Date: 2016-10-28 04:00:00+00:00
Publisher: Bloomsbury Publishing
Rights: &#169; 2016 by Shreyasi Singh

The Wealth Wallahs

The Wealth Wallahs

Shreyasi Singh

First published in India 2016

© 2016 by Shreyasi Singh

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For Agastya,
all the wealth I will ever need

Contents

Acknowledgements

Introduction

Up A Beanstalk

Chapter 1Fields of gold

Chapter 2Midas’s new crucible

Chapter 3The perfect storm

Breaking New Ground

Chapter 4Shh, I’m rich!

Chapter 5The colour of money

Chapter 6Dividends of thrift

Chapter 7Do-gooders or reluctant philanthropists?

House Of Wealth

Chapter 8Shedding the past, wearing the future

Chapter 9Great expectations

Chapter 10The anatomy of choice

Chapter 11Age of knowing more, seeing clearly

Chapter 12The relationship roulette

The Rainmakers

Chapter 13A game of odds

Chapter 14Soliloquies

Chapter 15Alchemy of ambition

Chapter 16Chessboard

Chapter 17Blueprint for growth

Chapter 18Client Sutra

Chapter 19Rules of engagement

Chapter 20An eye on the future

Acknowledgements

Writing a book isn’t a solitary pursuit. If it takes a village to raise a child, it almost needs a galaxy to tell a good tale. The author can lay claim to the vision but the glory belongs to many others as well.

When I started to think about who I should thank, the list seemed endless. It’s difficult to cram gratitude into a page but this book couldn’t have been written without the help of a special few.

I would like to start by thanking my publisher Praveen Tiwari, and the entire team at Bloomsbury, especially Nitin Valecha and Madhumita Mookerji for their steady support, incisive feedback and good vibes. Praveen, you’re a rock.

Thank you to Avinash Thadani, Aatif Lone and Karno Guhathakurta for the striking cover. I love it.

The book wouldn’t have been possible without the interviews and conversations I had with so many entrepreneurs, senior professionals, business analysts, respected journalists and industry stalwarts. Your stories helped me tell mine. For your time, candour and sharing your fascinating journeys, you have my deepest gratitude.

Little did I know that a routine cover story I did on IIFL Wealth as editor of Inc. India would end up as a book two years later. Its founders’ journeys of becoming wealth managers to some of India’s largest fortune builders helped me weave together so many fascinating aspects of the world of wealth that lies beyond statistics and numbers. I appreciate the time, research support and insights of the team at IIFL Wealth. A special thank you to Ronak Sheth for his help.

I live off the enthusiasm of others. To my friends and extended family, thank you for being excited on my behalf. Many of you had no idea what I was writing about but were certain it was bound to be great. The usual writer’s agony became yours as I ranted and whined. For those who have been waiting for the book to be out, your signed copy is on its way. Grateful for the joy and fun you bring to my life.

To my bosses, and cherished mentors, Anuradha Das Mathur and Pramath Raj Sinha: Your encouragement and support pushes me to do more and be better, every single day. I am privileged to have you in my life.

To Amrita Dasgupta and Madhumita Nandi Srivastava, a special mention. I am touched by the hours, effort and love you have given me, and this book.

My thanks to Rita Saha Ghosh, Dhananjay Rai and Anshul Sharma at Skymet Weather. Even though I will miss working out of your office, Jatin, I am sure you are happy to have that extra workspace back!

My biggest appreciation is reserved for my pack of editor friends: Shalini Dagar, Tejeesh Nippun Singh Behl, Ira Swasti and Preeti Singh. They read early drafts, poked holes in my structure, pushed me to think harder and helped me focus. What’s more, they did it with equal parts brutality and affection.

Preeti Singh, for your talent and your friendship, I owe you for life. My favourite part about writing this book has been our midnight editing sessions, with much laughter, single malt sample shots and your formidable repertoire of snide comments. I won’t write another book if you are not editing it.

To my in-laws and my sister-in-law, thank you for taking Agastya on long holidays and short weekend breaks so I could work in peace. Your support made all the difference. To Aditya and Terniza, your positivity and encouragement are such a large part of everything I do.

Most of all, to my parents, my husband Jatin and our son Agastya: Thank you for putting up with me, even when I was at my distracted and irritable best. I hope seeing the book in stores will make up for some of my bad behaviour. Nothing would be possible, or makes sense, without the four of you.

Introduction

For too long, wealth management has been a secretive, covert business. Clients have usually been cagey about discussing their net worth, much less speaking frankly to others about how they manage it. Private bankers and wealth managers are even more reticent, restrained as they are by confidentiality agreements and the sensitivity that comes with the territory.

In fact, the old glamour of the wealth management industry came from it being inaccessible and obscure. Such exclusivity has its origins in this being a cloak-and-dagger business. Much as people tried to “hide” their money, those who managed it were also best kept hidden. It was a world tighter than a moneylender’s fist.

This book is an attempt to shed light on a subject that has long been confined to anonymous surveys and research reports where rich clients and their wealth managers are often only represented as statistical data.

It’s an intricate business. Managing the money, personal quirks and risk appetites of some of the country’s most successful and wealthiest people makes it a job rife with challenges (and plenty of interesting stories).

At a time when there is an unprecedented “wealth effect” at work in India, understanding how freshly-forged millionaires think about their wealth and manage their bounty provides a rich repository of new insights.

As we see people around us become wealthy, and as they find themselves richer than they had ever imagined, the way Indians perceive affluence and those who possess it is also changing. At the heart of this narrative are the country’s new wealthy.

Based on extensive interviews, the book examines some of these changes. It is in no way exhaustive but does offer a glimpse into a dynamic world. What do their first few millions mean to the first-time rich? Do their attitudes to money mark a departure from the way the traditionally wealthy have looked at their fortunes? How, in turn, do their attitudes influence and mould the views of those on the other side of the golden fence?

As the world’s fastest-growing economy tries to get in step with the rest of the world, conflicting — almost schizophrenic — views around wealth and the wealthy indicate important cultural, social and economic shifts within India itself.

The book also explores how the new wealthy manage their substantial fortunes. Who do they trust to do this? How do they pick their advisors and how are these relationships structured? What does it take to win the confidence of smart and shrewd business builders? In turn, has their rise as significant wealth creators changed the nature of India’s fledgling wealth management industry itself?

Unspooling the story through IIFL Wealth’s eight-year-old journey as one of India’s leading wealth management firms offers a unique vantage point. What makes its climb up the ladder more fascinating is an insiders’ perspective of being financial confidantes to some of India’s most successful entrepreneurs and professionals.

I first heard about IIFL Wealth, and met the founding team, in early 2012, while I was the editor of Inc. India — the Indian edition of Inc., the American magazine on entrepreneurship. For a story I filed on them later, I met more than two dozen of their clients. Each of them had their own fascinating story to share. They were entrepreneurs that magazines such as the one I was editing often put on the cover.

Collectively, the treasure of insights from the clients was the “after” story of the entrepreneurship boom. It was the happy albeit uncertain corollary of entrepreneurial and professional success. Most reportage on entrepreneurship is limited to the process of building the business. Few articles or books focus on what happens after. When people do write about the affluent, it is to gush over their material purchases. This book allowed me to tease out and explore an entirely new set of insights.

IIFL Wealth’s story also ties in with strong forces beyond our borders and how global currents in a post-2008 world are shaping a young industry in India. The tremors of the financial crisis exposed deep faultlines in the financial services industry but the cracks also created a fresh topography of opportunities.

In the end, much like the stories of their clients, IIFL Wealth’s journey tips its hat to the remarkable success that smart timing, entrepreneurial dynamism and a bit of luck can script in today’s India.

Part 1

Up A Beanstalk

Chapter 1

Fields of gold

The world of entrepreneurship is a waste bin for the best laid plans.

In December 2014, Raghunandan G and Aprameya Radhakrishna, co-founders of app-based cabs aggregator TaxiForSure, were busy thinking up strategies and making expansion plans that they would not have a chance to implement. Raghu, as he is popularly known, was working out of cafés across sunny California, while Aprameya was holding the fort in the start-up’s buzzing office in Bengaluru. In the months leading up to that December, they had aggressively increased their customer base although this had bled their reserves.

At that time, TaxiForSure was one of India’s hottest young companies, having raised $26 million ( 174.98 crores)[1] from venture capitalists such as Accel Partners, Helion Venture Partners and Blume Ventures since it started in 2011. It was also locked in a three-way battle with Ola Cabs and Uber — both popular app-based aggregators as well — to capture market share of India’s rapidly changing taxi business.

Raghu was in Silicon Valley through November and December to raise about $200 million ( 1,334 crore) from investors to power this high-stakes, cash-burning contest and fuel TaxiForSure’s growth ride.

On 5 December 2014, a young woman was allegedly brutally raped by an Uber driver. That put a rude brake on those plans. Along with Uber, the Delhi Police banned all app-based taxi aggregators from operating in Delhi. A few other states followed suit, leading to several weeks of regulatory chaos and doubts about the future of these companies in India.

The ambiguity sharply changed the tenor of conversations in investor circles in Silicon Valley. Enthusiasm gave way to deep caution. From a hot start-up, TaxiForSure quickly became almost untouchable. They were forced to bide their time. Investors didn’t want to take a company that was passing through such ambiguity to their Investment Councils.

The new circumstances quickly shaped a different set of choices for Raghu and Aprameya — either raise only a part of the amount they needed and wait out six to eight months for the storm to settle, or take up the feelers for acquisition being sent by both of their dominant competitors, Ola Cabs and Uber.

‘We weren’t really planning to sell. As founders, you never want to sell to a business rival but things started to move very, very quickly,’ Aprameya remembers. The cash in their holding company Serendipity Infolabs was running out and their main competitor Ola Cabs — high on a $210 million ( 1,401 crore) fund raise by Softbank and its existing investors such as Tiger Global, Matrix Partners India and Steadview Capital in October 2014 — had cranked up the heat. By the end of January 2015, Aprameya says, they already had an offer from Ola.

The dilemma about right and wrong began jostling for space with the deal’s personal impact — coming into a large tranche of wealth. ‘Investor valuations are notional paper money. Converting that to actual money is a dream everybody has but you’re never certain it will play out that way,’ says the 35-year-old.

Not that their wealth felt tangible even then. ‘You don’t really know what that kind of money feels like. Both of us come from middle-class backgrounds, and if you can go to a nice restaurant every weekend, or can easily afford the holiday you’ve planned, that is enough. It’s the maximum you’ve ever wanted and the salary we were paying ourselves covered that,’ he observes.

Ola Cabs completed its acquisition of TaxiForSure by March 2015, making it one of the largest internet space transactions in India till then. The deal was also remarkable for the accelerated journey of TaxiForSure’s young founders. They were exiting their business less than four years after they started it, something unheard of even in the fast shape-shifting world of internet start-ups.

The co-founders are estimated to have become richer by “several tens of crores” — newspaper reports peg it anywhere between 136 crore — 220 crore ($20.4 million - $33 million) each. Both also hold a small share in Ola that in its last fundraising round in November 2015 was valued at $ 5 billion ( 33,367 crore).

The money from the Ola transaction came in around 15 March, 2015. ‘I opened my bank account on my mobile, and couldn’t even comprehend the figure,’ Aprameya laughs. It took some time to count from units, tens and thousands and put imaginary commas to make sense of the number, he recalls. ‘When I showed my mother the bank statement, she was worried I would get enemies and told me I shouldn’t stop for strangers when I was driving,’ he tells me with a smile.

The sudden explosion of riches was overwhelming, he admits quite frankly.

Even more seriously, there was an immediate need — to manage this wealth. The money hit his bank account with only sixteen days left for the financial year to end. It was important to get his tax planning right before the end of the month. Could help be at hand to deal with his problem of plenty?

Dial A for advisor

The world’s best consulting and financial services companies go to recruit ambitious, smart managers at IIM Ahmedabad, Aprameya’s alma mater. Yet the young entrepreneur confesses that up until March 2015, he had never been introduced to, or thought about, the concept of wealth management. It had never come up in their management curriculum and almost none of his friends from business school had taken up such a role. Almost sheepishly, he admits to thinking that all the rich did was buy things.

His company’s transaction had made big news. Soon enough, a swarm of wealth managers, financial advisors and private bankers — an entire new universe of people — came calling on him with ideas for equity investments and tax structures. He hadn’t expected this deluge and hard sell. But he didn’t have the luxury of time to linger on a decision — he had to learn fast.

Aprameya says that from the several discussions he had with financial planners and wealth advisors, he figured out soon enough that money wasn’t difficult to make if you had the surplus to invest in an economy as promising as India. Many of the people he had met had broadly similar investment ideas.

Dressed in a faded, green T-shirt, blue jeans and sandals when we met at The Ritz-Carlton in Bengaluru last August, Aprameya fit the bill of new-age entrepreneurs who wear their affluence lightly.

He eventually made his selection of wealth managers based on simpler filters as well. Karan Bhagat, Vinay Ahuja and Rinku Bakshi of IIFL Wealth seemed a lot less “suited-booted” than the others. They were easy-going, frank and straightforward, albeit new to the business of wealth management. What also appealed to Aprameya’s entrepreneurial mind was their ability to cut to the chase.

IIFL Wealth, the firm Bhagat, Ahuja and Bakshi represented, was also somewhat familiar. It had briefly helped TaxiForSure manage its corporate treasury.

More importantly, he spotted a USP in their pitch that he understood well. More than anybody else who had bombarded his inbox and smartphone during those two frenzied weeks, they had more clients like him — first-generation entrepreneurs who had built impressive fortunes from the dynamic opportunities a fast-growing emerging economy throws up. How had IIFL Wealth queued up a long line of India’s new millionaires as clients?

It was the same principle as the cab network we were trying to set up at TaxiForSure. The truth is, the more cabs you have in your network, the more new networks of cabs you manage to bring in,’ says Aprameya.

Right on the money

If ambition and scale have a specific look, the scene from Karan Bhagat’s seventh-floor office in Mumbai’s Lower Parel area, would certainly qualify. Dozens of sixty-storey high yellow construction cranes, moving with the laboured yet steady rhythm of a monolith are at work, erecting residential towers that are pegged to stand at seventy five floors when completed in a few years.

Bhagat is IIFL Wealth’s 39-year-old founder, and its MD and CEO. The busy vista his office looks out to is befitting of the eight-year-old company that he founded with Yatin Shah and Amit Shah.

Aprameya might not have known much about the industry they worked in but Bhagat, Yatin Shah and Amit Shah have managed to build a thriving business by focusing on the success of people such as him.

In under a decade, they have assets under management (AUM) of more than 86,000 crore (approximately $12 billion), working with more than 7,000 wealthy individuals and families. Growth has been at a steady clip. In the past few years, it has risen steadily up the industry rankings to be amongst the top private bankers in the country.

Strikingly, nearly 70 per cent of the 86,000 crore of assets that IIFL Wealth manages and advises on is first-generation money. More than the core competencies they brought to the business, it was their decision to focus on first-generation money that has really paved the company’s growth path, the founders say.

What makes their journey even more interesting is that they mirror their clients, being new wealth creators themselves. Together, the three founders own about 14 per cent of the company. After private equity major General Atlantic invested 1,060 crore ($165 million) in the wealth management firm in October 2015, it was valued at slightly over 4,900 crore ($765 million). The founders’ collective stake comes to a little more than 700 crore ($100 million).

When IIFL Wealth started out, in early 2008, wealth management was still a niche and growing segment within financial services in India but one that had already become extremely fragmented and crowded, especially in a place such as Mumbai which they initially focused on. Existing wealth clients, already working with wealth divisions of their banks, had a range of firms to choose from if they were dissatisfied.

Contrary to what the various lists of the richest Indians in the media would have you believe, the top 500 families in India are not the biggest clients for wealth management companies.

Wealth managers and private bankers can boast about working with India’s top hundred or 500 richest families. It makes for good press but the reality is that much of this wealth is locked in their company’s equity, real estate or distributed across a range of businesses owned by these families. They don’t need external avenues for investing surpluses because their businesses provide them with enough opportunities for investment.

IIFL Wealth had to depend on a new kind of customer to grow: People who were making money as they were setting up their businesses, and were doing so for the first time. Fortunately, for them, a rampant wealth effect was sprouting strong, fresh roots in India then.

In fact, their entrepreneurial success has been largely possible because they are in sync with that most hallowed of business maxims — being in the right place at the right time.

Fortunately for them, they weren’t the only ones.

Chapter 2

Midas’ New Crucible

As a prodigious 15-year-old, Vijay Shekhar Sharma needed special permission to enroll in the Delhi College of Engineering. It is a pattern he would repeat often: Not to let age come in the way. He was rich way before he could get a drink at a bar.

At 19, Sharma, the founder of One97 Communications Ltd, which runs the company’s flagship e-commerce marketplace Paytm, graduated from the Delhi College of Engineering (DCE). It was 1998. It was an exciting time for India. The internet was expanding its grip as a business. Sharma decided to ditch the 1,600 ($24) a month job — the highest salary on the DCE campus that year — to work on the web portal and search engine he had started with his friend Harinder Pal Singh Takhar in their dorm room.

Barely twelve months later, Living Media India, owners of the India Today Group, acquired his start-up. Apart from a search engine and web-guided services, they had built an election tracking software. India Today bought it for half a million dollars. They used it to cover the general elections of 1999. It was the election in which the Bharatiya Janata Party-led National Democratic Alliance formed a stable government for the first time.

Thanks to the part-cash, part-contractual agreement — the start-up moved within the studios of the television network to manage their web operations — Sharma had, at the turn of the century, an annual personal income of 36 lakh ($54,000). Every fifteen days, there would be a deposit of 1.5 lakh ($2,250) in his bank account. It was life changing for a young man. ‘In many countries, you get voting rights only at twenty one but by that age, I was earning more money than my father had earned in his lifetime,’ Sharma says.

Growing up in Aligarh in the 1980s and 1990s, Sharma’s first sense of what money was came from the 2 lakh ($3,000) his father, a school teacher, had borrowed; that amount would prove to be enough to completely throw into disarray his family’s cash flows, and be a burden that would ominously hang over his childhood. ‘We didn’t have any extra money beyond our basic needs of food and education, literally, not one extra rupee to spend. We lived a lower-middle class life,’ he says.

Even then, his early successes and the windfall from his first venture didn’t impress his parents who had been very disappointed when Sharma had refused jobs in big companies to opt for working on his own. In the late 1990s, “making it big” was all about a job in a big technology firm that had the potential to take you seven seas away — to the United States.

‘People didn’t think living in India was a mark of success. If you were here, starting a company nobody had heard of, it made you a loser. If it wasn’t Infosys, or Wipro, who were you?’ he says.

Worse, his parents were suspicious of his good fortune, convinced that there was no way somebody as young as him could have come into such a windfall by selling an obscure, unknown company. They were worried their son was up to no good — even going as far as sending Sharma’s cousin to investigate. ‘My cousin spied on me for a few weeks, even visiting our office on weekends to make sure it really did exist, that we hadn’t fronted a façade for his weekday inspection,’ Sharma laughs at the memory.

His net-worth is no laughing matter though. Sharma is part of a select group of entrepreneurs behind India’s most talked-about “unicorns” or technology companies that are valued at more than a billion dollars.

At its last fundraising round in September 2015 in which Chinese e-commerce giant Alibaba Group Holding and its finance arm Ant Financial put in more than $500 million ( 3,336 crore) in the company, news reports said Paytm was valued at anything between $3.4 billion to $4 billion ( 22,689 crore to 26,694 crore). Along with Flipkart, Amazon India and Snapdeal, Paytm, which started as a mobile payment solutions company in early 2010 is locked in a high-decibel, high-visibility war for India’s e-commerce space. Sharma is reported to own about 21 per cent in the company and, at that valuation, has personal holdings worth $800 million (around 5,000 crore).

It’s a figure that seems a lifetime and not just decades away from his childhood.

New kids on the block

Sharma’s introduction and journey to wealth is cinematic: A rags-to-riches story, a genre made so popular and symbolic in the Hindi film industry of the 1980s. Yet, for someone like me, who has been writing about Indian entrepreneurial success stories for many years, Sharma’s trajectory from a lower-middle-class dreamer to a breakthrough business success story isn’t an aberration in India’s contemporary economic landscape.

