Let me first of all clarify that an act like this definitely taints the brand wealth manager but this is an act of an individual. The whole wealth management industry is shocked and scandalized with an act of this individual. There are lots of good professionals in the industry who are passionate about this space and are practicing it for a living! Today it does not mean that one starts doubting any wealth manager even if the manager represents the same bank. However one should learn few lessons from this example and see what process they need to follow in terms of selecting a wealth manager and also invest the money so that tomorrow they do not become a victim!
Some of the steps which one must follow in selecting a Wealth Manager and selecting an investment are (this is like selecting a doctor and having a prescribed medicine to become financially independent):
- Qualification & experience of the professional! I think the way it is important for a Wealth Manager to Know Your Client (KYC), similarly it is extremely important for a Client to Know Your Wealth Manager (KYWM). Would there be only this individual who would manage my case or would there be a 4-eye principle followed (team of 2) - one of the best practices followed by some of the best institutions worldwide in this space and ensuring that this team does not comprise of family members.
- One should always try to have the knowledge of where your money is going/ invested into? It is good to question your wealth manager and he/she are responsible to make you knowledgeable as it is your hard earned money.
- Control greed: Do not always go after the higher returns as there is a simple thumb rule - risk & returns go hand in hand. Always ask the assumptions one has used to project the returns and what is the risk associated with the same. Can the risk be quantified? If the returns look unrealistic, better avoid the said investment unless you get to the rationale of the same.
- Look for simpler and transparent investment options.
- Look for a rationale wealth manager and the one who is not too aggressive as you need an advisor rather than a salesman. Aggressive advisors would normally over promise and under deliver.
- How much time one could devote towards one's wealth and more important how much time a wealth manager could devote towards you as an advisor? For this it is extremely important to see how many relationships he / she are working on? It is extremely important to see if both could devote together at least an hour on the existing wealth on a monthly basis and this time spent by a WM should be to review the entire picture rather than selling a new idea.
- Is the model client centric or revenue centric? How is the compensation of the individual / team linked to the overall revenues of the organization one works with? What are the expenses one is paying for investing their own money?
- Would this arrangement be long-lasting? Would this wealth manager move to another organization/city after a while and how does one trust someone new every few months/ years? Quite a number of concerns get addressed if the working arrangement is long term!
- What is the DNA of the institution which he/she is representing! What is the credibility of founders or senior team of the institution? Would there be an access to the founders/senior team if one engages them?
- Is the wealth manager a one or two professionals outfit so that the brand or pedigree does not make too much difference besides compromising the knowledge pool or is he/she a part of a very large institution which does everything with wealth management as one of the various activities? Sometimes in larger institutions manipulations could go unnoticed if the processes are not full proof which leads to scams. Boutique set-ups with a good pedigree and which are neither individual driven nor too large an institution could be the ideal options.
- What is the advisory process of the institution and most important how this process is monitored within the organization one engages as their wealth manager?
- The institution one deals with – does one need to sign various POAs so that wealth managers could operate one's bank account, investments, etc. It may always be better to have a separate wealth manager, a separate banker and a separate chartered accountant as it would enforce various check points and work in favor of an investor.
- Does one need to cut out the cheque in favor of a wealth manager or directly into the investments one is subscribing to – also one needs to check their own identity with the institution they have eventually invested in which could be done by folio numbers, certificate or account numbers.
- One must do a regular audit on one's investments depending on the scale & need. It could be monthly, quarterly, half yearly or annual. Minimum once in a year an audit should happen – may be at the time of filing annual tax and balance sheet returns.
- One should insist on technology or software generated reports on the letter head of the institution rather than a manual report.
- Most important one should not sign blank forms/ slips or issue blank cheques and cheques issued should always be account payee.
All of us who represent this industry and are the wealth managers should ensure that an act like this never gets repeated as trust is the biggest underlying when we deal with money and if the trust is diluted this profession would never be able to evolve. This is where the value system, integrity, DNA or approach of an individual or institution makes a huge difference!
Whatever said & done, this profession is a profession of trust and it is difficult to hire someone without trusting someone for managing money. However, following the above steps one would ensure that it is a "calculated trust" and not a "blind trust" and it would be long lasting!