we did 20 crores revenue, 24-25-60. This year, 100. Next year, much much more significant than 100 crores. Our ARR book will generate next year nearly about...
01:44:44
Speaker
60 crores of revenue in itself if we don't do anything. So that is being a ah great foundation ah of the business. And we will never want to be number one in India. We are very happy to be number two, number three without losing our sanity and our engagement quality with the clients.
01:45:00
Speaker
Can you put this $1.2 billion dollar number in context? It's around 12,500-13,000 crores. I mean, like ah where does this put you in the ranking? Are you in the top 10? See, from a revenue perspective, if you look at wealth management companies from a pure revenue perspective of wealth management, because there are ancillary revenues, asset management also, broking also, ah NBFC also. But if you pick up pure wealth, I think we will be among top...
01:45:29
Speaker
12, 13 at 100 crores plus revenue. At next year, let's say 175, 200 crores, we will be in top 7, 8. Because this pace is very heavily dominated by 4, 5 firms, which are up to 500, 600 crores revenue.
01:45:41
Speaker
And sub that, most of the pure wealth plays is... 200 crores and below. So yes, we see ourselves in the next three years, definitely in a 500 crore plus revenue bracket and 50, 60,000.
01:45:54
Speaker
fifty sixty thousand So which puts us in the top five, six percentile league. Four or five big ones are like say an IAFL, 361. The obvious ones. Okay. Okay. Okay. but they are heavily concentrated but the moment you move beyond them you will see the revenues dropping to sub 200 300 crore us may mix of asset management copy business nbfc but if you peel the onion and you take out the pure or uspe subset but a challenging factor why where these businesses are not
01:46:26
Speaker
very healthy in nature seventy to 60 to 70% of their business is perishable business, which is transactional in india nature, non-era. Because they are in pursuit of profitability and scale and growth, they tend to inject more upon the transactional business, which is very risky.
01:46:47
Speaker
Because let's say the kind of geopolitical environment, if the markets really go bust, those transactions will dry down drastically because there is a recency bias with the client. if Negative sentiments have a negative ah thinking, positive sentiments have positive thinking.
01:47:02
Speaker
That is where only your ARR assets come but to your survival and ARR assets compound. So if you bought a stock at 100 rupees unlisted and it will become 10,000 rupees, If it is in a fund structure or ARR format, it will give you income out on 1000 Rupees.
01:47:17
Speaker
But in non-ARR, you have done it once. bothto ibarappco igbart transactionillia so That's why I say it's a perishable revenue. Perishable revenue is not very good for for a wealth management business. So you have to be fundamentally instructive. That's where we have decided that we want to operate at a very low margin, twenty five thirty basis point and build a very sustainable and scalable business where people cannot even compete with with us and structurally we are doing well.
01:47:44
Speaker
From where did you get this DNA of risk management? Like like I can see throughout your, every decision you take, you weigh the risk. ah You know, you're not. That's how the life goes.
01:47:57
Speaker
In one of the other discussions, I said that you step out of the house, you know the risk. Okay, accidents happen. But you drive judiciously. You control your thing.
01:48:08
Speaker
So for me, markets is not controllable. Geopolitical is not controllable. Business where the asset manager is investing is not controllable. For me, asset allocation and risk is controllable. That I can control.
01:48:22
Speaker
So if I'm not doing my basic core job of what is in my control, believe me I'm just not doing the job as a wealth manager. I can't throw caution out of the window, risk out of the equation.
01:48:35
Speaker
ah You know, why I find this so unique is because so few founders are working with risk in their mind all the time. So, you know, which is why this conversation is so unique. For me, business risk, client portfolio risk, market risk. If I can manage risk, um the outcomes will be...
01:48:53
Speaker
disproportionately bigger. While we may be very slow to start off, but the net outcomes will be much, much bigger. Does this also define how you manage people, how you hire? Like, are you constantly looking at yeah people management from a risk lens or hiring from a risk lens? Those exuberant bankers who do leverage and do big revenues are not welcomed at Centricity.
01:49:17
Speaker
Because their DNA, they think in a very different... We need passive bankers who think about the client, who think about engagement and longevity. We don't really... Transactional DNA people are not right fit for us.
01:49:32
Speaker
ah ah Let's not just talk only of wealth managers. Say you are hiring a CTO. How would you minimize risk? See, CTO for us, see again, every job has a different persona that is required.
01:49:46
Speaker
So let's say your core functions require a service and operation head, finance head, compliance head and a CTO. Let's say non-sales.
01:49:58
Speaker
Service and operation person has to wear a hat of excellence. Six Sigma. When I'm meeting, how how disturbed the person gets when the client is not serviced properly is one of the most important attributes I say. They could be somebody who can just shrug it off. Okay, listen on. That's not a person. So that's how we do it.
01:50:19
Speaker
Finance person has to learn frugality and efficiency. So if he is not ah countering me on an expense, he's not the right person or if he's not giving me the MIS in terms of my business matrix, whether it is good, bad, he's not the right fit.
01:50:36
Speaker
Compliance has to be drop dead serious person because compliance not only means compliance with the clients, but with the regulator. And when you are doing a neat and clean business, you never want to be on wrong side of the regulator, even unknowingly. while Events can happen, but you don't want.
01:50:53
Speaker
When it comes to CTO, CTO for me is a vision executor. I mean, while we are talking about risk, believe me, we will be presenting in six months the entire risk on on our platform. We will see with a red line, key what is the level of risk, adjusted return, everything will be digitally. We are going to make it insanely transparent for them.
01:51:15
Speaker
And tell the clients that this what you want to do, don't do it. And that is where the real disruption through technology will will happen. CTO is the one who is actually somebody who brings the inner technology setup, the vision to reality.
01:51:32
Speaker
So a he has to have a bigger and a better vision and he has to be, he moves shoulder to shoulder, especially like founders like us who are not technocrats. So the persona has to be very different and he has to be par excellence at at technology. right like Our CTO today is an ex-Tata digital AI engineering head. So he came in with a lens of AI being embedded in the system. So machine learning we had built in last two years, that it has to be evolved.
01:52:02
Speaker
And if he is not able to tell me what more can be done on the vision, then he's not the right. Luckily we have the one who has who has has it. again So every function has its own thing.
01:52:14
Speaker
Most important thing that each function has to talk to each other. People cannot work in silo silos. There is an exercise that we do on a quarterly basis, which is called breaking the silos. Okay.
01:52:26
Speaker
The compliance has to be compliant, but has to understand the business. The finance has to be frugal, but has to understand the business. The tech has to be visionary, but has to understand the business dynamic. So each function has to look at it and the outcomes are are something which is cross-sectional in nature. So if you are great at compliance, you are saving the business from any untoward happenings.
01:52:49
Speaker
the The compliance head also has to look at the business viability aspect ah also. So for us, breaking the silo activity which happens on a quarterly basis is the most important thing where everybody starts looking inward and talk to each other.
01:53:06
Speaker
HR is hiring, but are you hiring the right person or the more urgent profile or you are just in general hiring? So ah similarly on service and operation as well. So we look at it differently. Our DNA is very different to any other set of... we amazing Amazing. I truly loved learning about... how you've built what you've built and i will i think i've already crossed the time i had on your calendar thank you so much for your time manu lovely thank you thank you so much great it was a great time with you but