India has witnessed an unprecedented phase of wealth creation over the past two decades, a trend that has sharply accelerated in the past ten years. India’s wealth increased by $2.284 trillion ( 15,24,227 crore) between 2000 and 2015, making it one of the world’s fastest growing economies with a 211 per cent increase in overall wealth, according to Credit Suisse[2].

A growing number of equity dilutions, stake sales and real estate deals have led to this never-before pace of wealth being created and unlocked in India; it has also given way to the emergence of a new group of the first-generation wealthy.

Be it cut-throat deals or generosity, it’s the new wealthy who are making waves.

Let’s take a look at Shanghai-based Hurun’s India Philanthropy List of 2014, for example. Seventy-three per cent of the people named on the list, on the criteria that they must give away 10 crore ( 1.5 million) or more in philanthropy, were self-made.

India’s economic progress has provided the bedrock for this growth, expanding as it has from being a $1-trillion ( 66,73,500 crore) economy in terms of its GDP in 2007 to double of that by 2015. To put it simply, it has taken India just seven years to add another trillion dollars to its GDP compared to the nearly sixty it took us to accumulate the first trillion. This has spawned new businesses and industries, giving way to market opportunities for business owners and entrepreneurs to exploit. In the past fifteen years itself, the size of the Indian economy has grown by more than four times.

These new wealthy fall into three broad categories. First-generation entrepreneurs who either through equity dilutions or a constant expansion of their businesses have been able to amass wealth; second-generation entrepreneurs — or the mezzanine generation — where the business might have been started by the previous generation but the real scaling up happened only in the past decade or so; and an emergent cadre of rich professionals, mainly senior corporate executives in industries such as financial services, consulting, information technology and well-funded e-commerce and technology start-ups. This expansion of wealth beyond the clutch of a small group of business families and industrial houses to successful first-generation entrepreneurs as well as a strongly emergent cadre of professionals/CXOs mirrors the changes in the entrepreneurship and corporate landscape in India in the past two decades. Unlike the movers and shakers of yore, their money is also “cleaner”.

When India opened up its economy in 1991, it led to a robust wave of post-independence entrepreneurship. Companies came up across several industries — financial services, business process outsourcing, IT services and delivery, aviation, retail, media, auto ancillaries and pharmaceuticals — to take advantage of the growing middle-class consumption as well as benefit from the cost arbitrage gap between the developed and the developing world.

It gave rise to the first wave of the first-generation wealthy, symbolised by entrepreneurs such as N R Narayana Murthy (Infosys), Dilip Shanghvi (Sun Pharma), Shiv Nadar (HCL), Kishore Biyani (Future Group), K. Anji Reddy (Dr Reddy’s) and Sunil Bharti Mittal (Bharti). A newly-liberalised economy, and the end of the license-raj, that had until then kept business confined to a handful of families and groups, threw open a wide variety of opportunities and several first-generation entrepreneurs swooped in to make good on the possibilities.

Over the past decade, entrepreneurship has swelled. A nascent, but fast-evolving angel network and venture capital industry is allowing an increasing number of people to found companies and become business owners. This phase has been more sharply focused around the opportunities thrown up by the mobile and internet era, and less diverse in terms of the industries where first-generation entrepreneurs have been successful. It has also created success stories and millionaires at an accelerated pace.

More than even the first wave of the early 1990s, this recent spurt has made high-impact entrepreneurship seem more accessible for first-generation business builders, and sealed India’s reputation as a start-up nation.

The rise of the rich professional — another key segment driving the growth of wealth creation — is significant. Till not too long ago, only owners and inheritors of businesses could have hoped to build substantial fortunes. Today, even managers of businesses and skilled professionals have a real shot at becoming rich.

Not even ten years back, or during the early wave of entrepreneurship, right after liberalisation, did professionals have a similar opportunity to be substantial wealth-builders. Through the 1990s and even till the 2000s, it was unlikely for a company’s senior executive leadership to have ownership by way of shares.

Things began to change only in the early 1990s. Till then, the Companies Act dictated ceilings on CEOs’ salaries. Liberalisation of the economy unleashed by Prime Minister PV Narasimha Rao’s Congress-led government and its Finance Minister Manmohan Singh initiated a big change. The ceiling on salaries and perks were shattered by reforms in the Companies Act.

Pradip Shah, founding MD of credit rating firm CRISIL was reportedly one of the earliest to cross the seven-figure salary barrier. He wasn’t alone as pay packages went up. Yet, through the 1990s, the CEO crorepati club was still fairly exclusive. Also, CEOs still didn’t begin to own significant equity. Compensation expanded but it was still a fixed salary.

This began to change in the early years of the twenty first century. By then, large multinationals had come into India. The dotcom boom and rapid growth of IT companies had opened up opportunities for corporate professionals to demand salaries that were exponentially higher. Often, in global multinationals such as PepsiCo, Reckitt Benckiser or Citibank, Indian CEOs were either picked from global markets, and almost always, were called in to operate in global markets as well. Their compensation went up accordingly. By 2005-06, the 1 crore ($150,000) benchmark had given way to $1 million ( 6.6 crore).

Today, there is a growing recognition of professional talent and its role in building a company. This value for talent has led to a transfer and sharing of wealth from owners to managers, through handsome compensations and, more importantly, employee stock option schemes or ownership in companies.

A decade ago, traditional promoters would have baulked at the idea of employees having a share in the business. Today, smart business builders, especially in new-economy businesses, understand that equity is a valuable currency for acquiring, and negotiating with, talented senior executives. The trend is likely to keep spawning a sizeable number of wealthy professionals across industries and in both subsidiaries of foreign firms and large family-run Indian businesses.

In the more than two decades since Pradip Shah became the first crorepati CEO, the number of wealthy corporate executives has grown exponentially. In fact, no longer are these handsome compensation packages reserved for CEOs. Even senior executives across industries now earn salaries rivaling the owner of a mid-size industrial unit.

The wealth effect

Between 2004 and 2009, as private equity (PE) and venture capitalist (VC) firms began to acquire critical mass, PE investors injected nearly $50 billion ( 3,33,675 crore) in more than 1,400 Indian businesses—including nearly one-third of what are now India’s 500 biggest enterprises[3]. Some 900 of these investments happened in 2007 and 2008 alone, making India Asia’s largest PE market for both those years.

So, even as IIFL Wealth was starting out, a new generation of the Indian wealthy was being minted. Between 2008 and 2012, there was a steady stream of stake sale transactions, mergers and acquisitions: Essentially, many entrepreneurs and promoters were able to convert their stakes in their companies into liquid cash. The heightened deal activity during that phase spurred the creation of private wealth by giving many promoters and founders an opportunity to exit their businesses. That “wealth effect” was a unique moment in time.

There was a tremendous build-up of riches. The harvest of the post-liberalisation phase of entrepreneurship was coming home. Few wealth managers were focusing their attention on this new demographic, because in the early to mid-2000s, the quantum of wealth being created was still tiny but would pick up pace by the late 2000s and accelerate sharply after 2010.

The rise of these groups has made India the world’s most fertile breeding ground for the wealthy. Interestingly, India seems to be minting wealth across a wide spectrum, from the ultra to the moderately wealthy.

The number of both high net worth individuals or HNIs (those with more than 6.5 crore, or $1 million in investable assets for the purpose of this book as the classification differs across financial institutions, fund managers and consulting companies) and ultra high net worth individuals or UHNIs (those with more than 25 crore, or US$ 5 million in investable assets) is rapidly climbing. According to the World Wealth Report 2015[4], India recorded the largest gains — in the Asia-Pacific region and globally — in the HNI population (26.3 per cent) and wealth (28.2 per cent). Simply put, the wealth effect in[5] India is leading to growth, both in the number of HNIs and an increase in the total quantum they have amassed.

By 2018, India will be home to 3.58 lakh millionaires, more than doubling its tally from 1.8 lakh in 2013. Another study[6] has found that over the next four years, the number of New Wealth Builders (NWBs) — Indian households with financial assets of $100,000 to $2 million ( 66,73,500 to 13 crore) — is expected to jump ten-fold to 4.9 million.

Consisting of self-made professionals, corporate executives and entrepreneurs, NWBs are the world’s fastest growing wealth segment, the study finds. India’s members were tenth on the list — out of thirty countries — with combined assets of $84 billion ( 5,60,574 crore) in 2014. But, India beats all other nations when it comes to growth forecasts. NWBs are expected to jump by 47.4 per cent by 2020, each with $178,000 (approximately 1.2 crore) in projected average financial assets.

Growing opportunities in e-commerce, a rising stock market and an optimistic economic outlook have also helped the number of UHNIs in India grow 17 per cent in FY15 as well. The number of families with net assets (excluding residence) of more than 25 crore ($3.7 million) was around 1,37,100 in August 2015 against 1,17,000 a year ago[7]. India now has 2,083 ultra high networth individuals, with more than $50 million ( 333 crore) net wealth, 3 per cent higher than in 2014.

For the first time in 2015, India had more billionaires than any other country outside the US and China, according to an annual list by Shanghai-based luxury publishing group Hurun. Fall in wealth among Russians and Britons and a bump in the value of the stock market helped push India’s richest into the top three for the first time in the rankings. There are now ninety seven Indian billionaires compared to ninety three Russians who are worth at least $1 billion[8] ( 6, 673 crore).

The momentum, and the consequent spike in wealth creation, is likely to continue with India mopping up both foreign investment and maintaining a steady infusion of venture capital and private equity into businesses. India continues to be one of the most attractive countries for investment — it has often been called one of the few bright spots for the global economy.

Few countries are undergoing such a vast transformation when it comes to wealth — although the data is rife with contradictions. Even as it is one of the fastest-growing wealth crucibles for the world, India records the lowest average wealth of the countries[9] polled. The dichotomous truth of a still-poor nation forging rich people at a pace quicker than any other country, despite having one of the highest income inequalities anywhere in the world, has given being rich a shape-shifting, multi-hued range of connotations.

The winds of change were kicking up a silver dust that, as it settled, would give IIFL Wealth a fertile ground of possibilities. But were there other forces as well — this time, outside of India — that were changing the landscape of the wealth management industry decisively?

Chapter 3

The perfect storm

Through much of 2008, Amit Shah, IIFL Wealth’s co-founder and executive director, saw the world around him crumble from his office in Manhattan’s mid-town area, just off 44th Street. Shah had worked in New York for around four years by then, having moved to the city in early 2004 to expand Kotak Mahindra’s offshore division.

He had a ringside view of the frenzy of the global bull market in his early years in New York. Young analysts were making million-dollar bonuses amid high-voltage optimism that was shaping consumption and moulding attitudes to risk. ‘Within a year of being there, I could buy a house without having any credit history in that country and get a loan for up to 80 per cent of my house’s value. NINJA loans, essentially loans given to people without an income or a job, were common,’ Shah recalls.

Soon enough, in the implosion of the global financial markets set off by marquee financial institutions, large parts of the investment banking industry, the biggest insurance company, the largest mortgage lender and two of the largest commercial banks in the United States alone, were swept away. These companies filing for bankruptcy or being on the block for sale led to what is now referred to as the Great Recession, a spiral into an economic slowdown that even as this book goes to print nearly eight years later, large parts of the global economy hasn’t fully recovered from. For example, the global economic crisis is considered to have played a key role in the historic ‘Brexit’ referendum in June 2016, as well. Brexit refers to Britain’s exit from the European Union.

In the United States, in 2008, the crisis triggered the most severe economic downturn since the Great Depression of the 1930s.

But this time it would go beyond its borders.

The onset of the global credit crunch began from early 2007 in the United States with more than thirty sub-prime mortgage lenders filing for bankruptcy by the middle of that year. All through 2007, there was a growing sense that something was rotten in the United States’ financial system and that its careless binge of easy credit, low interest rates and complex loan products wasn’t going to end well.

By August 2007, when Northern Rock, a British bank, approached the Bank of England for emergency funding, it became evident that America’s problems weren’t going to be limited to the country; at risk was the global financial industry. Yet, things unravelled faster than most people were prepared for. By October 2008, the malaise had infected some of the United States’ biggest and most respected banks and financial institutions.

Lehman Brothers, one of the world’s largest securities firms, with more than 25,000 employees at that time filed for bankruptcy. Investment bank Bear Stearns was acquired by JP Morgan Chase, and Merrill Lynch, the nation’s largest brokerage, was sold to Bank of America. Other consequences followed: IndyMac bank collapsed, and the US government took control of Fannie Mae and Freddie Mac.

The United States Federal Reserve, the country’s central bank, cut its fund rate and discounts. Central banks of many other developed economies, mostly across Europe, cut rates to help their banks as well. Governments marched in to fix the slide to keep more banks from going under and further deepening the crisis. The US government came out with The Emergency Economic Stabilisation Act of 2008, essentially sanctioning $700 billion ( 46,71,450 crore) to purchase distressed assets from banks. Other governments unleashed various bailout packages to keep afloat; in some cases, private banks were nationalised. It was a world on edge.

The waves of destruction, the tides of scepticism

For Amit Shah, apart from perceiving the gloom and doom from outside were doubts and anxieties within. An oft-repeated investor maxim — and one that I have heard nearly two dozen times through interviews for the book — is that nobody can time the market. Clearly, he and his co-founders, Bhagat and Yatin Shah, hadn’t been able to time their entrepreneurial innings well.

When the three of them had left their jobs in Kotak in January 2008, global capital markets were at their peak. While there were hints of trouble brewing in the US economy, nobody believed the domino would topple so calamitously. Even as they were crafting their business model and starting off in early 2008, the world of financial services was dramatically changing.

IIFL Wealth launched its US operations on 15 October, 2008, exactly a month after Lehman Brothers filed for bankruptcy. The turbulence of the global markets didn’t seem at first to be a promising time frame for growth.

Much of the world, including top economists, central bank governors and government ministries, had not anticipated the severity of the crisis or the consequences it left the world to deal with. A study in February 2013 by the United States Government Accountability Office said that the 2008 financial crisis cost the US economy more than $22 trillion (in lost output and a decline in unemployment and household wealth). That is eleven times the annual $2-trillion ( 13,34,700 crore) size of the Indian economy, the world’s seventh largest[10].

Amit Shah recalled the surge of scepticism around him at that time. Even as giants such as Lehman, Merrill and Bear Stearns had sunk, or were left gasping for breath, many felt Shah and his co-founders were downright foolhardy, or worse, delusional, to position a new brand nobody knew at all in the US.

At a time when people were slashing costs, curbing expansions and conserving capital, people couldn’t believe an upstart venture was spending money to get a business up. Especially a business in which they were trying to convince wealthy institutions and family offices, spooked by the financial mayhem, to give a group of young, unknown men in their early 30s their money to invest.

It seemed like an ambitious shot in the dark. Actually, Shah says, many considered it a sure bid at failure — an extravagant, ill-thought-out experiment.

‘If you were living in the US in 2008, you thought the world had come to an end. Friends and former colleagues from the industry were laughing at us, they thought we had gone nuts; that we were trying to sell India at a time when the world’s most stable economy, the United States, was coming apart,’ Shah says.

What kept Shah going was the fact that he was on a flight to India every two weeks or so, only to return to the US detoxed from the pall of doom that pervaded that country through 2008-09. India, on the other hand, had escaped largely unscathed from the global crisis. ‘There was a huge difference in the body language of people in India and the United States at that time. In India, it was pretty much business-as-usual,’ he tells me.

Of luck and origins

Meanwhile, in Mumbai, the young IIFL Wealth team was in the manic throes of building a new wealth management franchise. Nirmal Jain, the founder and chairman of IIFL Holdings, had built a financial services group that by 2008 included brokerage, a Non-Banking Financial Company (NBFC), commodity trade and an equity research business. He had been excited about the wealth management vertical ever since Yatin Shah had first been introduced to him in late 2007. Meetings with Bhagat followed within weeks.

At the time, the three co-founders worked in Kotak Wealth Management, the private banking vertical of Kotak Mahindra Bank. They had built a reputation for being aggressive go-getters. Bhagat and Yatin Shah alone handled a majority of the bank’s western region wealth business.

Jain was quick to catch onto the opportunity these aspiring entrepreneurs presented: A stand-alone wealth management firm that would be able to advise the growing number of the affluent in India. It was a valuable adjunct to his existing businesses, considering India Infoline already had brokerage, distribution and equity research services that would be key to servicing wealthy clients.

Most of all, what caught his attention was that they were clearly entrepreneurial. They were already doing well in their jobs but had made it clear to him that they weren’t interested in coming on board as senior employees, where success would be tied to bonuses and incentives. He appreciated their motivation to create wealth for themselves — something he felt he could relate to, having left a job with Hindustan Unilever Limited to start India Infoline when he was twenty eight years old. Jain founded India Infoline in 1995, as an equity research venture — the company now has a market capitalisation of roughly $1 billion ( 6,700 crore).

Son of a small business owner in Mumbai, nothing about his family background or early years could have forecast Jain’s success: neither during his training as a chartered accountant nor later as a student at IIM Ahmedabad in the late 1980s, could he have imagined he would create the kind of wealth he has.

It was an ambition he saw mirrored in the IIFL Wealth founders.

Within forty days of the first meeting with Jain, they had sealed the deal. IIFL Wealth would be incorporated within the larger India Infoline group as an independent subsidiary. The India Infoline group would have 76 per cent of the stake to begin with (that gradually reduced to 66 per cent with performance-driven employee stock options). The rest would be divvied up between the three co-founders and other employees.

The unique formula would give the young founders a ready-made technology and research platform that would have otherwise taken them several months to build and an entrepreneurial opportunity that would allow them to build a solid business.

The seemingly poor timing of their starting out and which had threatened to spoil the party of the great deal they had inked with Jain would prove to be a blessing in disguise.

For IIFL Wealth, the treacherous implosion of the global financial system, in fact, created a perfect storm of opportunity. Its worries about how business would grow as the financial world around it collapsed would prove to be just that — worries. It might even be the reason for their success. With the strong ripples of the wealth effect setting in, the whirlpool the financial industry would find itself wrapped in would present to them a very specific set of circumstances: One they couldn’t have imagined scripting any better.

Despite the rocky and rough first couple of years, coming alive amid the global financial system’s most bloodied phase and capturing a unique window of opportunity in the timeline of India’s history would make possible the ambitious plans they had gone to Jain with.

The foundation of their rapid success would also be their ability to work with, and understand, a new customer segment — India’s new wealthy.

It’s an exciting group of people — entrepreneurs, professionals and business owners — who are changing the way wealth is built, managed and perceived in India.

Their anxieties, blind spots and motivations are useful reading, not just for an ambitious, entrepreneurial company but for anyone interested in a rapidly-transforming country.

What I found interesting when discussing wealth with the entrepreneurs, professionals and promoters interviewed for this book, was that their thoughts around their riches wasn’t limited to ideas of work and success; personal triggers such as life motivation, family goals and childhood upbringing have a huge impact on how people react to their bounty.

Part 2

Breaking New Ground

Chapter 4

Shh, I’m rich!

As a country, India has a complicated relationship with wealth. Through much of the nearly seventy years of our nationhood, we have lived on the wholesomeness and worthy goal of having just enough. A craving and indulgence for wealth was neither encouraged nor possible in an economic philosophy built on the idea of socialism and where the government controlled and regulated private enterprise.

It has been a country where the vast population was poor with a minor middle class, an extremely tiny portion wealthy, with rigid lines dividing them all. Mobility across these different segments was limited. Since lines were not porous, attitudes within each group — and towards each other — were more fixed and unyielding.

An adjective constantly used for modern India is aspirational. There is a greater sanction for and encouragement to people wanting more. Even within a steadily expanding middle-class that now stands at about 24 million adults (according to the 2015 Credit Suisse report that used wealth as a filter, not income), attitudes to wealth have changed. The ones that do use consumption as a metric peg the middle-class at more than 200 million people.

The emergence of the new wealthy lies within the context of a larger transformation: Many of the first-generation rich have come from within the large swathe of the “middle-middle class.” Their attitude is therefore a combination of their past perceptions as outsiders to affluence, and their changed reality of insiders looking in.

Yet, for the rapid rise in affluence, talking money doesn’t come easily to many of India’s new, first-generation rich. The conventional notion of the nouveau riche, essentially someone coming into a lot of money and perceived to be ostentatious or lacking in good taste by their visible demonstration of it, doesn’t always hold true if I think about several of the people I’ve met — generally, as well as in the course of writing this book.

Enough first-generation wealth creators interviewed went to great lengths to dismiss the fortunes they had built as being a mere by-product of their success. They seemed to consciously downplay the reality of their abundance as the focus of the conversation.

