Panelists (From left to right) : Pradeep Kumar Jain, Ranchi; Hemant Rustagi, WiseInvest Advisors, Mumbai; Brijesh Dalmia, Dalmia Advisory, Kolkata, Bharat Phatak, Wealth Managers, Pune, Ashish Somaiyaa, Motilal Oswal AMC and moderator Vijay Venkatram, Wealth Forum

The advent of the new Investment Advisor regulations seems to have got the distribution fraternity sharply polarised - between those who would like to call themselves as advisors and those who assert that they are distributors and not advisors. In all this debate on whether you are an advisor or a distributor, one angle that we thought is perhaps not getting enough attention is the most important one - what do clients think? Are client expectations from distributors vastly different from advisors? Do clients understand the nuances between the two? Is the difference between the two largely in our own minds? What do clients really expect from you? Is alpha generation an expectation from investors from their advisors? Is portfolio performance an advisor's responsibility? On the flip side, are clients happy if distributors only establish product suitability and take no responsibility for portfolio performance? What, in a nutshell, actually distinguishes an advisor from a distributor in the eyes of investors? This was debated in a panel discussion at the recently held Wealth Forum Platinum Circle Advisors Conference, and we got some very good insights from the distinguished panellists. The panel's deliberations were kicked off by Aashish Somaiyaa, who made a very thought-provoking presentation on the client's perspective in this debate of advisor vs distributor and what it will take for you to deliver to these expectations (this presentation is covered in a separate article).

WF : Bharat, you run a discretionary PMS offering that focusses on stocks as well as an advisory proposition that focusses on mutual funds. Do client expectations vary based on the type of offering? Do they appreciate that yours is a money management function in the PMS offering whereas for mutual funds, yours is a distribution function? Or do they believe that its your responsibility to deliver good performance on their portfolio - irrespective of the proposition and the products within it?

Bharat Phatak, Wealth Managers, Pune : Irrespective of how we position ourselves from a regulatory perspective, clients look at us as their advisors. They look either for guidance or a sounding board, depending on their own level of familiarity with markets. They want an opinion from us, and respect our opinion - which is why they seek an opinion in the first place. Recenty, a client called me about his son's higher education expenses. His son is already overseas and the client was worried about the sharply depreciating rupee. What should he do to ensure funding for the next year and the year after? How can he protect himself against the rupee's depreciation at this critical juncture? My client is not calling me because I am a mutual fund distributor - if that is the way I positioned myself to him, he would never seek an opinion on such matters - which matter most to him. Because he sees me as his financial advisor, he calls me up because he thinks I may be able to offer an opinion that may be of use to him. Whatever be the stand we take from a regulatory perspective, we are advisors for our clients.

Do clients expect us to be responsible for portfolio performance? We are aggregators - we put together many products made by different manufacturers in such a manner that the aggregate works towards meeting a goal. I would say that I look upon myself as a plumber - I may assemble different pieces of plumbing, but at the end of the day, the client wants the shower to work. He is less bothered about the parts that went in - but is focussed on the outcome. The plumber will need to ensure that the shower works, finally.

WF : Hemant, what's the best way to manage this client expectation about being responsible for portfolio performance, whether you call yourself advisor or distributor - especially when you are not directly managing the money?

Hemant Rustagi, WiseInvest Advisors, Mumbai : There are two kinds of clients. One who do not look for asset allocation advice, who are not goal based in their approach and who only look for portfolio returns. Moreover, they only look for absolute returns and don't see relative returns as relevant to them. These are the kind of clients who typically get dissatisfied with market volatility and look frequently for changes in portfolio composition.

The second type of clients, which fortunately is the growing segment and one we like to work very closely with is the segment that appreciates a goal based approach, sees merit in asset allocation, sees merit in diversification and is willing to stay with a plan through volatile markets, as long as they retain their conviction in the long term strategy that is agreed with them.

Our job therefore boils down to managing expectations right at the outset. It is very important for us to communicate what we can do and what we can't do for the client, and gain alignment on this early on in the relationship. The other aspect of our job - which is an ongoing one - is to manage value gaps. There is a lot we do, which is not very clearly visible to our clients. How does one for example quantify the actual benefit of having a diversified portfolio? How does one quantify the value we add when we help a client avoid a financial blunder? This is where value gaps come in - where clients don't see the value, but where we know that we have added value. We are increasingly spending more time in communicating with our clients what we are doing and why we are doing it. This helps them see the value more clearly.

