About an year back I was part of a team that studied the habits of Indian investors about how they manage their wealth. Some traits were common across the demographics – Advisors were not trusted (they are merely product pushers), too much information overload, no way to understand a 360 degree view of current wealth and so on. When it came to the high net worth individuals (those with an investible surplus of greater than five million US Dollars), there was another refrain that we heard several times. “I really don’t know much about the advisors. I have people to deal with them. They do everything for me”. This implied a commutation of trust – from the financial advisor to the personal assistant(s). I also had the opportunity to witness first hand how such personal assistants to high networth individuals are given VIP treatment by the wealth managers and get their own personal tasks executed by these wealth managers. It was quite evident that two things had happened. One, the power of wealth was surrogated to the gatekeepers who by definition should have played a mere fiduciary role on behalf of the HNI and two, the wealth advsiors were treating these gatekeepers as their client.
In light of the embezzlement that happened by a Relationship Manager at Citibank defrauding his clients – mostly high net worth ones – this not-so-subtle switch of relationships and power becomes important. It so transpired in the case that this Relationhip Manager had managed to get blank forms, power of attorneys and in some cases financial instruments signed by his clients which he went on to use in illegally moving funds from their accounts (included in this roster of clients is someone who had started Daksh and later sold it IBM. This person included Vikram Pandit in his police complaint). I suspect that at least in some cases the clients really had no idea of what they were doing, because there were gatekeepers. It also is not above suspicion if there were collusion between the Relationship Manager and the gatekeepers (nothing has come out on that as yet though). The promise made by the relationship manager to his “clients” was a 2-3% return per month. Now anyone, including my seventy year old mother, would know that such returns are just impossible (else, Puri, the relationship manager would not have been working for a salary). I find it difficult to imagine a conversation between Puri and Sanjiv Aggarwal that gets to this point and where Aggarwal pulls out his Mont Blanc and starts signing those blank forms. Such conversation between Puri and a gatekeeper with a promise of kickbacks – not too difficult to imagine.
The moot point here is that the supply side malaise in form of rogue advsiors is just one dimension of the problem. There is a structural demand side issue as well and this cannot be labeled as an education deficit challenge. The problem is with individuals surrogating their money management responsibilities to questionable fiduciaries and taking a hands-off approach. A systemic behavioral problem takes more time to solve than mere correcting operational principles, which Citi is probably doing right now.