Several baulked at the idea of being interviewed for this book because it would classify them as rich; others repeatedly said that they didn’t consider themselves to be extraordinarily “loaded” and that I would be better off speaking to others who have built bigger fortunes. Many were happy to help the research by talking candidly but requested not to be quoted.

Nearly half of the interviewees said “making money” has never been a motivation or driver for them; the other half said that while money in the bank might be a metric to tabulate achievement with, it was by no means the only one. The heady rush of building a company, and the validation gained from having crafted smart solutions and seeing ideas come alive, is the prime force, most assert. In fact, the phrase “creating value” was touted much more as a metric for success than creating wealth.

The careful tweaking of the context and the discomfort in discussing wealth was surprising. At various points of the conversation, I wondered if these were rehearsed responses meant to sound “correct”? Was there also a mild delusion at play when people who I knew had upwards of 50 crore ($7.5 million) in investable surplus considered themselves “not-wealthy”?

The studied cleverness of reticence

In an article for The New York Times, American economist and columnist Paul Krugman said the American public neither had a good sense of whom the rich are nor how much money they made. Because the truly-wealthy were far removed from an average person’s life, a regular American had no idea how unequal their society had become. The real-wealthy are smart enough to keep off from media coverage of their riches. If this was a smart strategy for the Americans, did a wealthy Indian consider this to be true as well?[11]

The interview process — my primary source of gathering insights and experiences for this book — isn’t always a foolproof microscope for understanding someone. At its core, even in the most frank conversations, interviewees self-select the personal biases and motivations revealed.

Sometimes, this self-selection is directed towards the self, not as a means to obfuscate or hide but to reinforce the principles and ideas those interviewed want to be associated with. The subjects of this book are successful people adept at communicating effectively. Much of their self-consciousness around being rich might be genuinely felt but in interviews there isn’t a way to know how truly authentic someone has chosen to be.

To negotiate around this limitation, and test the assumptions I had arrived at through my interactions, I followed up the interviews with a survey of nearly sixty wealthy clients. I let them keep their names concealed, with the hope that the privacy would lead to more honest answers. The respondents were asked for other personal details: age, city, industries they worked in, whether they were first-generation entrepreneurs or professionals and how much they had in investable wealth, to build a character sketch.

The responses from the survey will be referenced in this chapter and the next. In summary, however, the findings do reveal some surprising insights, including the fact that 97.5 per cent of the respondents said they do not enjoy showing off their wealth. Nearly 55 per cent, in fact, said they made a concerted effort to underplay it.

It’s a contradictory diffidence. It isn’t as if India’s new wealthy are spartan. Certainly, there is no forced frugality. The visible manifestation of wealth, at least across our cities, is much more evident than it was a decade ago. There is an increase in consumption and indulgence. There are more expensive restaurants, luxury automobiles, steep rise in vacations and in the value of clothes bought.

Reams of newspaper print have been spent covering upmarket weddings in Delhi and Mumbai. In certain “intellectual” quarters, this extravagant display is decried. It is said to demonstrate our changing values and a culture of crass consumerism. But is the dramatic increase in spending limited to only the rich?

In an aspirational India, spends have increased across all income segments. We consume more as a nation on a whole range of “discretionary items”. The wealthy certainly do but aren’t unique in doing so. As a fraction of income, lifestyle spends have gone up steadily even in upper-middle class homes.

In the case of the first-generation wealthy, lifestyles have often undergone substantial changes — especially when compared to the middle-class milieu a large number of them were brought up in. Typically, where, and how they live, has been upgraded dramatically from their lifestyles a decade back. There has been an appreciation of the good life — for food, travel, clothes and homes — and few people would admit to not being shaukeen about at least one of these.

Most have also made at least a few indulgent purchases, usually a large house in their city’s prime real estate. They savour and enjoy their new possessions — especially the vacations they take, the homes they live in and the cars they drive — but are uncomfortable with the idea of being defined by it or if perceived to have become extravagant because of these spends.

Few will say outright that they are proud of having gathered the financial ability to acquire these. If not guilt, there is definitely an uneasy mix of self-consciousness and awkwardness when talking about the material manifestation of their wealth.

I also wondered if there was an element of fear or the risk of security the wealthy obsessed about; that in a deeply unequal society, it was best to not call attention to oneself. Previous events come to mind.

In November 2006, three people had kidnapped the young son of the then Adobe India CEO Naresh Chand Gupta from his home in Noida, a Delhi suburb. The kidnappers had asked for 50 lakh ($75,000) as ransom for the release of the child. Fortunately, the Noida Police had managed to rescue the child and arrest the kidnappers by launching a successful operation. The case had made huge headlines at the time. The wall-to-wall coverage of a corporate CEO’s child being kidnapped had hinted at the dangers of being visibly rich. It was later found that the accused had worked in the neighbourhood where the Guptas lived and therefore probably knew the family’s daily schedule as well as economic capacity.

Yet, I didn’t find security to be a tangible, powerful fear for the wealthy. Not one person admitted to it and in the several years that I have been profiling successful (and wealthy) business builders, I have seen only one person — the owner of a very popular chain of south Indian restaurants that can be found across the country and which started from a small market in south Delhi — being escorted around town with a security entourage that would outrival one of our senior mantris.

In the survey as well, I found that across all respondents — old and new wealthy, professionals or entrepreneurs — not one person said the risk of security was a reason for them to underplay their wealth. Nearly 70 per cent of those polled said they underplayed their wealth because India was an unequal society, another 26 per cent because of what they called society’s attitude toward wealth and a tiny 4 per cent because they worried about nazar, or the uniquely Indian notion of the evil eye.

The baggage of a bad name

Either there is an acute sense of being under watch, or a worry at being judged by those around them. Whatever it may be, the new rich do seem to make a concerted effort and seem to have developed a sharp self-awareness towards there being as little as possible outward change in who they are, or how they look.

The discomfort at being labelled rich could be a possible reflection of the remnants of India’s socialist past and the license-raj era of business, when participating in crony capitalism, rent-seeking and tax evasion were considered the main ways of garnering wealth.

Because there didn’t earlier exist a way of creating wealth without these attributes, the presence of riches confirmed malpractices and corruption by default. In more cases than not, it may have, often justifiably, tainted those with wealth.

What though explains the reluctance to be considered rich when the source of the wealth is absolutely above board?

Usually, a salaried professional’s source of funds is largely beyond question. Yet, the professional rich in corporate jobs such as consulting, information technology and VC-funded start-ups, seemed as unwilling, if not more, to be branded with the rich tag.

They underplay their wealth although over the course of their careers, many of them will amass a quantum of wealth similar to promoters of mid-sized companies. Actually, several of the rich professionals see themselves almost as accidental rich. Mostly in their early to late-40s, many seem somewhat surprised by how much they’re worth; their portfolio certainly isn’t a number they would have imagined, or even aspired for, while in engineering college or B-schools. Or, even during the early years of their corporate careers.

Whatever the reasons for hesitation, amongst India’s first-generation wealthy, there is definitely a strange mix of mild denial (and delusion) and a certain discomfort at being “called out” to be rich.

Even for the first-generation wealthy under forty years, who have come into adulthood in a more liberalised, free-market India of the post-1991 era, social mores and attitudes have been shaped by their parents and families. Most earned their livelihoods through jobs in government services, PSUs, nationalised banks and the tiny clutch of Indian private companies that were job creators from the 1960s through the 1980s.

It’s why even the young, new wealthy, who are brimming with immense self-confidence otherwise are unlikely to be stridently self-congratulatory about being rich or about the personal wealth they had so far amassed. At least, in public.

The rich are no longer villains…or are they?

Monika Halan, consulting editor at business daily, Mint, believes this is changing as lifestyle and living standards increase and an aspirational middle-class wants to move to the upper middle-class band.

People are becoming more relaxed about being affluent and the good life is not frowned upon as much, she tells me. It’s a transformation that is still in progress. Wealth, and by extension therefore, the wealthy, are slowly getting an image makeover, she wrote in a column last year.[12]

‘Hindi films showcased the rich as debauched men (very seldom women) who were either money lenders (1960s), hoarders (1970s) or smugglers (1980s). The honest policeman chose his mum over bangla, gaadi, daulat. Almost thirty years later, you’re a loser if you’re not rich or aspiring to get there. Money is the new God that demands the unadulterated adulation of its acolytes. And again that is not a bad thing. From being tightly held by a small elite in India, this wider holding of wealth, and therefore of the narrative of the country, is transforming all of us. The time for the disdainful turning away from money and its accumulation is over. Profit is a good word. And in this world, where the rules are suddenly different, many of us are floundering between the old and the new,’ Halan wrote.

There is a somewhat schizophrenic force at play, a black and white, not a grey, where many of the new wealthy are comfortable with their wealth and spending parts of it but are also acutely conscious of having it, says Pramath Raj Sinha, founder of specialty media company, 9.9 Media.

As the Founding Dean of the Indian School of Business, Hyderabad, and one of the founders of Ashoka University, located in Sonepat, Sinha has worked with many first-generation entrepreneurs and philanthropists to set up these higher education initiatives. ‘It’s a bit of a double life. They might buy a Porsche or a Mercedes for the joy of driving a great machine but will always hope people don’t see the car as a sign of showing off,’ he said.

Being seen as not having changed on becoming wealthy is a big preoccupation for India’s first-generation wealthy. People try to adjust and offset the image they might have, he adds. Somebody he knew, for example, had bought a 100 crore-plus ($15 million) house in New Delhi but still drove a Honda City.

Across workplaces in some of the country’s most prime commercial real estate and in the coffee shops of upmarket five-star hotels in Delhi, Mumbai and Bengaluru, where many of the interviews for this book were conducted, dressing down seemed to be the favourite wardrobe style of the rich.

Casual, lived-in comfort has become the buzzword for all seasons. No matter how wealthy and which industry, age or type of business, the new Indian wealthy certainly don’t feel the need to look the part.

Even in the offices of private bankers, long known for their carefully styled grandeur and meticulous well-heeled vibe, the fashionably attired amongst them stand out, not blend in. In fact, there almost seems to be a reverse bias against those dressed too slickly and sharply, even in the once-rarefied field of financial services where it might at one time have been considered essential to have been this way earlier. ‘Too much style doesn’t work in India,’ Mohan Goenka, director of FMCG giant Emami, headquartered in Kolkata, says.

‘I don’t think people are as yet comfortable with talking about wealth or showing off their money,’ feels Akshay Sethi, director of Stellar Group, a Noida-based real estate developer. ‘Few people would say, “Look I’ve earned it, and I can do what I want with it.” ‘I think much of India, although there are pockets of exceptions like south Delhi, is culturally uncomfortable with those who would do that, even if it is legitimately earned,’ Sethi adds.

Manish Kejriwal, managing partner and co-founder of private equity firm Kedaara Capital Advisors, and a Harvard Business School alumnus who used to lead the Singapore-government’s investment arm Temasek Holdings India office, said this discomfort around being rich gives the new, Indian wealthy a substantial attitude advantage.

Kejriwal, also the son-in-law of Rahul Bajaj, chairman of Bajaj Auto, said he hasn’t seen any of his friends who have come into wealth either misuse or be completely carried away by it. The Indian propensity for savings, borne out of the scarcity mindset of a previous generation, thrives robustly even among the battalion of the wealthy.

‘Most of our friends actually do their best to hide their wealth instead of show it off. If I were to take twenty of our closest friends as examples, and were to estimate what each of them is worth as an extrapolation of their lifestyle (which I haven’t done), my hunch is that my estimate will be significantly lower than their actual net worth. Most of us consciously try to ration luxuries,’ says Kejriwal.

If these sentiments are widely felt, is this discomfort a part of our civilisational DNA and coded into our mental framework?

At the core of our discomfort with wealth is our civilisational philosophy, believes well-known writer and mythologist Devdutt Pattanaik. The Indian approach to prosperity and fulfillment — a confluence of the many religious philosophies born here — warns against the relentless pursuit of wealth. In an excerpt from his 2015 book, The Success Sutra: An Indian Approach To Wealth, Pattanaik explained it this way:

“Modern management is all about chasing a target, the Promised Land of Abrahamic mythology, the Elysium of Greek mythology. Hindu mythology, however, warns against chasing Lakshmi, the goddess of wealth; it will result in conflict. Instead they advise making oneself attractive to Lakshmi, worthy of her affection and auspiciousness, so she walks our way. For that we have to be less like Indra, king of the gods, who is consumed by his own hunger, and more like Vishnu, preserver of the world, who is consumed by other people’s hunger. Vishnu knows that human hunger is threefold: for wealth, power and knowledge.”

The distrust of wealthy business owners — especially those who seem to manipulate and manoeuvre their way to riches — stems from the belief that they’ve corrupted the above philosophy.

In India, respect and love will never come from power, wealth and victory. Rather, we have to give in order to get, we have to satisfy the hunger of others in order to satisfy our own, Pattanaik says to me.

Unfortunately, not enough successful, wealthy people understand this Indian philosophical construct. In India, the rich and the powerful are not respected, they are indulged and feared, he explains. ‘ Many are Indras who are too busy creating their swarga (paradise) and imagining everyone who fights them (workers, state, competition, banks) as asuras (those who fight the devas). They’re not Vishnu because they have done nothing to earn love or respect,’ he added.

‘Like when people call me Tarneja if I tell them I am a real estate developer,’ laughed Stellar’s Akshay Sethi, referring to the iconic character of the corrupt builder played by actor Pankaj Kapur in the cult Hindi movie Jaane Bhi Do Yaaron. In the film, the protagonists, two professional photographers played by Naseeruddin Shah and Ravi Baswani, get caught working on a story that exposes the nexus between the municipal commissioner and Pankaj Kapur’s character of a builder, after a city bridge collapses.

‘Some businesses such as real estate do colour people’s judgment of how money is earned because many builders are like that,’ Sethi adds.

Indian philosophical thought is rich in ideas about wealth, much of it is rooted in the fault lines drawn by Pattanaik: The idea that money is useful and necessary for human progress but potentially damaging and untrustworthy when privately hoarded. Social reformer and philosopher Sri Aurobindo had voiced similar caution when he wrote, ‘Money is not meant to generate money; money should generate an increase in production, an improvement in the conditions of life and a progress in human consciousness. This is its true use.’

When greedily lusted after, the philosopher said wealth was one of the three forces along with power and sex that one needed to be careful of: They have the strongest attraction for the human ego and are most generally mis-held and misused by those who retain them. ‘The seekers or keepers of wealth are more often possessed rather than its possessors; few escape entirely a certain distorting influence stamped on it by its long seizure and perversion by the asura.’

Do we see the wealthy as asuras then, divine beings in the Vedic period, who in Indian mythology tend to be evil and fight for power with the benevolent devas?

Pattanaik adds that the venality of some amplifies and vitiates the already vicious cycle for business in India, and consequently towards wealth creation, where the state begins with the assumption that all companies are criminals. ‘We create laws so tough that only criminals can break it. Thus, instead of keeping the criminal out, we end up harvesting criminals. It’s a complex situation born of a socialist legacy, rejection of all traditional models of management and a suspicion of capitalist principles,’ he explains.

Traditions and history have been powerful shapers of thoughts around wealth.

The negativity around the creation and possession of wealth in Hindu scriptures comes from the fact that vaishyas, the varna (caste) usually responsible for creating the wealth, were not history-keepers or writers of Hindu texts, wrote economist Bibek Debroy, who is also a member of the NITI Aayog and a regarded scholar of the Mahabharata, in an article in Open magazine (6 November, 2015).

There were few texts directly devoted to the vaishyas, such as there are texts on governance and duties of a king, like Kautilya’s Arthashastra or parts of the Mahabharata. ‘Most texts that are cited were written by brahmans and for brahmans. That being the case, is it reasonable to expect such texts to lay emphasis on wealth creation?’

The power of money to build, not spend

The fresh spurt of entrepreneurship has helped counter this mindset to a certain degree. Amit Chandra, managing director of Bain Capital India, believes the pendulum has begun to swing a little, especially in the past fifteen years, as professionals become wealthy and new enterprises come up in sectors that are perceived to be less corruptible thus improving business transparency. The value of money and what it can do — create jobs, build products and expand markets — has given the pursuit of wealth more respectability.

Yet, despite this, most business owners interviewed agreed that there remains a certain suspicion in people’s minds towards those with wealth. A technology entrepreneur believes we have fooled ourselves in the start-up ecosystems in Delhi, Bengaluru and Mumbai to think that this reality has completely changed: That being successful at business, and becoming rich, was universally celebrated and admired across India.

Even though a large part of India is self-employed, most enterprises are largely aimed at survival and earning a livelihood, not at wealth creation. India’s innately entrepreneurial streak and its seemingly endless number of small businesses and establishments can’t be confused with the high-potential businesses and their wealthy founders this book talks about.

Modern businesses and their founders must understand that their successes will be recognised and appreciated not just by how they earn this wealth, but how many people this wealth ends up impacting, said Lal Dave, CEO and chairman, of the Care Group, a top manufacturer of intraocular lenses (IOLs) in Vadodara.

Care Group is an example of the rapid strides India has made in the pharmaceutical industry, from where several of the first-generation entrepreneurial success stories have come, including big names such as Dilip Shanghvi, founder and managing director, Sun Pharmaceuticals, one of the world’s ten largest generic pharma companies.

‘It depends on what wealth is, and how the rest of the organisation and the people who work for it also see their wealth. For me, that is an indicator, and that is more important. Everyone’s appetite and expectations of wealth is different so if my workers aren’t slightly better off than their peers, or from what they were before, then they will resent my success. But, if they are better off than their peers in other organisations, they would take pride in my success and in my wealth. I live within my factory premises, and all my 800-900 employees pass my house and the high-end cars I have parked in front of that when they come to work every day. But, because they have bought their own bikes, or upgraded to buying cars themselves, they don’t resent my wealth,’ Dave said.

‘Dichotomously, the truth is that the act of entrepreneurship is admired but the rewards of it still aren’t,’ says Paytm’s Sharma. Even today, he said, his relatives who don’t live in metro cities, and not many do, believe emphatically that if you are a businessman, you must somehow be “twisting” things to suit your purpose. ‘You’re considered okay as long as the money you have isn’t too much,’ he believes.

If how wealth is earned or gathered influences perceptions, does it also affect the behaviour of those who possess it? Also, do certain businesses attract more judgment than others?

Chapter 5

The colour of money

In 1988, JC Chaudhry, a botany schoolteacher, started Aakash Institute (now Aakash Educational Services Private Limited or AESPL), a network of coaching institutes for medical and engineering competitive exams. The company has over 130 coaching centres across India and caters to over 1,50,000 classroom students every year. Chaudhry comes from a middle-class background and his early success wasn’t easily palatable to the extended family and the social circle of their very middle-class Delhi neighbourhood, his son Aakash Chaudhry, AESPL’s director and the person who the company is named after, tells me.

‘I think it’s an evolution. When you first start making money, most people either think you’re doing something wrong and fleecing people or you are just lucky to have things fall into your lap. They are sceptical that hard work can lead to wealth; hard work isn’t tangible evidence because everybody thinks they work hard. Respect comes slowly, after a certain tipping point when people begin to realise that your growth is sustained and has come from providing a genuine service. It takes people a while to accept that somebody else is deservedly wealthy,’ believes Chaudhry.

Many of those I spoke to while writing this book said they have a simple filter for judgment: Where they could be assured that a rich person had an obvious, identifiable source of wealth, perceptions weren’t as negative. The disdain was nullified if the origin of wealth could be easily ascertained.

It’s when one can’t figure out how somebody is making their money that they are more likely to believe those people probably came into that money with less-than-legitimate means.

If there is a supporting source of income, people don’t look at the money as suspiciously, said a technology entrepreneur who lives in an upmarket neighbourhood in south Delhi where the glut of wealth does make one stop.

He admitted that he often wonders how people who seem to have nothing to offer and don’t have a business to show for their lifestyles drive the luxury cars they do, or have lavish farmhouses to spend weekends in.

You can’t help but look at that kind of money with some negativity, he stressed. ‘For entrepreneurs, people don’t think like that because there is a transparency in the source of the funds; you can see a business at the back of the wealth,’ he believes.

Chaudhry believes that it’s not just the source of the wealth but the nature of the business as well that often influences perceptions towards wealth.