If one manages expectations early on, and focusses on addressing value gaps, clients will appreciate what we are doing on a holistic basis in their financial lives and will not judge us solely by a point-to-point return expectation on the portfolio.

WF : Brijesh, do you expect that with the advent of the new Investment Advisor regulations, clients will sharply differentiate their expectations from a distributor and an advisor? Are their expectations from their existing intermediary likely to reduce if they know that the intermediary is a distributor and not an advisor? On the flip side, what more would they expect from an advisor, which they will not expect from somebody who positions himself as a distributor?

Brijesh Dalmia, Dalmia Advisory, Kolkata : I don't think any material change will happen in our business models or in client expectations from us at least for the next 2-3 years, consequent to these new regulations. Client awareness of this is still low, and interest levels are also quite low. Its going to take a while before these things start making an impact. I don't see clients making a big distinction in their expectations from us - whatever we call ourselves. Think back to when you signed up all your early clients, who are still with you. Many of them held you responsible for portfolio performance, irrespective of what you said. They wanted you to have a magic wand in your hand, and over time realised that we don't have that magic wand. They still remained with us, so long as they trusted that we were always taking steps solely guided by their interests. In our business, the main focus is on minimising errors. If you are diligent and avoid blunders, you will perhaps be far better off in getting your clients to their financial goals. Its like a game of golf - the winner is the one who makes the least errors - not the one who hits the maximum shots.

I tell my clients very clearly that we are not here to generate alpha - that's not our expertise. We are in the business of preparing and executing your financial plans and working with you to ensure you are able to meet your financial goals. You got to keep repeating this over and over again to ensure that client expectations are aligned with what you are capable of delivering.

WF : Pradeepji, in smaller cities like Ranchi, is this whole debate on distributor vs advisor relevant at all? Do clients bother about this? What brings them to you in the first place, and what sustains their relationship with you? What do clients expect from you?

Pradeep Kumar Jain, Ranchi : India has many more small cities and towns than large metros. In smaller cities like ours, the first and only thing that matters is relationship. Your knowledge, degrees, certificates - all are secondary - the primary factor is whether you are able to strike up a good relationship with the client. Then comes the trust factor. How is trust won? When we start discussing with clients, we talk about their families, their goals and aspirations, their income, assets and liabilities. If you think about it, all that we are talking is advisory in nature - its not about a product. Without advice, you cannot build trust. And its only when you build trust that you will offer solutions that the client will be amenable to consider and act on. So, as far as the client is concerned, we are positioning ourselves very clearly as advisors and not as distributors. If you position yourself with your client as a distributor, what will he expect from you? The best deal, of course. Which means pass backs - and this is true for big metros and small cities.

Now, the fact is that although we position ourselves as advisors to our clients, none of us can deny that deep down there is a distributor within all of us. We want more sales, because our revenues and profits depend on how much we sell. So, we are all distributors. How can we balance these two? By simply recognising that we want to be with our clients not for 1 or 2 years but for 20-30 years. Once we internalise this basic fact, we will not sell anything wrong to them - because we know that this will destroy their trust in us. We may make mistakes, our recommendations may not always perform well - but as long as your client knows that you acted in his best interests, he will remain with you.

As regards responsibility for portfolio performance, my view is that the day you decide to charge your client a fee, he will hold you fully responsible for portfolio performance. If you are not charging a fee, and as long as he continues to trust that you are acting in his best interests, he will not hold you responsible for portfolio performance, but will certainly look to you to make corrections where necessary to get the portfolio on track again.

Bharat Phatak had the final word in this engaging discussion when he said that irrespective of whether we have a legal responsibility or not for the money under our advice, we have a moral responsibility towards ensuring that it is invested in the best manner possible. After all, the commissions we earn depend on clients continuing to retain their trust in us and therefore continuing to do business with us. Whatever be the position we take from a regulatory standpoint, we cannot lose sight of the fact that our clients think of us as their trusted advisors who will guide them appropriately, and we must do everything in our command to deliver on this expectation.

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