Coaching, for example, he believes is looked at being a local service, not a corporate business that is looked up to. Consequently, wealth from a business such as theirs wasn’t considered admirable. ‘We’ve had to try hard to break out of that image and showcase ourselves as a corporate entity with a brand, systems and processes,’ he adds. Building their venture into a corporate brand has led to a social legitimacy of the business as well as the family’s assets.

‘Legitimacy is a justifiable filter for perception because people still don’t entirely look at those with wealth without scepticism, especially if they are in business,’ says Keki Mistry, vice-chairman and chief executive officer of Housing Development Finance Corporation (HDFC Ltd), and one of India’s most respected bankers.

But, once that is verified, he adds, being rich should not be considered a crime. Nobody should feel bad or be ashamed of being rich if they have become so legitimately.

Legitimacy often becomes a hydra-head concept, combined with social judgment and the kind of moralisation, mentioned earlier.

‘For me, legitimacy is if a person has built a business, earned profits and given the prescribed taxes to the government. If you’re still wealthy after putting money aside in taxes for the developmental work of the nation, you shouldn’t have anything to worry about,’ said Mistry.

Taking the sting out of ambition

When seen as a tool for upward mobility and economic growth, creating wealth shouldn’t carry a stigma, believes IIFL’s Nirmal Jain. For him, it was important to eliminate the suspicions that feed the stigma, if India was to create the number of entrepreneurs and jobs it needs.

In a capitalist economy, wealth was but a quantifiable measure of performance, he says. ‘It’s a score similar to how you compete for marks in school. Just like a classroom, there will be some students who will stop at nothing to get those extra two marks. Others may argue with the teacher on why they lost out on some marks. But the ambition to get full marks or more marks itself is not wrong,’ says Jain.

It was pure ambition, after all, that had got him started on an entrepreneurship journey and ended up giving him an opportunity to build a legacy within a lifetime. Others should want to do so as well is his hope.

India is one of the youngest nations in the world with more than 62 per cent of its population in the working age group (15-59 years) and more than 54 per cent of its total population below twenty five years of age. Our population pyramid is expected to bulge across the 15-59 age group over the next decade; during the next twenty years the labour force in the industrialised world is expected to decline by 4 per cent while in India it will increase by 32 per cent. Eleven to thirteen million Indians are estimated to come into the job market every year till 2025[13].

To both absorb the growing bulge in India’s working population, and to speed up the overall economic growth, India will have to create jobs in the primary, secondary and tertiary sectors at a brisk pace. Sparking entrepreneurship across all sectors will be crucial for this to happen.

Smart and ethical business builders had a big role to play in giving this a fillip, and to become role models and heroes of society to make way for the high-potential entrepreneurship we needed, believes Jain.

When society saw professionals create wealth by building useful companies as was demonstrated by the first wave of entrepreneurs from the IT services industry, it both legitimised the ambition for wealth and encouraged others who otherwise wouldn’t have aspired to dream and act.

These changes are slowly evident with the brightest students from top engineering colleges and business schools now choosing to become entrepreneurs, rather than corporate managers, as was Jain’s main ambition in the 1990s when he graduated from IIM Ahmedabad.

Jain may have hit the nail on its head when he says that even as societal attitudes had begun to change, the political and bureaucratic establishment in India still looked at wealth with condescension. ‘It’s a pity that they still perceive wealth and profit to be bad words. Many of India’s crippling and illogical regulatory frameworks emerge from this bias,’ he says.

Yet, the complex social judgment isn’t an easy puzzle to solve. Much like the kind of scepticism that we talked about earlier, there are pockets of wealth that not all new, first-generation wealthy necessarily associate with. The wealthy judge each other too on their different kinds of wealth.

Over the past two decades, or at least till a few years ago, the sharp escalation in land prices had forged many millionaires in valuable real estate markets of Delhi-NCR, Greater Mumbai and other metropolitan areas. Every house in a south Delhi colony, for example, became a goldmine; the next generation owners of these houses could both unlock the wealth by giving out the land to build multi-apartment units, or earn huge rents.

Region and city-specific attitudes to wealth reveal themselves to be a fascinating study that combines geography, history, demography and cultural mores, and one that could easily be a book on its own. Research for this book didn’t allow a thorough exploration of these but in Delhi, for example, the massive upside of real estate appreciation has allowed a group of people to become rich only because of the land their parents and grandparents had been fortunate to acquire cheap in a young capital in the 1960s and 1970s.

Both within the city, and certainly outside of it, it’s easy to see the condescension for this kind of wealth. Essentially, even amongst India’s new wealthy, people don’t have great respect for rent-seekers or those who have inherited rent-seeking businesses. The first generation entrepreneurs and senior corporate professionals definitely turn their nose up at this species of the affluent. They believe their wealth is superior to this — the colour of their money is brighter, shinier and fairer.

Yet, even when the source of the wealth is transparent and the success self-scripted, attitudes can be baffling. ‘My parents complain that fewer people come to visit them after I came into money,’ quips Aprameya.

This is at a time when entrepreneurship is both more accessible and celebrated than it was even a few years ago.

Wealth as a barometer of success

In 1992, Rakesh Verma founded CE Info Systems, popularly known as MapmyIndia, a leading digital maps, GPS navigation, location-based apps and GIS-solutions company for governments, businesses and individuals. An engineer from the Birla Institute of Technology and Science (BITS), Pilani, Verma was an unlikely entrepreneur of his times when he began his digital maps company with his wife Rashmi Verma, after moving back from the US where he worked at General Motors and she at IBM.

Yet, the Vermas were excited about mapping the chaos of India, a monumental task. They also saw the potential of digital maps as a critical value proposition in the information technology space. Today, the company employs more than 750 people. In December 2015, Flipkart acquired a minority stake in MapmyIndia, in a transaction in which the mapping company was reportedly valued at 1,600 crore ($240 million). Flipkart is reported to have shelled out 400 crore ($60 million) for 34 per cent stake.[14]

‘Wealth is in creating something, not in multiplying money. Entrepreneurs such as I have been creating wealth for the country by producing jobs and investing in technology. Money by itself is not fun for me. It’s a by-product, not the end-goal. Not that I hate money, I enjoy what money can provide me but it’s not what I work for,’ explains Verma.

Nearly seven in ten people interviewed for the book, especially first-generation entrepreneurs, said that wealth was a by-product of their achievement, especially after a certain benchmark of achieving financial security had been met.

In any case, the vagaries of business are such that no wealthy first-generation entrepreneur could have determined the outcome; most say there were so many points in their journey that could have tilted the story in another direction altogether.

Chasing wealth can’t serve as a goalpost in the world of entrepreneurship, at least, where so much is out of one’s control, most seem to believe.

The clichéd notion is that the people who come into money for the first time tend to be more conspicuous in their spending or are brasher about it, says the head of a private equity major in India. ‘But I don’t see that in our portfolio of founders at all. Actually, I find that for the guys who’ve really worked very hard to create wealth, the wealth becomes incidental to the success beyond a certain benchmark lifestyle. It’s a nice-to-have but I don’t think it’s what has necessarily driven many of them to get to where they are. Wanting to be successful has, but being wealthy is only a part of that.’

Why we are more like the Americans than we think

In her fascinating book Money, Morals and Manners: The Culture of the French and the American Upper-Middle Class, sociologist and author Michele Lamont explores the nature of social class in modern society. Through interviews with 160 successful men in the United States and France — managers, professionals, entrepreneurs and experts — she has revealed a collective portrait of the value and attitudes these men consider as setting them apart from others.

On the topic of money, she draws interesting contrasts between her French interviewees’ ambivalent-to-condescending attitude towards money, and its lesser importance in determining class than in the United States where professional success is measured more by income level than by nomination to prestigious positions. The Americans also see money as an essential means to control and freedom, a way to emphasise self-actualisation and interpersonal relationships without belittling money the way the French often do, Lamont writes.

Surprisingly, the American mindset seems to be mirrored by many interviewees of this book as well. The new Indian wealthy has much in common with the portrait of the well-to-do American that Lamont has sketched.

Even for those reluctant to talk about their wealth, there is no ambivalence about having made the money. Yet, while wealth does determine success in some measure and liberates them from fears and limitations, it was neither the end-goal nor the sole currency of social status. So, even as the new-generation wealthy conceded that in social settings and business events, people might size each other up on the basis of their personal wealth, their status in a group wouldn’t come only from that.

Successful first-generation entrepreneurs, especially when they have built mid-size or large businesses, often find their business expansions, acquisitions and fund raising rounds, reported in the media. It helps others have better approximations of how much someone is currently worth — intelligence an extended social circle might not have earlier. Yet, even then, their social currency isn’t solely determined by that.

If not cash, what is success?

‘In our circle of friends, respect or admiration comes more from the intellectual capacity and the ideas you talk about. If at all you judge each other, it’s on that. The quantum of wealth doesn’t matter. For senior professionals and entrepreneurs, the average wealth is so much higher that your lifestyle can be as good as the inheritors of industrialists, but are you smart and passionate? Do you have great ideas? That will make you stand out,’ stresses Kedaara Capital’s Kejriwal.

Several people told me that in a vastly-aspirational society, people are only taken in by your wealth if they think it will directly help them. In cases where that wasn’t likely to happen, people are much more indifferent because it doesn’t impact them.

‘In our generation, the big change that has happened is that we are not in awe of those who have wealth,’ says Neeru Sharma, co-founder and director of e-commerce portal, Infibeam. ‘I don’t even notice people who are wealthy, those who drive a BMW or Mercedes, something that might have stood out to my parents, for example. There is an intellectual appetite that I want to satisfy in the community that I want to be in, rather than only be branded as being wealthy. Our generation of entrepreneurs doesn’t judge people by the amount of wealth they have, we judge people by the human capital they carry, the intellectual weight they have.’

In the run-up to their listing at the stock exchange in March 2016, Infibeam’s office had been abuzz with excitement. The opportunity to create wealth seemed real and within reach for the founders as well as a small core group of senior employees who held stock options. Yet, co-founder Sharma said the team’s joy did not come from the fact that some of them would be rich. The sentiment came from the pride of having built a company that had changed an industry.

‘In any case, you shouldn’t be an entrepreneur if your prime objective and measure for success is to be rich. The mortality rate of businesses is so high that you never quite know what is going to happen,’ she reiterates a sentiment that comes up often when speaking to founders.

Bain Capital’s Amit Chandra, whose philanthropic initiatives over the past decade have led him to interact with many wealthy people across the many projects and causes he supports, says society doesn’t measure success one dimensionally and people, at the end of the day, are driven by two things: What they feel as individuals and what society feels.

What people aspire for, and what they value, is shaped by these parameters although many people often aren’t able to differentiate between the two. Most people actually mirror society, very few people are truly individualistic, fuelled completely by their own motivations, believes Chandra.

Societies evolve continuously as does what they consider success and achievement. At the turn of India’s independence, only people who fought for our freedom were considered the builders of society — our only heroes. Today, society reacts to a combination of wealth, power and individual brilliance such as that exhibited by sports heroes and film stars, explains Chandra.

In mainstream business media, entrepreneurs have begun to occupy some of that space as well — admired for their disruptive ideas, ambitious drive and a new interpretation that they are nation builders as well.

Paytm’s Sharma says that his early encounters with wealth and his family’s suspicious scepticism of it, despite him paying off their crippling loan and buying the family’s first television set in 2000 taught him a valuable lesson: That wealth wasn’t always a recognised currency of achievement.

For all the money I had, Sharma recalls, my parents would have preferred me giving up my business to get a job till well into the mid-2000s, by which time he had already founded One97.

His surprising discoveries about the power of wealth would become better defined with another incident in the first few years of his entrepreneurial journey. In 2003, Sharma had planned his first visit to Silicon Valley to see up close the technology innovations that were disrupting the internet economy — a plan thwarted by the rejection of his visa application.

At that time, Indian IT services majors were mopping up big contracts and long-term projects in the US. Many of Sharma’s batchmates from his engineering college had been “awarded” the precious H1B visa (a non-immigrant visa that allows US employers to recruit and employ foreign professionals in specialty occupations within the US for a specified period of time) for their coveted onshore assignments, even though they earned a fraction of what he did.

His visa rejection stung. Sharma calls it a “big setback” and it helped him realise that cash wasn’t enough to buy social status. It hit him that wealth wasn’t the cash you had or the house you owned, it was the impact you had — a lesson, he believes, people have to learn firsthand and can really only understand when they become rich.

Wealth, he says, was nothing but an enabler to help you do what you really wanted to. People have the urge to keep discovering new wealth because it can help them impact many lives — those of their family and employees, or society at large.

The “chosen” ones?

First-generation entrepreneurs interviewed have had the strongest sense of self-worth and achievement, more than both professionals and second-generation or mezzanine entrepreneurs, including those who have co-grown the medium or small-sized businesses their fathers had founded into impressive corporate entities.

Since they can link their success directly to having created opportunities that help fulfill other people’s ambitions, first-generation entrepreneurs have a strident confidence and conviction that somehow professionals and inheritors aren’t able to deploy in their narratives.

It’s likely that the wealthy professionals’ discomfort in talking about their money stems from this as well: Their personal contributions to the successful firms they work for might be substantial but they often don’t have the power of a story and mission that first-generation entrepreneurs do.

Contemporary literature on start-ups across the world often refers to an entrepreneur’s deeply held self-belief and conviction as “God’s Syndrome”, a formidable concoction of a sense of purpose beyond themselves, and an occasional, exaggerated notion of infallibility.

The scope of my interviews didn’t allow for an exploration of the negative traits that come with this God’s Syndrome but in every conversation with entrepreneurs, it was apparent that they believed they played a special role — as “ideas” people, job creators and nation builders.

They were the least bashful when it came to articulating the impact of their ideas and ventures on the industries they worked in and the employees who worked for them. Their reluctance to talk about their wealth was dramatically different from the strong sense of self-worth they drew from the companies they built and the contributions of those businesses to India’s growth trajectory.

They also seem to have a certain awareness of the philosophical framework that Devdutt Pattanaik referred to earlier, the one that delinked success from respect.

Nearly 72 per cent of the people surveyed on the question, ‘Do you think people respect you because of your wealth?’ said they did not believe that to be true. In my interviews as well, it was rare to find a first-generation entrepreneur willing to talk about their ambition to be rich without talking about passion, vision and a larger goal.

Was it better to be more like life-preserving Lord Vishnu or a self-indulgent Lord Indra?

The high of changing lives

In April 2015, Kunal Shah, founder and CEO of Freecharge, an online mobile recharge platform, sold his five-year-old company — backed by investors such as Sequoia Capital, ru-Net, Valiant Capital and Aquila Investments — to e-commerce giant Snapdeal in a reported 2,400-crore ($360 million) deal done 30 per cent in cash and 70 per cent in stock. Along with the TaxiForSure deal in March that year, the Freecharge-Snapdeal acquisition made big headlines for being one of the largest consumer internet transactions in India so far.

The company’s two founders, Shah and Sandeep Tandon, reportedly netted some equity in Snapdeal as well. Business newspapers might gush about these mega deals in their frenzied reportage on venture capital activity and technology start-ups but Shah insisted the numbers did nothing to capture the real excitement of building a company. ‘When you build a start-up and see lives change, it’s something else,’ he explains excitedly.

‘It might sound grandiose but it feels like we are giving electricity to people. Freecharge’s user data has shown that once someone learns how to transact a recharge online, they move to online shopping and NEFT transfers,’ he explains to me.

His drive — and that of his company’s — he insists comes from the fact that they are able to participate in making transformations in a country that was on the move and was changing so rapidly.

‘In the process, lives of people who work for us have also changed. When team members invite me home and I see how much their lifestyles and lives have changed because of the company we started, it feels great. That is wealth,’ Shah adds.

Feeling successful wasn’t something he got out of his investment portfolio or bank statement, he told me, because nobody who creates wealth is really chasing wealth.

‘What I am super proud of and what I value most is that I am able to meet some very intelligent people. Real wealth is in getting respect from both younger and seasoned entrepreneurs. I feel richer because I am invited to events where I meet some amazing people, and they’ll respond if I reach out to them or write them emails. Now, that makes me feel rich.’

The badge of hard work

In Lamont’s Money, Morals, and Manners: The Culture of the French and American Upper-Middle Class, that was referred to earlier, there is an interesting section on the differences in the two societies about how morality is structured. ‘In general, the French less frequently take a strong work orientation to be a template of moral character…they also tend to deduce moral purity from involvement in the humanist tradition, whether it is Catholic or Socialist in inspiration.’

In contrast, American morality is more defined in terms of work ethics, humility, conspicuous honesty and straightforwardness.

Again, the Indian wealthy has an uncanny affinity with the American upper-middle class ethos, as laid out by Lamont. Striking in its absence in my interviewees for the book, was religiosity or the notion of divine gratitude when people spoke about their wealth.

In its place, instead, was a strong sense of self-belief and faith in the possibilities and rewards of hard work. In contradiction to the notion of a silver spoon, it was the first-generation entrepreneurs and professionals, more than second-generation entrepreneurs, who had a greater sense of the forces of time having aligned beneficially for them. Yet, even amongst them, few articulated it in terms of feeling “blessed”. Even where people understood they were fortunate to be in the right place at the right time, they saw the situation as a confluence of market forces, demographics and a moment in history that was ripe for growth. The terms “ovarian lottery” and “lucky sperm” were mentioned more times than the word God in the interviews I did.

There is, instead, a near-devotional reverence for the guild of hard work, especially amongst first-generation entrepreneurs above the age of forty five. While younger first-generation entrepreneurs might stress on the power of an idea, or the possibilities of disruption, more as a cause for their success, older entrepreneurs are more likely to talk about hard work, grit and determination. ‘India is a land of equal opportunity; by dint of hard work and good ideas, you can build a successful life. Mine is a modest example, that it is possible to build a fortune and a legacy in a generation,’ Nirmal Jain of IIFL Holdings told me.

For the mezzanine generation of entrepreneurs, hard work was considered a much-prized currency as well. Second-generation entrepreneurs, even those co-creating and co-scripting a substantial scale-up in their family businesses, have a strangely complicated relationship to their family wealth.

Because they don’t enjoy as much moral ownership of the business as a first-generation founder does, hard work becomes the tool by which they both begin to feel more ownership and validate the privileges people perceive they enjoy.

Holostik India’s Ankit Gupta, an alumnus of Harvard Business School, joined the company founded by his father, UK Gupta, in 2007, after a management degree from the University of California, Los Angeles. At the time, their consolidated businesses had a turnover of 40 crore ($6 million). Today, apart from their core business of anti-counterfeiting solutions, they are also in real estate, packaging, chemicals and warehousing. They have become active angel investors as well.

They closed 2015 with about 250 crore ($37 million) in turnover. ‘We have grown six times in seven years, which feels good, of course. At the back of your mind, you always know what you started with and what you’re helping create. Not only a sense of accomplishment, a sense of ownership begins to slowly seep in when you have worked hard for it.’

Gupta, who has been busy with an organisational change initiative to professionalise his family business, says that effort and energy becomes the main filter for personal satisfaction. ‘As entrepreneurs, you invest for the future be it in terms of money or effort. I know the true returns of what I did two years back won’t show for another year but that is the forward-looking vision you set and work towards. Also knowing that you are giving in your 150 percent makes it most satisfying,’ he says.

Starting a business in India is one of the toughest and most challenging journeys. We remain one of the most hostile countries in the world when it comes to ease of doing business and negotiating the obstacles. When you run the business yourself, firefight through the emergencies that crop up, the fruits of the business or the wealth earned take on a different meaning. Seeing what it takes to run the business, these entrepreneurs say, dramatically changed what money meant, and how they viewed it.

‘There is a huge difference in how you see the wealth you create or the little wealth you saw your parents have as a child. I used to wonder why my father never spent any money on himself. Today, I am like him. Before any big material purchase, I ask myself, how am I going to recover this? When you know how hard it is to make money, you spend it with much more caution,’ says Aakash Educational’s Chaudhry.

The piggy-bank model

Aditya Gupta’s father started Sharda Exports, a small carpet manufacturing unit, in Meerut in 1983. Gupta joined the business after an engineering degree from the University of Roorkee in 1991. It then had annual sales of less than 40 lakh ($60,000). Today, the company has a flourishing real estate and exports business as well as two retail furniture brands — The Furniture Republic and The Rug Republic. The group turnover today, Gupta says, is “several hundred crores.”

Unlike the dramatic stories of first-generation technology entrepreneurs profiled earlier, and the huge explosion of wealth they have witnessed, Gupta says his wealth is more organic. He calls it the “piggy-bank” model of wealth creation — adding moderate amounts of wealth, week by week and year by year.

In that sense, Gupta represents both the mezzanine generation that was referred to earlier, and an old-economy business without the razzmatazz of the new-economy technology ventures that dominate mainstream media space. Not surprisingly, both weigh heavy on how he sees his wealth, and the opportunities it affords him.

In his tastefully designed corporate office in an industrial zone in Noida, he said to me, ‘I do feel like I deserve what I have because it’s come from having toiled year after year. When you’ve worked hard over decades, not only are you more likely to be attached to your wealth but you’re more conservative as well. That determines, to some extent, the amount of risk you want to take. Because we haven’t depended on one massive stroke of luck, even our plans for the future aren’t boom-or-bust ideas. Naturally, there is more aversion to risk, or more attachment to the wealth, if you’d like to call it that. The fear of losing wealth can be bigger than the joy of making it.’

He reckons that most people with wealth are like him because apart from the past seven years or so — where some people have had very condensed start-to-exit business journeys — most other companies, even in the IT services, were organically built and therefore took longer to establish and generate substantial personal wealth from.

‘The quick-rich model of extreme start-ups was an aberration, and one that didn’t quite capture the reality of wealth and how it shapes perceptions,’ feels Gupta.

I found that more than even the quantum of the corpus built, the pace at which the wealth is created does sharply determine and influence attitudes, including how “attached” people feel to the wealth. Company owners who have been running their businesses for decades say that the bruising journey that building a business in India calls for does make them feel more deserving of the wealth they have amassed. The tenacity, perseverance and determination required also makes the wealth earned more valuable.

‘For people who began businesses with real risk and no outside capital, such as old-economy, manufacturing business like ours, getting to a base level of wealth was important from a survival point of view,’ explains a first-generation garments manufacturer in Mumbai.

‘Attitude towards the importance of wealth till a base level is reached is very different from that of people who had reached this base level of wealth before starting their business, such as senior professionals turning into entrepreneurs,’ he explained to me.

Many other professionals I spoke to ascribed to this view as well. ‘When you build something up over thirty five years of hard work and a disciplined life, you do value that money more. It’s not like that money has suddenly bounced from the sky in a single event that we see with some younger businesses now,’ added HDFC’s Keki Mistry.

The only free calendar slot I found in the two-week period in August last year that I was trying to meet Freecharge’s Kunal Shah, for whom the skies had opened up and rained wealth, was an evening peak-hour drive from his office in Mumbai’s Bandra Kurla Complex to the domestic airport.

Shah spoke with a speed and energy that one wishes could rub off on the gridlocked roads of our cities during peak hour. This time, however, I was thankful for the slow, messy traffic because time with Shah had been so tough to coordinate in the manic post-acquisition period when he was shuttling between Bengaluru, Delhi and Mumbai several times in a week. Also, my rushed but insightful conversation with him struck me to be strangely symbolic of his company’s manic growth.

This was barely a few weeks after his company’s mega transaction with Snapdeal that had led to a substantial infusion of personal wealth but Shah seemed unfazed, almost bored, to talk about this enormous life-changing event.

As an entrepreneur, he explained to me, one became used to bouts of massive euphoria as well as lows, often during the same day. ‘This volatile mix of emotions forced one to develop a thick skin, and while that is useful in helping manage the lows, it, unfortunately, also proofs one against being excited about the highs,’ the 37-year-old entrepreneur explained. ‘I was recently telling Ronnie Screwvala, someone I respect a lot, that I almost felt no emotion and that nothing seems to have changed. He said it was probably because this happened too early in my life.’

Shah said that he had noticed that when one spent a longer time to build something, they did feel like they deserved it more. It was understandable that with the pains they had taken to build the business, they wouldn’t want to go back to the days of struggle.

For entrepreneurs such as him, he added, who had been backed by venture capital money, and had seen massive personal upsides in less than five years from starting out, the notion of gratitude was very different.

‘When you spend twenty years on building something, it takes the life out of you. I recognise that for someone such as Ronnie (Screwvala) who led UTV for twenty years before finally stepping down in 2014, it must feel much more hard earned,’ concluded Shah in his no-holds-barred way.

Chapter 6

Dividends of thrift

Even before she learnt the lessons of wealth, Infibeam’s Neeru Sharma learnt how to save. Sharma grew up in a middle-class family in Faridabad. Her father’s fledgling auto lamps business suffered huge losses when she was in school. Her homemaker mother stepped in to manage the industrial unit so Sharma’s father could go back to a job and bring in a stable income to keep their household running.

Those memories stayed with her. She saw how the lack of funds had forced her parents to make life choices they might not have otherwise made as her father had always nursed entrepreneurial ambitions. Having lived through several phases of a cash crunch as her parents breathed life into an ailing business, Sharma’s sole agenda when she began working in 2001 at Tata Consultancy Services after her engineering degree was to save as much money as she could.

Sharma recalls how she and her brother, also an engineer, would spend money very, very cautiously when they began to earn. Both opted for as many on-site, international assignments as possible because these stints gave them a chance to save up.

In a few years, the siblings had collected enough to help their parents buy a new house before starting her family. That was a big milestone. The urge to save eased up a little. After 2005, things changed even more. Sharma had a successful tenure at Alcatel, which she followed up with a management degree from Carnegie Mellon — a top-ranking business school in the US after her marriage. Her earnings rose sharply as did her confidence during her stint with e-commerce giant Amazon after the management degree. This was her “new normal” and it helped chip away at some of the anxieties around money. Still, the early lessons were deeply imbibed. ‘Saving is part of my ethos now. Even today, I am not really a spender,’ she says.

In her case, that value system has determined career choices. Her attitude to her personal wealth is similar to her attitude toward building the business and whom she partners with.

Infibeam began with founder Vishal Mehta’s personal investments. In 2008, he teamed up with Sharma and two others to start the e-commerce venture. Till it listed on the Bombay Stock Exchange earlier this year — nine years after it was founded — the company was unique amongst the breed of e-commerce firms for never having raised venture capital in its journey.

They built their company on a different model, by keeping a tight rein on the working capital and a hawk eye on the balance sheet in the run up to the listing in March 2016, where the company raised 450 crore ($67 million) through an initial public offering (IPO).

Saving the spend: the Indian way

In an article in the annual overview of Asia’s private banking and wealth management industry by consulting firm Hubbis, Andrew Long — co-founder of Ten Group, a concierge service that caters to the world’s wealthy — talks about the counter-intuitive attitudes of the wealthy across geographies and regions.

In the article, he recounts an experience from China, where Ten Group sent an email newsletter that contained a picture of twelve different Hermes and Birkin handbags. One of the customers emailed back with a “yes, please” and bought all the bags showcased for $500,000 ( 3.3 crore). Interestingly, though, when they organised a tour to Europe, the Ten team assumed that somebody who would spend that kind of money on handbags would obviously want to fly business or first class, or perhaps even hire a private jet. Their client surprised them by wanting to fly economy and then by staying in a four-star hotel. In the Hubbis article, Long says, ‘Many Asian families place a high value on physical displays of wealth, yet are budget-conscious when it comes to more transitory acts of spending.’

China and India, pegged as the two stand-out stories in the Asia Pacific region over the medium term (five to seven years), already represent 10.5 per cent of global wealth, managing to double their share in this pie over the past fifteen years[15]. Backed by strong economic growth, the two countries account for 17 per cent of the global increase in new wealth since 2006, having added $3.2 trillion ( 21, 46,976 crore) during that time[16].

Because expansion of private wealth is relatively new to both the countries, attitudes and mindsets on consumption, indulgence and spending are rapidly evolving, say those who track these two nations.

Raghav Bahl, author of the books Superpower: The Amazing Race between China’s Hare and India’s Tortoise and Supereconomies: America, India, China & the Future of the World, says the Chinese pattern of consumption is vastly different from the Indian. ‘The Chinese indulge more because wealth is a newer phenomenon for them than for us,’ he says.

‘In India, we have always been used to the notion of private property, even if it is small. China is very different because their wealth is very new. Consequently, there is also much more ostentatious display of wealth. In India, maybe a fraction of the country is ostentatious but by sanskaar (traditional values), we’re taught to be frugal, and much of the wealthy in India today were once middle-class so we know how to live on a fixed income. So far, these values have endured much more in India because they are germane to us; they are embedded in our conditioning,’ says Bahl to me.

China also beats India in the suddenness of wealth created. Wealthy Chinese have emerged only in the past two decades. The first billionaire in China came out in the mid-2000s. ‘This is surprising, considering it’s an economy that has been roaring for at least three decades now,’ says IIFL Wealth’s Amit Shah.

He believes there was a greater inclination to splurge in China because the wealthy there lived with an inherent threat that the riches might go as you never knew what the Chinese government might do.

‘The Indian wealthy have enjoyed protection of private property for generations, it isn’t new for them. The quantum of the wealth has increased rapidly now and there has been a change in who the wealthy are but private wealth has always existed,’ he adds.

China is an interesting market, feels Michael Stanhope, founder and CEO, Hubbis. Much like India, the reality isn’t easily apparent, Stanhope says. So, even though consumerism is booming on the surface today in China, conservative spending habits are still deeply ingrained in the culture.

China still saves over 50 per cent of its GDP[17]. Although it has been sliding downwards, mainly due to inflation, India ranks thirty first[17] out of 184 countries on its gross domestic savings in 2014, at 31 per cent of the GDP (down from 32.5 per cent in 2011). The new Indian wealthy seems to match this savings rate; most people said they would easily be saving upwards of 30 per cent of their wealth, if not more. Ultra-high net worth individuals (UHNI) who are entrepreneurs either save or invest in their primary business 39 per cent of their wealth; professional UHNIs saved up to 21 per cent of their income, according to a recent report[18].

The eternal discount hunters

The Indian saving mindset comes from an incredibly strong value-for-money orientation. In particular, it’s ingrained in the DNA of its first-generation wealthy. An affluent Indian customer is both demanding of quality, especially of service, yet deeply influenced by the price.

‘We don’t compromise on quality but if there is a discounted deal, we don’t mind spending ten extra minutes to avail it,’ says IIFLW’s Shah, who, as the head of his company’s offshore business, is based out of Singapore. Having lived in New York for several years, he spends more than half a month across the world’s top financial centres. Shah finds the value-for-money focus of his firm’s clients in Mumbai rather striking compared to other cities.

‘What you’re sitting on is as old as the company itself, probably older,’ Stellar’s Akshay Sethi tells me, referring to the less-than-spiffy three-seater sofa in the company’s corporate office in Noida. ‘It’s been re-upholstered over six times but never been replaced,’ says Sethi.

In that time span, the company has built more than two million square feet of real estate across commercial and residential projects. His father, Ravi M Sethi, the company’s founder and a former Uttar Pradesh-cadre Indian Administrative Service officer, still staples a bunch of food delivery, dry cleaning and beauty salon advertising flyers that come with the morning newspapers and uses the unprinted reverse side as his rough note pad during the day. As much as possible, he also re-uses the envelopes they get their mails in for internal, intra-departmental correspondence.

Wealthy entrepreneurs in their 60s and 70s can be incredibly cost-driven, says a senior private banker in Mumbai. They might spend several lakhs in buying jewellery for a family wedding, because it was an asset that would appreciate, but would not spend an extra rupee on lifestyle needs. In contrast, the younger wealthy, whether first-generation entrepreneurs, successful corporate professionals or the second-generation of a business family, were usually more willing to spend on lifestyle but continued to look out for deals.

‘They will travel around the world at least two or three weeks a year, but they will not necessarily stay in the most expensive hotels in the city or fly first class,’ a wealth manager tells me.

Much like “creating value” is constantly brought up as the motivation that powers achievement, spending the money sensibly consistently comes up as a badge of honour the new rich wish to wear with pride.

A technology entrepreneur in his late 30s, who comes from a middle-class background, confessed to often feeling guilty after the end of a holiday or a sudden, impulsive buy. To him, it wasn’t about the amount of money spent but the conditioning he has imbibed.

‘If you haven’t hunted for a value deal, or spent time comparing prices on a decent-size purchase, you feel stupid. You might have still made the same decision to buy the same thing, but if you haven’t taken the time to think about it, it takes away from the joy of owning,’ he explains.

Assets, legacies and children

The ones who are older — in their late 40s to early 50s /–\ are obsessed with communicating this “value” to their children. For most people, beyond a certain expense on lifestyle needs, wealth is really a tool for the future.

Unsurprisingly, children feature prominently in every conversation with a wealthy individual. Most first-generation rich — entrepreneurs and professionals alike — take great pride in the middle-class environments they grew up in and from which they imbibed the ethos of hard work and discipline that they give credit to for their success.

There are examples of very successful children of successful parents but this is more the exception than the rule. A large number were constantly worried their success would end up curbing their children’s hunger for growth as well as their entrepreneurial instincts.

The belief that there were some advantages to adversity that privileges could never match was a concern shared by several first-generation entrepreneurs, especially those who had come from the least economically well-off backgrounds.

The gulf between their own childhood and the upbringing they were giving their children was so dramatically different — they wondered if the eventual outcome would be as divergent as well?

Several, therefore, worry about how to make their current wealth work to an advantage for their children, especially in finding the right balance between giving their children access to best-in-class education, facilities and experiences without breeding entitlement and complacency.

More crucially, they want them to understand the value of money because these children have grown up in homes where the true luxury money afforded was that it allowed them never having to think about it.

How could they make sure their children inherited the wealth and ambition as well as the hunger and work ethic that first-generation entrepreneurs and professionals believe was their secret sauce?

‘If I have managed to create this first-generation wealth, I’d rather not give them the wealth but give them the right education. That’s my investment. I do worry about this all the time. Everything I do, every decision we take as a family, be it a holiday or a big purchase, I am wondering what they’re making of that, what they’re understanding, why they think we could afford this purchase, and somebody else they know couldn’t, or vice versa,’ says a first-generation technology entrepreneur who sold his 200-people strong company to a global IT services company.

Wealth’s birds and bees: an uncomfortable conversation

An interesting insight I gained was also the fact that people are divided on whether they should give their children details about the family wealth or not. Several felt that money wasn’t something to be discussed with children till they were at least young adults while there were others who believed it was somewhat delusional to expect that children did not understand the family’s economic situation. It was worse if they made wrong assumptions. Much like any other important issue children faced while growing up, it was best they got an accurate picture at home from their parents.

Children are curious about money because they rightfully sense early on the power of money, writes Ron Lieber, author of the book, The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money. In an article[19] after the book was released, Lieber, recommends that parents begin “talking about money” with children as young as five or six years old with the help of tools such as the grocery bill so they can start understanding concepts such as budgets, wants and needs.

His advice for the wealthy was the same: That even in the case of plenty, children must know what sustains their standard of living.

‘Coming clean about income and assets can pose special challenges if you are truly wealthy because (parents) may worry that children will flaunt their good fortune or think they never have to work. But you don’t get a pass: If you don’t work (or don’t work much), older children will wonder how the family affords its life. At the very least, it’s worth trying some starter exercises, like showing your children the details of what a vacation or a second home actually costs. Explain, too, that it requires a great deal of money to throw off whatever dividends and interest contribute to the family budget, and that the investments that do so may not last or may not fall to the next generation if the children don’t make something of themselves in college and beyond,’ Lieber writes[20].

A healthcare entrepreneur based in Hyderabad, who did not want to be quoted, told me that his wife and he underplayed their wealth so that their two boys wouldn’t think they had access to a “bottomless vault of goodies and riches” to live off. Even his elder son, who is nearly nineteen years old, does not know the extent of the wealth and would not be able to hazard a guess although it was slowly becoming obvious to him that the lifestyle they enjoyed and the things they could access were much more than what others can afford. ‘It’s a difficult line to get right: You want them to grow up without thinking of themselves as rich and becoming arrogant but also knowing how fortunate they are to have more than others,’ he says.

The wealthy hoped their children would build on the advantages they had inherited, not squander them away.

‘My fundamental philosophy when it comes to getting my children to understand the value of money comes from what I learned from my mother: Never preach, practice,’ IIFL’s Jain said.

‘It’s not enough to say, don’t waste food or don’t waste money. As parents, you have to make sure you don’t leave anything on the plate either and your children don’t see you wasting money. My father, who is eighty two, gets agitated about even a rupee being wasted. Because he lives with us, my three children are exposed to that mindset. Hopefully, they’ll follow in his footsteps,’ he adds.

Others talked about their various experiments with building this value-for-money ethos — having their teenage children plan the family holidays where they are given a budget and asked to make decisions on flight bookings, hotel rooms and must-see tourist attractions. This way, they start to see how their parents seek value.

‘If you are spending $100 a night extra at one particular hotel, there should be a reason for that. When you suddenly find a good deal for a good price, it is a good decision. You begin to train them on the sense of value versus just cost,’ an entrepreneur explained to me.

Sharda Exports’ Aditya Gupta feels that what is even more important with children is getting the work culture right. For him, a seventy-hour work week was the norm. ‘I sometimes wonder why I continue to work so hard. But, I think it’s important for them to see that their lifestyle and the choices they are fortunate to have are sustained by hard work. Hopefully, that will keep the sense of entitlement at bay,’ he adds.

Much like the ultra-wealthy Chinese woman who bought the dozen expensive bags but flew economy class, air travel interestingly came up in many conversations when talking about the value of money.

Several admitted to flying business class as being one of their biggest indulgences. Most are, however, quick to add that their punishing travel schedules — especially flights to the United States, for example — had led them to give in to this guilty, but necessary, life upgrade.

Even those who travel business class for work say they are conscious of travelling economy when taking family holidays, or certainly making sure that their children, especially if they’re older and can take care of themselves, fly economy even if the parents have treated themselves to a first-class ticket.

Interestingly, even though people say they worried about their children’s attitude to wealth, most seemed satisfied by how their children were faring, or had fared, in dealing with their abundances. Those with adult children didn’t seem to begrudge the next generation their expensive lifestyle, understanding that changed economic realities meant priorities and habits would also change.

I wonder if people were less than honest because most would be unwilling to dwell on being unhappy with their children or with their own parenting hits-and-misses with an outsider. But the blind survey had similar findings: Over 80 per cent said they were satisfied with their effort at making their children understand the value of money and were confident that their children were on the right track.

Yet, for the rich, family legacies are not restricted to the home alone. While working on this book, the one question that was posed to me by those who knew I was writing on India’s new affluent — even more than the “how they did it” questions or “how they managed their money” — was how much did these people donate to charity?

Chapter 7

Do-gooders or reluctant philanthropists?

Globally, the rich have been in a tough public relations spot over the past six years. It began with the Occupy Wall Street movement, a protest movement against social and income inequality worldwide that began in Zuccotti Park in New York’s financial district in September 2011. It was a movement powered by the people, aided by the communication advantages that social media accorded. Although it began small, the movement soon grew to get global attention.

In 2014, French economist Thomas Piketty, whose work focuses on wealth and income inequality, published his book Capital in the Twenty-First Century. It has sold more than two million copies since and his ideas around the inequalities of wealth have been the focus of many conversations. The masterful data Piketty had marshalled has led to countless news reports and magazine articles on the subject of wealth inequality and its damaging consequences.

More recently, in April 2016, the Panama Papers were made public by a clutch of media organisations around the world. The Papers refer to the 11.5 million files leaked from law firm Mossack Fonseca, based in Panama, that reveal how industrialists, politicians and celebrities from across the world used an offshore tax haven like Panama to avoid paying taxes in their own countries.

The International Consortium of Investigative Journalists (ICIJ), a collective of global media publications, worked to make sense of the documents that were first anonymously leaked to a German newspaper. The Panama Papers made for global headlines and the names of those having exploited secretive offshore tax regimes included top politicians like Russian President Vladimir Putin, Pakistan Prime Minister Nawaz Sharif, and former Prime Minster of Iceland, Sigmundur Davio Gunnlaugsson who, in fact, resigned days after his name was made public.

The Indian Express, part of the ICIJ, published that a group of Indians, including industrialists and actors, were also found to have shell companies. The papers seemed to reconfirm the venality and deviousness of the wealthy.

In India, the focus on corporate defaulters, including liquor baron Vijay Mallaya — who has been served an Enforcement Directorate notice for having allegedly and willfully defaulted on bank loans of around 7,000 crore (around $1 billion)— seemed to bring home the point to many that wealthy industrialists were always gaming the system.

It also seemed to reaffirm that their personal lifestyles are not affected by the dips in their business. People resent that. In fact, following a special inspection of bank books, the Reserve Bank of India (RBI) said that the top fifty defaulters contributed to 80 per cent of the bad loans for a banking sector crippled with non-performing assets. In television debates and newspaper editorials, the value judgment on the defaulters was evident — they were all painted in broad strokes for being corrupt, criminal and willful.

In fact, senior economists including the Governor of the Reserve Bank of India Raghuram G Rajan, warned against seeing every loan default as a “morality” issue. While some could be cases of criminal offences, he said at a speech in New York that was reported in all newspapers, companies could default for reasons that weren’t caused by a promoter’s venality. Yet, the first assumption and image built in the media, and lapped up by readers, was that of a cabal of scheming, thieving businessmen robbing our banking system dry.

There has also been growing research on how wealth changes people, and how the rich interact with society — whether wealth changed neural networks and caused people to behave differently from a time when they didn’t have it.

Paul Piff is an up-and-coming social psychologist, and an assistant professor of Psychology and Social Behaviour at the University of California, Irvine, where he studies how wealth (having it or not) can affect interpersonal relationships. The results don’t often paint a pretty picture about the motivating forces of being rich. Piff has found that increased wealth and status in society lead to increased self-focus and, in turn, decreased compassion, altruism, and ethical behaviour.

During the course of my conversations, it became clear to me that people do seem to expect those who are rich to donate generously. That doing so somehow justifies the assets they have amassed. It indicates that maybe the wealthy needed to rehabilitate their image. Giving back makes their wealth and the inequalities of the capitalist system more defensible.

Interestingly, philanthropy was a topic the people I interviewed were eager to talk about as well. Many would bring up the issue themselves; several, in fact, seemed to anticipate that this was a question that would eventually be asked of them in a conversation focused on their personal wealth. Perhaps they wanted to talk about their charity because they are aware of the general contempt people have toward the rich. Maybe they did this as a means to appear more human to the less wealthy?

Behaviour 101 in the land of inequalities

India is one of the world’s most unequal places. The Credit Suisse report on global wealth, referenced earlier, found that the richest 1 per cent of Indians owned 53 per cent of the country’s wealth; and that the richest 5 per cent owned 68.6 per cent of the country’s wealth while the top 10 per cent had 76.3 per cent. Worse, the gap between the wealthy and the have-nots was widening.

In 2000, India’s richest 1 per cent owned 36.8 per cent of the country’s wealth while the share of the top 10 per cent was 65.9 per cent[21]. The gap in India was also bigger than the one in other countries. The share of India’s richest 1 per cent is far ahead than that of the top 1 per cent of the US who own a mere 37.3 per cent of the total American wealth.

Ruchir Sharma, head of emerging markets and global macro at Morgan Stanley Investment Management and author of Breakout Nations, studied what the growing number of billionaires in emerging markets says about how democratic a country’s economic opportunity and capacity for wealth creation is[22]. The industries minting the billionaires was an important criteria as well.

Were the rich becoming so by fixing government contracts or were they building businesses in the free market?

His research found that of the fifty five Indian billionaires on the 2013 list of the world’s billionaires, seventeen were newcomers since 2010, and fourteen of the newcomers came from productive industries like pharmaceuticals, education and consumer goods. These were good findings but Sharma says that the general rule is that if the total net worth of the billionaire class of a country surpasses 10 per cent of the GDP — the rough average for emerging markets — there could be a popular backlash. His 2013 research found that Philippines, Malaysia, Taiwan and Thailand were above the 10 per cent threshold, and India was sitting on the edge, with billionaire wealth equal to 9.9 per cent of the GDP.

Worse, by breaking down the 2013 list by industry yields, Sharma found that Russia was off the charts with 75 per cent of its billionaire wealth derived from classically unproductive industries such as real estate and natural resources. India was second worst at 41 per cent.

His was a specific study of billionaires only. This book focusses on the emerging wealthy in general and nearly nobody interviewed here is a billionaire.

But the constant, sometimes dichotomous media reportage that comes up on these subjects — primarily, hailing the rise of Indian billionaires and then a much-needed scrutiny on the inequalities of our economic opportunities — moulds perceptions towards the wealthy in general.

Great expectations, frugality and PR spins

India’s wealthy seem to understand the atmospherics. Although my intention in most interviews has been to talk about views and attitudes to philanthropy only at the end of the conversation, in seven out of ten discussions roughly, it would be brought up much earlier.

Several discussions — especially with those above forty five years of age — veered without any prodding towards their ideas of giving back. Several spoke enthusiastically about the causes they would like to support — there were ideas on vocational institutes for skilling young Indians, the need for old-age centres and why it was important to protect our environment. They spoke about the orphanages, causes and organisations they were already a part of — many said they did this so hoping their children would develop a sense of empathy and gratitude.

Yet, apart from giving money on an ad-hoc, irregular basis to a few causes and charitable organisations, most still seem to be exploring and mulling over a focused philanthropic initiative. The journey to active, cause-driven philanthropy was still a work-in-progress for a large majority of the interviewees. They were only investing tiny portions of their wealth: Only a handful was comfortable openly declaring the percentage of their wealth that was going towards philanthropy.

Was talk on philanthropy cheap or would these new wealthy eventually graduate to becoming significant donors? Would they at some point walk their big talk? What explained this disconnect between intention and action? Did they feel pushed to speak about these issues because they knew society expected them to be generous?

Yet, on the survey that I conducted, this assumption wasn’t validated. A decisive 92 per cent said they felt no societal pressure to donate to philanthropic causes. For nearly 97 per cent of the people, the motivation for giving came from the gratitude they felt at what they had managed to achieve or build in this lifetime as well as from the sense of responsibility and power to change the lives they could.

Could the belief in hard work then have something to do with this?

Robert H Frank, a professor of economics at Cornell University, and the author of Success and Luck: Good Fortune and the Myth of Meritocracy, believes the cult of hard work isn’t always a productive, conducive emotion although the wealthy anywhere in the world have an overwhelming affinity to it. In an article he wrote for The Atlantic, Frank pulls up an E B White quote that summed it up perfectly. ‘Luck is not something you can mention in the presence of self-made men.’

A Pew Research Center survey, Frank writes in the same article, found that people in higher income brackets are much more likely than those with lower incomes to say that individuals get rich primarily because they work hard. He added that other surveys had revealed similar findings: The rich attribute their own success to hard work rather than to factors like luck or being in the right place at the right time.

‘That’s troubling, because a growing body of evidence suggests that seeing ourselves as self-made—rather than as talented, hardworking, and lucky—leads us to be less generous and public-spirited. It may even make the lucky less likely to support the conditions (such as high-quality public infrastructure and education) that made their own success possible,’ writes Frank.

Ambassadors of generosity

Philanthropy has definitely become a more mainstream issue in the world of business, prompted by the highly-publicised The Giving Pledge — a commitment by the world’s wealthiest individuals and families to dedicate the majority of their wealth to philanthropy. It has been signed by people such as Microsoft founder Bill Gates and his wife Melinda Gates, Berkshire Hathaway chairman and CEO Warren Buffett and PayPal and Tesla founder Elon Musk, amongst others. Biocon chairperson Kiran Mazumdar Shaw is also a signatory to the Giving Pledge.

In India, philanthropic initiatives by business leaders such as Wipro chairman Azim Premji, HCL founder Shiv Nadar and the co-founders of Infosys, NR Narayana Murthy and Nandan Nilekani, has ensured there is a steady stream of news about the subject in mainstream business newspapers. In fact, media reporting of philanthropy is also now double of what is was six years ago, found India Philanthropy Report 2015, brought out by Bain & Company.

Bain says the philanthropy space has grown considerably since its first report on the subject in 2010; the 2015 report referenced here. Donors are both contributing more and donating to a larger pool of not-for-profit organisations. In 2013, for example, 28 per cent of the adult population donated money and 21 per cent donated their time, which, according to the report, is a staggering increase of more than 100 million more Indians making donations in cash or time than in 2009. This has put philanthropy in India significantly ahead of that in other countries with similar levels of prosperity. India is now No. 69 on the World Giving Index, up from No. 134 in 2010, moving as a country from the bottom to the middle of the pack in a few short years[23].

The Companies Act, 2013, is expected to boost this trend. Under the Act, every company having net worth of 500 crore ($75 million) or more, or turnover of 1,000 crore ($150 million) or more or a net profit of 5 crore ($750,000) or more during any financial year, shall constitute a Corporate Social Responsibility Committee of the board consisting of three or more directors, out of which at least one director shall be an independent director.

Essentially, it makes it mandatory for companies beyond a certain turnover and profitability eligible to make mandatory contributions. It will also improve governance in NGOs funded by the corporate. The new law requires companies to formulate clear corporate social responsibility policies and to make the progress public, either through an annual report or as updates on their company websites.

Do the new rich give more?

Have the first-generation rich provided fresh motivational triggers for philanthropy? How do they stack up against this new trend of giving? Have they outpaced the traditionally wealthy? Most crucially, is the first-generation wealthy in India more, or less, philanthropic?

Accelerated wealth creation at an age younger than ever before in India bodes well for philanthropy, says a first-generation pharma entrepreneur who gives away a significant part of his earnings after his son’s unfortunate death at the age of seven.

He says he has been surprised with the quality of people — and how young some of them are — he meets at fundraisers, or on boards of not-for-profits.

‘There is definitely something different happening with the way first-generation wealth builders, especially professionals and entrepreneurs, are engaging with society,’ he believes.

The green shoots are evident. It’s not as if inheritors don’t become philanthropists, the banker believes, but he finds that the first-generation rich are giving both wealth and time before the inheritors, and were doing so earlier into their wealth journey.

The urge for them comes from the gratitude they feel towards the wealth they have created which is often so much more than they had imagined. They are outgrowing their aspirations by a wide margin and feel blessed for it: The sentiment to give back germinates here.

This was very different from inheritors. For one, the notion of custodianship of the wealth they have been bequeathed doesn’t give them as much autonomy with what they can do with it. Their job has been to preserve the wealth for the next generation and this core motivation has possibly interfered with giving away too much.

Besides, the new wealth builders have a very strong sense of where they come from, believes Pramath Raj Sinha. In contrast to what Robert Frank found about the self-made, Sinha believes that since many first-generation rich come from lower-to-middle-class backgrounds, and have personally experienced the shortfalls of the system, they are usually more committed to being architects of change.

Sinha has worked significantly to make two of the largest collective philanthropic initiatives in higher education in India — the Indian School of Business, Hyderabad (of which he was the founding dean) and Ashoka University (he is one of the earliest founders), successful.

In the fifteen years between raising funds for ISB in the early 2000s (the management college was set up in 2001) and for Ashoka University in the past five years, the emergence of the first-generation wealthy as substantial philanthropists has been striking, he feels.

‘The sense of humility, almost guilt, drives an obligation to give back. The sheer quantum of personal wealth created by professionals and entrepreneurs in India today is much larger as well. When people become wealthy now, not only are they doing it at an age younger than before, but the amount of the wealth created is significantly larger as well,’ he says.

Of the 750 crore ($112.5 million) that has been raised so far for Ashoka, located in Sonepat, Haryana, more than 70 per cent of it is first-generation money. His experience indicates a striking generational change in both the ability and the willingness of the rich to participate actively.

Ashoka counts entrepreneurs such as Info Edge founder and executive vice-chairman Sanjeev Bikhchandani, Hexaware Technologies founder Atul Nishar and private equity ChrysCapital’s former senior managing director Ashish Dhawan among its founder-trustees. Bain’s Chandra is also a founder-trustee.

For ISB, the more significant donors at the time were the large Indian business families and corporations such as ITC and Hindustan Unilever Ltd (HUL). About 30 per cent of the money raised for ISB came from first-generation entrepreneurs, many of whom were NRIs.

The way mainstream media celebrates wealth and success has acted as a catalyst too. In the upper echelons of corporate success, wealth and power continue to be celebrated. A new set of buzzwords has come up — innovation, social impact and philanthropy are now metrics for achievement and social stature as well.

People are less interested in how much money somebody makes — more in, how they spend that money, a philanthropist who refused to be quoted told me.

A long way to go

Atul Satija is on a mammoth mission. A former senior executive at Google India and then at mobile advertising company InMobi till mid-2015, he quit to follow his heart to work in the development space. The/Nudge Foundation, his not-for-profit in Bengaluru, is setting up gurukuls — essentially fully residential learning centres that will impart a combination of life and livelihood skills and literacy to young adults.

Satija has already raised upwards of 2.5 crore ($375,000) for his foundation, with substantial contributions from Infosys co-founder Nandan Nilekani, Vijay Shekhar Sharma’s Paytm ($40,000 or 26,71,220), the Great Wall Club, an international network of executives from leading mobile companies, and his former employer InMobi, where he continues to be an advisor.

By virtue of being in Bengaluru and having worked in India’s technology ecosystem, Satija’s fundraising efforts have been aimed at the first-generation wealthy, both start-up founders and senior executives who work in these companies.

In his experience, considering the scale of the developmental challenge in India, he found that the people he had approached were less sympathetic than they should naturally have been. Unfortunately, in the nearly two dozen conversations he had with first-generation entrepreneurs who had built significant personal wealth in their 30s, he neither found them more forthcoming nor more socially conscious. There was no correlation between the fact that those who had made their money early in their lives would necessarily give more, he told me.

He realised that they might have felt a sense of liberation as well as confidence that they could create this kind of wealth again. They were possibly bigger risk takers as angel investors but this spirit of enterprise and innovation didn’t automatically make them more enthusiastic philanthropists.

Instead, it was age that was a bigger push factor. ‘I’ve found people in their 50s and 60s, whether they are first-generation entrepreneurs, senior professionals or inheritors, to be more likely to give,’ finds Satija.

The Indian wealthy are certainly not as philanthropic as their American counterparts, said HDFC’s Keki Mistry. ‘I don’t think that sense of giving back to society is as pronounced in India,’ he tells me.

That view sits uncomfortably with many of those I interviewed, who said that it was an unfair, unequal comparison.

India is a society where wealth is only beginning to be created while in economies such as the United States, the largest philanthropic organisations like The Rockefeller Foundation, The Andrew W Mellon Foundation and Ford Foundation are already several generations old. Yet, by the size of annual endowments, The Bill and Melinda Gates Foundation, founded by the first-generation founder of Microsoft was the largest[24].

Many also said that traditional Indian business houses have always had what we can call the marwari model of charity, where family patriarchs would nourish temples, healthcare centres and schools in the villages they belonged to, or in the community around their manufacturing plants.

Several wealth managers I spoke to were cynical about the American model of philanthropy that seems prompted by the country’s wealth tax regime. By transferring their wealth to foundations, the rich and their descendants can bypass capital gains taxes, estate taxes and gift taxes that a transfer would otherwise mandate. Tax incentives for the wealthy had led to charitable giving in the United States totaling almost $457 billion ( 30, 51,868 crore) in 2014, a 9.3 per cent rise over the previous year, according to the Atlas of Giving website.

The cynicism behind American philanthropy was brought back to attention with the high-profile announcement in December 2015 by Facebook founder Mark Zuckerberg and his wife Priscilla Chan’s pledge to give 99 per cent of their Facebook shares during their lifetime for charitable purposes.

Whether the comparison to American business owners is justified or not, there is no doubt that the chatter has pushed into the consciousness of the wealthy in India.

Girish Venkataraman, CEO of IIFL Wealth’s Trustee Services, that drafts wills and trusts for the company’s clients, said that most of his clients weren’t looking to be Warren Buffetts and Bill Gates. They are slowly beginning to see philanthropy as a vehicle for personal fulfillment. It can give them something meaningful to engage with as well as an opportunity to leave a legacy.

There are families that have begun to say that they want to funnel a part of their wealth into philanthropy but only after having taken care of their children’s needs. Yet, even with the many people with whom these discussions have happened, Venkataraman says, it’s a mixed bag. The vibes have been strong but it would be difficult to estimate the percentage of people who will eventually become significant donors.

As worrying as some find the still-evolving pace of change when it comes to building a culture of giving, there are others who say the media focus has made “celebrity philanthropy” the real motivation for giving.

Giving seems to have become another branding and imaging exercise. ‘People want to be known as somebody who is doing charity,’ says Mistry, who believes that charity should be done in a manner that your right hand doesn’t know what your left hand is doing. Talking about it and “milking” publicity from it was defeating the purpose, according to him.

Satija concurs saying he has been in conversations where the entrepreneur or professional wanted to use their funds to “buy” a ticket into the advisory board, and use it as a public relations exercise and networking opportunity to be in an exclusive group.

It is clear that judgments are made on the motivations and objectives that shape someone’s philanthropic urge: Whether it is a publicity stunt, a personal branding masterstroke, a tax-saving route or a smart lobbying exercise that actually furthers business interests.

Others may dismiss such cynicism, arguing that every pull factor towards philanthropy is justified. No matter what, it’s good for more people to talk about the causes they fund and the organisations they donate to because it brings them to public attention. It also inspires others.

We stand at an interesting juncture. In the very least, it marks a distinct break from the past. Wealth creators and wealth managers are part of a larger ecosystem that is still defining itself. In turn, they are actually determining the shape that this universe will eventually take.

Part 3

House Of Wealth

Chapter 8

Shedding the past, wearing the future

Raghav Bahl, founder of the Network18 media group, calls the events of the last few days of May 2014 a “life-threatening” experience. Bahl is being dramatic, of course; not that drama is out of place in describing one of the biggest and most-watched media acquisition deals in India so far.

On 29 May, 2014, Reliance Industries Ltd (RIL) took complete control of Network18 Media and Investment Ltd — the company Bahl had founded in 1993 — which ran media properties such as CNBC TV-18, CNN-IBN, IBN7, Firstpost, Forbes India and the History Channel India. RIL acquired majority control of Network18 Media & Investments and TV18 Broadcast (TV18).

The news had shocked the media industry. It had also led to a stream of high-profile editorial and management exits from the Network18 and TV18 group. In media interviews after the deal, Bahl asserted the buyout wasn’t hostile or unexpected, industry watchers say it was unlikely Bahl had anticipated that RIL would convert the debentures it had bought in Network18’s promoter group to equity so soon. In early 2012, RIL had bought these debentures to fund Network18’s acquisition of Hyderabad-based Eenadu TV (ETV) with the option of converting them into shares at any time within the next ten years.

With the takeover, Bahl walked out of the company he had founded and managed with a reported 700 crore ($105 million)— it is this that he calls nearly “life threatening”.

‘I am not exaggerating when I say I was shell-shocked the first few weeks,’ says Bahl, adding that when the money came in, it took him some time to come to grips with his “new circumstances”. His mind was abuzz.

Did he really not have to worry about the ups and downs of the stock market anymore and the value of the collateral he had borrowed against? Did he not have to watch the ticker on the television screen all day long? Would he really not go to work the next day? In fact, did he really not need to work another day in his life?

‘My father was a Rajasthan-cadre IAS officer. As a first generation entrepreneur, you become accustomed to being in debt because if you have to grow, you need capital and that’s the one thing you don’t have. I was in debt continuously, leveraging capital against capital to invest back into the company and increasing the value of that capital. That’s how I lived for twenty five years. I never knew what it felt like to have wealth; in fact, my debt ensured I had negative wealth. And suddenly, one fine day, my debt was gone and I had unleveraged capital, Bahl says.

When the transaction happened, Bahl was a little over fifty years old. There were several options ahead of him about how he could live his life after exiting the company he had run for more than two decades, and about what he could do with the huge bounty of personal wealth he now had.

Bahl briefly toyed with the idea of going slow — of taking control of his financial investments, taxation and legal requirements on his own, spending the greater part of the day playing golf, writing more prolifically and running his own blog. ‘Friends said I should buy a villa in the Bahamas and spend a couple of years travelling around the world,’ he recalls.

Going slow or sitting easy doesn’t come naturally to entrepreneurs and within a few days, he decided he had to be in the thick of the action building something from the ground up again. The semi-retired, leisurely life just wasn’t the right fit for him, he told me in his office in a modern high-rise adjacent to Noida’s bustling Film City, that houses the studios and offices of India’s top broadcasters. His old Network18 office is less than a kilometre away.

That sentiment sealed his wealth management decision: He parked a substantial portion of the wealth that he and his wife Ritu Kapur, who was also a director at Network18, got from the Reliance deal in a protected place that could take care of their lifestyle, future emergencies and be a tidy corpus for their family. ‘I didn’t want to walk into hell’s mouth again, especially after getting this opportunity to insulate my family from financial risk,’ he said.

In the colourful, stylish offices of Quintillion Media — the digital media venture he eventually founded — and where I met him last summer, Bahl seemed to be in the happy throes of being hands-on and knee-deep in running a new media venture. He wouldn’t divulge exact numbers but a “large” part of their wealth will be used as capital to grow Quintillion Media, which he co-runs with his wife.

Since it was founded in mid-2014, Quintillion Media has launched The Quint, a digital news platform, and has also made equity investments in digital media community ventures such as Sheroes, an online careers community for women and YouthKiAwaaz, a crowd-sourced online news and views platform.

Apart from “having something worthwhile to do” and having been in debt and financial turmoil through much of being in charge at Network18, Bahl said he also wanted to test himself to see what he could do with a venture for which he did not need to depend on external capital. That is, if he still had the appetite and hunger to multiply his wealth and build a business without suffering through the long phases of a financial crunch.

Since our conversation last May, Bahl has expanded his ambitions even further. In April this year, Qunitillion Media tied up with Bloomberg Media, the New York-based media group, and one of the world’s best known business news brands, to launch a co-branded television channel and an online portal. Both will be called BloombergQuint. Clearly, Bahl is gunning to script yet another success story in the area he knows best — the business of business news.

Is his appetite for growth typical of the first-generation wealthy, especially entrepreneurs, in India? And, what role are these new wealthy playing in the evolution of the wealth management industry itself?

The origins of wealth management

In the developed markets of the West, wealth management and its more exalted specialisation, private banking, began as a segment of the financial services, mainly to cater to the financial and investment needs of the rich. Globally, $20.3 trillion ( 13,55,644 crore) in assets are managed by the organised private banking industry, according to recent data by Scorpio Partnership[25].

The genesis of the earliest private banks go back nearly 250 years and can be traced to the cross-border trade in continental Europe at that time. The birthplace was Switzerland. The first private bankers were essentially traders who soon realised that there was money to be made in managing the wealth of those they traded with.

What exactly is wealth management? The term is widely used by a range of financial advisors, brokers and private bankers to encapsulate a variety of services that often confuse and distort the definition. Essentially, wealth managers are aggregators of products and services that are related to the management of their clients’ assets: They can point their clients to products and investment ideas that can grow, protect or maintain their gains. The better a firm is able to aggregate the services, the more relevant it is to the client.

The Financial Times lexicon defines wealth management as a practice that, in its broadest sense, describes the combining of personal investment management, financial advisory and planning disciplines directly for the benefit of high net worth clients.

In the narrowest sense, wealth managers help clients construct an entire investment portfolio and advise on how to prepare for present and future financial needs.

They also help clients make decisions on the wider aspect of asset allocation as well as selection of individual investments. Services also include tax planning, legal advice and an analysis of governance issues that can impact the assets of large families and rich individuals.

Clients can also look to their managers for banking investments, real estate management, credit services and advice on constructing and facilitating their philanthropic initiatives.

Terms such as wealth manager, financial advisor and private bankers often overlap, it’s important to understand the difference between these categories. They each have similar offerings: Including guiding clients on certain investment products with the goal of generating high returns.

Usually, wealth managers and financial advisors don’t offer credit to their clients. In that sense, private banking is an enhanced offering that can encompass wealth management, but wealth management firms cannot provide clients with private banking services.

For decades, Swiss private banks were considered the pinnacle of private banking. Famous Swiss private banks such as Lombard Odier, Mirabau, Pictet and La Roche came up in the eighteenth and nineteenth centuries. They consolidated their positions of strength in the twentieth century, aided by Switzerland’s political-economic advantages of neutrality, stability and peace.

The Swiss private banks’ operations were built around a high premium on privacy: They were storehouses [26] of global wealth, much of which had found its way into the picturesque vistas of Switzerland to escape the ambit of tax codes in the countries in which this wealth had been created.

Doing this called for a shroud of secrecy and discretion, a complicit silence on the colour of money stashed in Switzerland. Ill-gotten gains from dictatorships, drug cartels and money that went to fund terrorist activities were kept secure in the vaults of these banks. Tax evaders from across the world who flouted taxation and currency convertibility norms also found their way to these banks.

Because the core benefit they offered their clients was being “saved” from their incomes and gains being taxed, they had already helped “earn” for their clients. In this era, the main expectation a client had was preservation, and safety from the risk of disclosure and the onus of taxes.

Money that found its way into Swiss banks wasn’t to be churned, or invested in new ventures. More often than not, it was money for life: Kept in a safe place where it could safely — and sustainably — multiply and be available for future generations. Because the business was structured around this, private bankers did not need to hardsell for business.[27]

This was in contrast to the next era of wealth management personified by the brash ambition and enthusiastic product pushing by private bankers. Because this coincided with the global bull run of the capital markets, the role of wealth managers and private bankers morphed into becoming creators and growers of wealth, and not just preservers of it.

Wealth management became more active, a high-energy chase for the highest returns possible. Many of the excesses — exuberance, greed, nonchalance for compliance and risk — crept into the game during this time. It also led to the emergence of mega-successful private bankers who managed large corpuses of assets for their individual clients. Firms such as JP Morgan, Credit Suisse, Deutsche Bank, Pictet and UBS were stalwarts of the era.

The global financial crisis of 2008 would eventually temper both the raging optimism of the latter phase and put immense pressure on the ultra-discreet Swiss model of private banking in the form of regulations forcing greater disclosure. Powerful economic blocks such as the United States and European Union began to stress on tax evasion.

In fact, it was only as recently as 2014 that Pictet and Lombard Odier, the two largest Swiss private banks, declared their financial results for the first time in over 200-years. Geneva-based Pictet Group was founded in 1805 and the Lombard Odier Group in 1796.

India’s rapidly exploding wealth has injected dynamism into the private wealth management industry although organised wealth management is still a tiny, fragmented market.

Estimates suggest that private bankers in India only managed, at most, $50 billion ( 3 lakh crore) in assets, estimated to be less than five per cent of the size of the overall Indian market[28]. India also has a huge number of independent financial advisors. But there are few estimates on how many are actually active as well as the total size of the wealth they manage.

There are some certifications but a large number of independent advisors are outside the ambit of audit and inquiry with few certifications needed for somebody wanting to become a financial advisor.

What is unique about the Indian wealth management space, similar to much of Asia as well, is that private banks as a whole are new to the region unlike in Europe where the largest private banks have been in business for hundreds of years. Also, in a huge departure from the way the European private banks came up in the eighteenth and nineteenth centuries, Asia’s private banking industry evolved from either retail banks or brokerage firms. Both are very different in their genetic makeup from the secrecy-ridden culture of the Swiss private banks.

Would it be the right match for a newly emerging class of wealthy?

Chapter 9

Great expectations

Much as Bahl re-invested a part of his wealth in a new business venture to relive the thrill of enterprise and to create more wealth, India’s new wealthy aren’t happy just sitting on the wealth they have created. Much of the accelerated pace of new wealth in India has come from individual business ownership. First-generation entrepreneurs have injected a great deal of dynamism into the industry and, in many ways, are changing how it works. It’s a defining quality of the wealth management industry in India.

This isn’t true only for India. Entrepreneurs are the most important high-net-worth segment across Asia because in emerging economies, first-generation wealth creation is largely driven by the opportunities entrepreneurs have tapped into to build companies and subsequently wealth.

As a customer segment, first-generation wealthy entrepreneurs have not only expanded the size of the wealth management market but they are also rewriting the rules of the game.

First, serving entrepreneurs requires a special focus because they usually have more complex requirements than say a wealthy corporate executive or self-employed professionals such as lawyers or doctors. Entrepreneurs often seek advice on both their business and personal wealth needs. Since most had earned the money themselves, they are also more involved in managing it. They want to listen, understand and participate in decision-making.

Second, on innate risk appetite, they differ substantially from the traditional wealthy, especially those from the third, fourth or fifth generation. Atul Singh, managing director for the Indian practice of Julius Baer, a global Swiss private bank for private and institutional investors, said their general risk appetite was higher. Often, they were younger too.

More and more, as new-age internet and consumer technology companies scale up, the nature of the first-generation super-rich has changed too. For one, the average age has come down. Nearly half of the ultra-high net worth individuals (UHNIs) are below forty years[29].

Zooming on the risk highway

Because of their risk appetite, and especially when they are younger and have a longer time horizon to work within, the first-generation wealthy chase growth rather than just focusing on maintaining asset levels, Singh says. Also, they weren’t just looking to protect their capital. They needed it to grow in their lifetime, to be used for their future generations and to fund new ventures and businesses — much like Raghav Bahl or even TaxiForSure’s Aprameya Radhakrishna who has decided to invest over 20 per cent of his wealth in start-ups.

First-generation entrepreneurs’ can-do attitude has evolved from the fact that they have seen their lives change within a decade or so, if not years. Their focus on wealth creation comes from the greater ambition and aspiration levels consolidating across India as well as a belief that dreams can come true. Lives can change.

‘These people have a strong belief that yes, you can create a fortune, even a large fortune, and that there are various sources through which you can do it,’ says Shiv Gupta, founder and CEO of Sanctum Wealth Management, a start-up that acquired the private banking business of the Royal Bank of Scotland (RBS) in September 2015 for a reported 200 crore, in a unique management buyout. Gupta used to lead the RBS private banking business.

In contrast, inheritors understood that creating family wealth was a generational game that came from patience and prudence. They knew growth eventually followed protection: As long as their corpus was protected, it would lead to a growth in their assets. Swiss private banking was based on this notion, best explained by the term l’dor va’dor or literally from “generation to generation”.

For example, the evocativeness of Patek Philippe’s advertising campaign — that captures the emotion of the expensive watch being a family heirloom passed down from generation to generation — didn’t resonate as much with the first-generation wealthy, more focused as they were on the now.

In old, affluent families and business houses where wealth continues to get distributed between different members of the family across generations, lies an overriding anxiety around the fragmentation of wealth. This also leads to a greater focus on wealth protection and preservation and, consequently, a very conservative approach to managing the same.

The traditional wealthy are also more resistant to outsourcing their portfolio. They usually have a trusted accountant who looks after their company’s treasury and an informal family-office setup that may offer a contrarian view of what external wealth managers recommend, creating a layer of friction that makes getting customers such as these onboard difficult.

In contrast, the first-generation wealthy are more inclined to give professional firms a chance and listen to their ideas.

The flipside of this open-mindedness, some believe, is their inherent confidence, especially because they’re usually successful business builders. This confidence leads to a higher propensity for risk, most evident in entrepreneurs whose pace of wealth creation has been accelerated.

The dangers of ambition

So, if the wealth has been amassed by the time they’re forty, not only do its creators have greater confidence in their own decisions, they also know they have a huge chance to replicate and multiply their corpus because their age gives them a longer runway to create more wealth.

Thus, they are more opportunity-driven and will look for product ideas that can deliver the expected returns. Having built successful companies, they witnessed an exciting phase where their equity holdings in their companies have multiplied substantially. They’re, therefore, unlikely to be happy with sustained returns of 10-12 per cent. Also, because they believe they are plugged into the global information flow, they are confident of making smart decisions that are both adjusted for risks and offer high returns. However, it’s a confidence that isn’t always justified.

‘People want high returns because the cost of capital is high in India. The good thing is — the economy supports taking high risks. Risk is rewarded right now,’ says one of India’s most successful stock market investors who, because he is notoriously media-shy, refused to be quoted in the book.

In his experience, an understanding of risks differentiates old and new wealth. ‘The new wealthy sometimes take risks without really knowing what the possible risks are. The old wealthy take risks too but they have a better sense of what could go wrong.’ A lack of preparation isn’t affecting people now, he adds, because India is going through so much growth.

The confidence that many ambitious first-generation entrepreneurial clients across Asia have is that they think they can achieve higher investment returns than the market average, says Hubbis’ Michael Stanhope. ‘But this is usually not possible. There is too much proof that it is very difficult to consistently outperform the market,’ he told me.

There are others who believe that wealth managers and financial advisors are partly to blame for this because they initially promised unrealistic, market-defying results to clients. Today’s wealth managers must re-educate the client on the new reality, and get them used to tempered expectations and realistic returns.

Stanhope says that in the Indian wealth management and private banking industry, “fiduciary responsibility” is a concept too few people understand.

Neither clients nor financial institutions talk about it but moulding client expectations and behaviour to make them appreciate achievable returns is a starting point.

Wealth managers I spoke to say that talking about normalised return is not an easy conversation to have with ambitious clients because so much has gone into how a client views risk. Too many psychological factors impact their investment decisions and clients influence outcomes as well.

‘Some clients do have unreal expectations. Even if they say they would rather have moderate returns and zero risk, they are rarely happy with moderate returns,’ IIFL Wealth’s Karan Bhagat says.

Also, while it is true that the industry has a fair number of advisors who encourage this kind of thinking, there are enough professionals — them as well as others — who also challenge these goals, he believes.

Smart investing and managing money is as much, if not more, about psychology and behavioural biases as it is about market intelligence and product education. The way entrepreneurs live and operate makes them ambitious, aggressive investors with a higher appetite for risk. Because they have often seen an exponential increase in the value of the equity they hold in their companies, as investors too their expectations are spiced up by a soaring optimism, impatience for robust growth and an eagerness for their financial advisors to show them products and ideas that constantly beat market returns.

A senior private banker in Mumbai, who advises several new wealthy clients, laments that it’s often an uphill battle to convince his clients to be satisfied with sustained 15 per cent returns and that the bull run of the 2003-2007 phase was an aberration that is not going to come back. Clients are more focused on knowing the returns they are likely to get than in understanding the risks they are taking, he adds. Their impatience for unreasonable returns and firm optimism, that has convinced them that opportunities for massive returns exist is striking.

Unlike the math and logic people might believe are involved, managing one’s wealth is a behavioural, attitudinal game. The notion that economic rationale always dictates behaviour is foolhardy to believe. Inherent personal characteristics play a critical role in how individuals approach this. It’s why decoding entrepreneurs’ attitudes and traits gives us a clearer picture of why they exhibit them.

The diminishing returns of optimism

Few of us consciously diagnose our optimism appetites, or understand how it moulds our decisions, both in business and life. Yet, the degree of optimism we deploy plays a huge role in how we work, live and invest. As humans, being optimistic is hardwired into our brain.

Neuroscientist and author Tali Sharot, who has been researching the “cognitive illusion” in her Affective Brain Lab at University College London, says that 80 per cent of the people experience this cognitive bias[30]. Her findings show that people have a tendency to overestimate the likelihood of good things happening to them as well as believe that they are less at risk of experiencing a negative event compared to others.

‘For example, individuals underrate the chance of getting divorced, being in a car accident or suffering from a major illness, while they expect to live longer than others, overestimate their success in the work force and believe that their children are especially talented,’ Sharot says in her book, The Optimism Bias: A Tour of the Irrationally Positive Brain.

When it comes to entrepreneurs and business builders, their abundant optimism bias is often their most potent tool, the power that fuels their “can-do”. It gives them the ability to articulate a new future, a new possibility and a new way of doing something, even when the odds of survival, let alone success, might be limited. Entrepreneurs, Sharot writes, are generally more optimistic than others, and they become even more optimistic as a consequence of being entrepreneurs.

So, does the brand of strident optimism that one marshals as an entrepreneur transfer successfully to the world of investing?

A research paper published in the Journal of Financial Economics in 2007, and written by Manju Puri and David T. Robinson, concluded that although more optimistic people worked harder, expected to retire later, invested more in individual stocks and saved more, extreme optimists could display financial habits and behaviour that are generally not considered prudent.

Entrepreneurs don’t hedge their bets: They work on an “all-in” model. Their time, opportunity, capital and risks are all vested in one entity, the ventures they have founded. Smart, prudent investing, on the other hand, often calls for quite the opposite — careful diversification across different allocations, studied patience and preferably a higher aversion to risk.

Optimism can interfere with this, becoming a threat to watch out for and guard against. I remember a Skype conversation I had with Sharot where she says that when confronted with actual data that might be contrary to their plans and objectives, very optimistic entrepreneurs are likely to dismiss the data.

Entrepreneurs should understand that it isn’t always true that the more optimistic you get, the higher your chances of success. At some point, the success-optimism relationship starts moving in reverse.

Ben Carlson, an independent wealth manager in the United States, who also runs a popular blog on financial markets and investor psychology called ‘A Wealth of Common Sense’ writes that one of the most important aspects of being a good investor is becoming a financial historian.

‘You absolutely have to learn about the history of the financial markets if you are ever going to be able to control your emotions and behaviour when making decisions about the future. Of course looking back at historical performance data of any asset allocation strategy has absolutely no bearing whatsoever on future returns. You cannot make the assumption that future performance will follow the same exact path as past returns. One of the biggest mistakes investors make is using the recent past to shape their investment stance by chasing past performance. But this doesn’t mean that we discard historical results altogether just because they can’t be used to make perfect market forecasts.’

In another post, How Our Memories Shape The Market Cycle, Carlson, talking about the 1929 Crash and the Great Depression that followed, as well as the 2008 Global Financial Crisis, writes that market crashes left the most indelible memories on investor psyches.

‘The way I see it, there were three basic lessons that most investors took away from the 2008 crash and its aftermath: (1) Some people learned that they can’t handle investing in stocks after seeing two crashes during the same decade and have more or less given up investing in the stock market. (2) Others learned that the markets seem to always come back and have conditioned themselves for that response. (3) Still others learned nothing because it’s very easy to sweep your mistakes under the rug.[31]’

He pulls up a quote from tennis player Andre Agassi’s book, Open: An Autobiography, where the American player talks about the pain of losing.

‘But I don’t feel that Wimbledon changed me. I feel, in fact, as if I’ve been let in on a dirty little secret: winning changes nothing. Now that I’ve won a slam, I know something that very few people on earth are permitted to know. A win doesn’t feel as good as a loss feels bad, and the good feeling doesn’t last as long as the bad. Not even close.’

Carlson writes Agassi’s words have captured what wise investors should know: That there aren’t many lessons learned during a bull market because everyone thinks they’re a genius. It also feeds the “power of loss erosion” — essentially anxieties that people feel because they remember what a market crash feels like and it’s always at the back of their mind.

Many wealth managers said that the first-generation entrepreneur in India showed little symptoms of the “power of loss aversion”.

HDFC Mutual Fund CEO Milind Barve, in fact, says it is surprising how easily people get over bad experiences when things got better; that, at most, people remember the stock market turbulence of 2007-2008 but in the case of the young, first-generation wealthy, even that isn’t a salient, deep memory because many weren’t big investors at that time, or had little exposure to the markets then. Their optimism is unhindered by these market cycles because they haven’t seen big down-cycles yet.

The professional rich cut a slightly different picture. Since their journey to wealth has not been paved by massive risk-taking, they exhibit a lower tolerance for risk as compared to first-generation entrepreneurs. The professional wealthy also have concerns and aspirations that are classically middle-class; the math in their head is largely about children’s education, a nicer home and post-retirement comforts.

In fact, they best demonstrate the uniquely Indian model of savings (income-savings=expense, not income-expense=savings). This safe mode of creating wealth gradually — without taking seemingly huge risks or relying on a sudden infusion of liquidity — primes them for a generally more systematic, sustained and realistic approach to managing wealth.

It can also lead to making difficult choices.

Chapter 10

The anatomy of choice

In April 2012, Subodh Gupta, a Delhi-based industrialist, sold 75 per cent stake in his company, Triveni Polymers, a plastic containers manufacturing unit that his father had founded in 1979. It went for a reported 200 crore ($30 million) to Germany’s Gerresheimer AG, a specialist in advance glass and plastic products.

Gupta, who continues to manage the business after the acquisition, says he sold the company that had a turnover of 140 crore at the time, because he could see his children — two daughters who are in college and a younger son still in school — were unlikely to be interested in running a manufacturing unit. His elder daughter studies in a design school in the United States. As an only child, Gupta doesn’t have siblings, or their children, who could have taken over either.

‘I started thinking that if something happens to me, who will run the company? How do I de-risk the family from being in that situation,’ he reasoned at the time of making the decision.

Once the Gerresheimer deal came through, the family, expectedly, experienced a large infusion of wealth. Gupta says that because the transaction was motivated by an urge to build a legacy and capital base for future generations, he hasn’t spent even a penny of it to either add to his lifestyle — to acquire or indulge in any personal assets. His objective of both growing and protecting the wealth led him to actively engage with his financial advisors — IIFL Wealth.

‘We have evolved our asset allocation over time: We are in equity, debt and real estate products. When I started in 2012, I was much more invested in debt products and equities were only 10-12 per cent of my portfolio. Then the market started changing,’ Gupta tells me.

‘By the beginning of 2014, I told Karan to start increasing our equities exposure because I realised that is the only asset class where you can grow your money now. I decided to invest the money I didn’t need in the next five to ten years in equities. Equities now make up about 40 per cent of my entire portfolio. Debt is about 35 per cent and the rest is in real estate,’ he explains.

When it comes to managing wealth, more and more people, like Subodh Gupta are realising that the prime strategy lies in understanding asset allocation. Gupta’s relationship managers at IIFL Wealth said he was great to work with because he approached managing his wealth and portfolio through this prism.

How you allocate wealth is the key to meeting the objectives one has laid out, wealth managers say. Asset allocation — how you divide the entire corpus of your wealth to balance risk and reward across asset classes such as equities, fixed-income, physical assets (gold and real estate), cash and other alternative investments — will determine, more than anything else, the returns on your wealth. A smart asset allocation will be diversified and will take into consideration an investor’s risk appetite, time horizon and wealth objectives.

Hedging your bets

India’s traditional wealthy, in the absence of limited asset classes being available to them, had been disproportionately invested in real estate and gold[32].

Because their wins had come from selling ancestral properties and other real estate investments, says Poonam Raghuvanshi, director of Anand Rathi Advisors, till even a year back it was difficult to convince them to look at other investment opportunities even when there was enough data piled up to suggest that their preferred asset classes might weigh down their portfolios going forward.

‘It isn’t about preferring one thing to another but understanding that it is asset allocation that needs to form the core of your investment strategy. Every asset class has a cycle,’ Raghuvanshi argues.

‘Equities have always done well in the past — over the long term — but rarely do we talk about it in the multiples that it has generated. Today’s smart investors should want to balance their portfolios to reduce real estate and increase equity,’ she reasons.

The first-generation wealthy are able to do this better. Because their wealth has largely come from business ownership and the value of the equity in their company, they have greater faith in financial assets. They don’t have a psychological preference for seeing their tangible wealth in physical assets, both gold and real estate.

Economists believe the shift to financial assets is welcome for the country because well-developed and well-monitored financial markets help to efficiently direct the flow of savings (from households, companies and institutions) in ways that facilitate the accumulation of capital and the production of goods and services. The capital gets invested in companies.

India currently has one of the lowest penetrations of financial assets in the emerging economies. Assets under management (AUM) as a percent of the GDP for India was 5 to 6 per cent at the end of FY 2013, significantly lower than some other emerging economies, for example, 40 per cent for Brazil and around 33 per cent for South Africa. It appears important to bridge this gap.

The Indian distaste for financial markets comes from the perception (often overstated) that physical assets such as gold and real estate are safer bets, and that financial assets are risky. Gold and land also come with strong social and cultural aspirations. Also, loans against gold and land are easier to access, another reason why people have faith in them being implicitly more dependable avenues for investment.

A few high-profile stock market scams in the 1990s have served to validate the risks that lurk around financial assets. Interestingly, ownership of Indians, excluding promoters, in Indian companies (equities and mutual funds) has steadily declined over the last two decades[33].

In a May 2015 report, Morgan Stanley research estimated that Indian households will invest $300 billion ( 20,03415 crore) in the local equity markets over the next ten years, versus the $50 billion ( 3,33,902 crore) and $134 billion ( 8,94,858 crore) that households and financial institutional investors, respectively, invested over the last ten years. Some of that movement is visible. In 2000-2001, India’s mutual funds industry had assets under management of about 1 lakh crore (or $15 billion)[34]. In April 2016, the AUM crossed 13.58 lakh crore although it has a long way to go. It’s still roughly one-eighth of the total volume of bank deposits in India.

Playing catch up with equities

The equities market has been misunderstood for too long. To change perceptions, financial planners say we need to change the way people think about risk. Across asset classes, equities have shown themselves to be a stable, sustainable growth vehicle if investors play the long game. For mindsets to change, it is important to realise that the stock market is a place of slow cook, not a roulette machine, says Mint’s Monika Halan. When treated like a roulette machine, investors can get their hands burnt and swear off the capital markets for good.

The inclination of newer HNIs to go the way of financial assets is encouraging, says Himanshu Vyapak, deputy CEO of the Reliance Capital Asset Management.

In most economies, these are the first adopters since they have access to both the risk capital and professional advice. A little more than one-fourth of the total assets in the industry is contributed by the HNIs, he adds, although the definition of HNIs in this context isn’t necessarily the same as HNIs for wealth management outfits.

‘If I were to simplify it further, the mutual fund industry is divided into two parts: 55 per cent is institutional and 45 per cent individuals. Out of these individuals, almost 60 per cent are HNIs,’ Vyapak tells me.

For the wealthy, the trend has displayed a movement towards playing catch-up in equities, an asset class they realised they were significantly underinvested in. The goal is to have balanced portfolios.

Over the last five years, real estate returns have dipped as well, with major locations showing flat growth and anecdotal accounts that suggest investors are having trouble in selling off land and apartments.

A fund manager in Mumbai feels the change is evident because even till two years back, investors would ask fund managers whether equities were safe. This is in contrast to the present-day scenario when investors are so specific they want to know which equity funds suit them best.

Also, with more regulations in place, such as the Know Your Customer (KYC) norms introduced in 2002, which the RBI directed all banks to implement for all new accounts, there are higher chances that money invested in financial assets is cleaner than the kind of murky funds that used to be invested in real estate.

Of course, wealth managers eagerly pushed for financial assets because the upside on a financial transaction was higher for them. Their business model is often based on the distribution fees earned from these transactions. The crux of their business came from the rich moving to financial assets. Wealth managers have little to do with people buying real estate or gold.

Younger first-generation entrepreneurs are also beginning to understand the difference between personal wealth and corporate treasury, a distinction that an older cadre of promoters did not often make. First-generation entrepreneurs grasp this better, wealth managers feel, and this has helped them to better appreciate the logic of wealth management. Because they’re approaching wealth management as a new discipline, they’re willing to listen to fresh ideas, update their notions and take into account new data.

First-generation wealthy usually have another advantage. Because their wealth is self-made, and is managed only for their immediate family’s needs, motivations and objectives, it gives them greater decision-making freedom. Usually, these wealth creators are the sole decision-makers with, at best, inputs from their spouse. They are able to be more decisive as well as more agile when they apportion their assets into different allocations — real estate, financial assets, direct private equity or other alternative investment vehicles. Several have become angel investors, for example.

The 24X7 investor

This level of engagement, however, has made the first-generation entrepreneur a 24X7 client, somebody who wants to constantly be in touch and in control of their portfolio.

Even with technological advances such as mobile apps that have made reporting easier, the truth was that most clients wanted to be reached more often than the reporting interval they might have specified. A cross-section of wealth managers I spoke to said clients might stress that they did not want to be in touch constantly and would prefer not to be bothered but they didn’t really mean it. Clients might not like to believe it but most are comfortable with a high-touch engagement style. Nine out of ten would like to be called twice or thrice a week.

It was surprising how much time these people took out to review their portfolios or discuss ideas even when they were involved in actively running their business, a Delhi-based wealth manager told me.

IIFL Wealth’s Bhagat says this is a very Asian trait because a large part of the money in this region is new money. ‘In Europe, this level of interaction might be scorned upon. You’re likely to be fired if you call a client this often. He doesn’t want to be disturbed after he sets the rules of the management portfolio,’ Bhagat told me.

Because a large bulk of European wealth is inherited old money, investors there are more process-driven, usually have a mechanism that has evolved over years and have given their wealth advisors discretion over most of their portfolio. First-generation wealth builders are unlikely to give discretionary power to their wealth advisors to begin with. Since their wealth relationships are still new, there is a much greater likelihood that they will track, monitor and engage with the management of their wealth more closely.

Senior corporate professionals are different; they seem to have less time than promoters and entrepreneurs, which might be surprising considering that business builders had most on their plates. Professionals just didn’t spend as much time on their portfolios as did entrepreneurs was the general impression from my conversations.

The uneasy burden of succession planning

On another key parameter, the new wealthy demonstrate more open-mindedness than others. The essence of wealth management comes from understanding three main philosophies about the client: What is the return on investment they expect? Whether a safety net has been created for the family, and, most importantly, how has the estate planning been approached?

‘Whether you’re thirty five or eighty five, you need to do this,’ says Anand Rathi’s Poonam Raghuvanshi.

In Asia, broaching mortality has always been a tricky issue for wealth managers, beyond the clutch of a handful of extremely wealthy industrialist families where branches and generations had made it necessary for them to establish trusts, wills and estate guidelines. It’s the same for India.

Few people lay out wills and trusts but the newly wealthy are slowly becoming more open to discussing these issues. They are up for the often queasy, difficult conversations that doing so might require at home. In fact, wealth managers assert that one of the purposes of using financial advisors and private bankers is also to remove the negative impact that serious wealth can have on the family, to ring-fence it from the fallouts of inheritances that aren’t organised and bequeathed properly.

‘I don’t want a situation where the children have to sit and put their heads together to try and figure things out,’ Triveni’s Subodh Gupta says.

It was the responsibility of each generation to make sure the next generation does not suffer any animosity as far as wealth is concerned.

‘In a place like Sundar Nagar in Delhi, half the houses are in the throes of a property dispute. They are sitting on huge wealth but living like paupers because things are so unclear and vague. They are fighting for the last penny. There is no point in my building a corpus and my children fighting over it. That would mean I have failed,’ Gupta admits candidly.

A Bengaluru-based entrepreneur who recently sold his eight-year old IT services company to an American technology major says thinking about making a will at thirty four is a bit daunting. ‘It’s a simple concept, but when you start bringing in the equations you have with people, and thinking about what complexities you’re adding in their lives by making them part of your will, you need to do a lot of thinking. There are so many complexities that occur to you,’ he says.

Chapter 11

Age of knowing more, seeing clearly

The Mahabharata includes the story of how Arjuna’s son Abhimanyu learnt to enter a chakravyuh, an arrangement of soldiers in the form of a wheel, while he was in his mother’s womb. However, because his mother Subhadra slept midway through the strategy treatise by her husband, Abhimanyu could never learn how to come out of a chakravyuh. It’s what led to his death on the thirteenth day of the War of Kurukshetra between the Pandavas and the Kauravas, considered as the turning point in the battle.

Dr Narendra Desai, chairman of the 4,000-crore ($600 million) Apar Group, likens the situation of the marquee wealth management firms during the turbulent phase of the global financial crisis to that of Abhimanyu. They knew how to enter the chakravyuh, had done so aggressively and without fear, but didn’t know how to get out of one. ‘In 2008, it became very clear who had foresight and insight, and who didn’t,’ explains Desai.

‘The last thing you want from your wealth managers is for them to erode your capital. You can live with a dip in returns but if your capital is diminished, it’s absolutely unacceptable,’ he cautions.

The losses led to some swift learning for the Desai family. They have, since then, pruned the number of wealth managers they work with from thirteen to five, all of which are Indian firms. IIFL Wealth now manages a lion’s share of their portfolio, roughly 40 per cent. Kotak Wealth Management has a significant share as well. Desai is quite forthcoming of his mistrust of the global “big boys”.

‘They expected us to just listen to their advice, because they were saying it. You can’t chase Goddess Lakshmi with an ego,’ Desai says.

Desai’s candour and analogies might be uniquely his own but a large part of his disillusionment with marquee wealth management and private banking echoes in the offices of the investors I spoke to across Kolkata, Bengaluru, Delhi and Mumbai.

Even more, it points to a shift in how the client-advisor dynamics function today. Both the structure and tenor of the relationship have undergone a massive change after the global financial crisis of 2008.

The twenty years prior to 2008 had marked the beginning of modern wealth management. In the western developed economies where this emerged, the 1990-2007 period had seen a continued bull run with most asset classes appreciating robustly. Private bankers started taking the credit for the great returns rather than admitting that it was a function of the market. Wealth managers got away without doing their homework on clients.

‘Those years were like a 20-20 match,’ admits IIFL Wealth’s Amit Shah. ‘You could just go and hit, there wasn’t a need to understand or strategise. My young son would have done what we did. Stocks were on a high as was real estate. You couldn’t go wrong,’ he adds.

Both investors and clients were like “hyper teenagers,” quips an equity researcher at a domestic brokerage firm. They were high on adrenaline and recklessness. Attitudes were akin to “drinking until four in the morning at a party”.

This arrogance led to hubris and a self-anointed halo that was rudely snatched away as disappointment and disbelief set in from investments that went awry. It soon became clear that there had been less than optimal regard for risk and client interest.

As clients lost money and their capital got eroded, several private bankers found their reputations severely tarnished. By focusing on its own performance, the industry lost sight — sometimes intentionally — of the interests of both parties that provided meaning to their existence.

A new breed of clients

‘Clients were greedy too; everyone woke up,’ says the head of a financial services association that counts the country’s leading banks as members. It wouldn’t be fair to blame advisors and distributors entirely for the greed and fear cycle the industry went through.

But, at a time when investor anxiety was riding high, several advisors and bankers retreated from their clients in defensiveness, afraid to face them and explain the losses and the calls they had taken. Several people interviewed here said that their wealth managers went missing in action and couldn’t be reached, leaving the portfolio, the relationship and the shared trust in disarray.

However, this has changed to a large extent today and the industry functions differently. The mystery of the investment process and the allure of chasing double-digit returns was, oddly enough, something of a selling point in the heady days[35].

The tremors of 2008 changed that as reputations crumbled. Big banks came in for much criticism for having lost the balance between short-term profit seeking and prudent, responsible advice to clients. Across the world, clients started to do more due diligence on who their wealth advisors would be. It was a tectonic change — akin to plates shifting in earthquakes.

Since then, increased competition, lower margins, a more sceptical and aware client base and ease of access to information online has evened out this information asymmetry substantially.

This is in sharp contrast to an earlier period when the client-advisor relationship was based on the latter’s near-monopoly on financial information. For one, investors are better informed than before about markets and expect more transparency in their relationship with their wealth managers.

‘Customers have become very savvy in understanding the market. Many go an extra mile to try to educate themselves to understand what is happening in their industry, what their financial needs are, what advisors stand for and what their competitors might stand for as well,’ says Gurpreet Singh, principal consultant at the Financial Intermediaries Association of India (FIAI).

Many of the new wealthy interviewed for the book didn’t have long-standing relationships with professional wealth managers before the global financial crisis but even without having gone through the loss and erosion cycle, they are now beginning their wealth advisor relationships armed with information that allows for greater probity and scepticism.

HNIs now give their financial advisors less of what in the business is called “discretionary power”. The pace of change in India has been dramatic, a senior private banker told me. ‘It’s like we have moved from going at twenty miles per hour to hundred miles per hour. When change like this happens, you can’t just change your tyres, you’ll have to change your car and build better roads,’ he explains.

Today’s first generation wealth builders in India, especially entrepreneurs, are certainly more savvy and financially literate. ‘In a meeting, it’s easy to tell who has made the money on his own. Anybody who wants to get into more details you know has built his money on his own,’ a senior private banker based in Delhi shared with me. ‘They are the clients who now go through every comma and question mark in detail; they will have these queries lined up for clarifications at meetings. This would rarely happen before,’ he says.

Wealth managers say it isn’t unusual, in fact, for some clients these days to invite three or four potential or existing advisors to a joint pitching session, and have them debate product ideas, or pick holes in each other’s approaches. An advisor with a global wealth management firm, who didn’t want to be quoted, said the format is, something between a swayamavar and a school debate. ‘Clients have become very smart. I think they also have a bit of fun, to be honest.’

Most people who create wealth themselves are inherently super smart to begin with. Besides, they are aware that they are smart and often believe they know it all — know how business works. ‘They are very, very tough customers. We have to be sharper, smarter, faster than ever before,’ a senior wealth manager who leads a large global bank’s wealth arm in India confided in me.

The first-generation wealthy are also usually better educated so they pick up the thread faster even if they have built businesses in fields vastly different from financial services and started with little understanding of investment products and approaches.

When recommending a stock or examining their portfolio, clients will have valid questions about price-to-earning ratios and ten-year industry averages, something that definitely didn’t happen upto five years ago, says the equity research head of a domestic private bank. She admits that during 2006-07, her team could just call up clients and tell them to buy a particular stock without being questioned on the “why” and “what” of it. Today, even if clients have a trading mindset that allows them to take riskier, short-term bets, they will ask what the stop-loss would be and why their advisors were recommending a particular trade.

She further adds here that the ripple effect of a few aware, educated clients is huge because when they speak with confidence backed by data on these issues, it serves as a motivation for others to self-educate themselves as well. Entrepreneurs, used to charting new paths for their companies, take to this kind of learning especially well. But, in clients across all segments, education has spiralled upward very fast, she tells me.

‘Sometimes, after meeting an HNI client, we realise we didn’t need to talk at all. The customer was holding fort — on the Chinese economy, government reforms, currency trends and commodity price movements,’ laughs HDFC Mutual Fund’s Milind Barve although he worried about the flipside of everyone believing they were experts.

We live in an age where information is available to everyone and it’s no longer possible to hide. The new wealthy, especially those who have forged their fortunes in the past decade, enjoy another benefit — one that is not of their own making.

The spoils of war

Darshak Shah spent a hot day in April 2013 at a Bhavnagar hospital, waiting for the birth of his second child. But the phone wouldn’t stop ringing. Shah is the joint managing director of Madhu Silica, a manufacturer of precipitated silicas (a compound used in toothpaste, pharmaceuticals, paints and rubber production), and as he was pacing the hospital corridors, business channels broke the news that Hindustan Unilever Limited (HUL) was acquiring the 74 per cent promoter stake in their joint venture, Aquagel Chemicals.

Shah remembers being besieged by more than two dozen phone calls that day — retail bankers, investment advisors and wealth managers who kept his smartphone busy.

Following the deluge that swamped him that day, the Shah family eventually decided to work with IIFL Wealth, mainly because the company’s senior leadership team travelled to Bhavnagar several times to have in-person meetings. For a family not used to working with a wealth manager before, face time was critical in building trust. But what Shah remembers most is the madness of those few days and the sheer number of people who wanted to manage his newfound wealth.

Over the past few years, the wealth management industry in India has become hyper-competitive: Large banks, brokerages with portfolio management systems, independent financial advisors, boutique firms and pure-play wealth management outfits have all emerged to participate in the opportunities new wealth and the new wealthy have put to offer.

In the metros and large business hubs, almost every potential and existing wealth management client I met complained bitterly about being bombarded by cold calls from what a Bengaluru-based entrepreneur described as “a formidable, can’t-be-swatted-away battalion of cold-callers, emboldened by every rejection, encouraged every time the phone is hung up on them”.

It certainly is a far cry from the careful discretion of the private banks of nineteenth and twentieth century Europe. An entrepreneur’s caustic sarcasm and annoyance aside, the fact is that wealth managers in India now have to live with intense competition and an aggressive client acquisition style.

Does the competition, strangely reminiscent of the deep-discount and high-visibility model adopted by e-commerce firms to win customers, mean that wealth managers in India have to deliver more to both acquire clients and retain them?

Free markets believe more choice usually means better services. But has the competition benefitted clients, not only giving them a choice but compelling existing players to do a better job? Newer clients are also more demanding of transparency. Most question their advisors on the incentive structures that relationship managers work with, or the product commissions the firm gets.

Transparency, the new hook

Before the global financial crisis, transparency like this was neither demanded nor offered. It was a global trend and the financial crisis of 2008-09 served as a possible catalyst for this trend.

Regulators in countries such as the United Kingdom have led this initiative by introducing rules that made it necessary for financial advisors to distinguish between the commissions they got from distributing products, and the fee they were charging the client for a service. It fell on the financial advisor, not the client, to make sure that the exact details of the fees and the consequent services provided were well understood.

Financial regulators in India have taken steps towards ensuring such transparency, although the scenario here is far from the maturity level prevalent in the UK market.

Indian wealth managers say that India hadn’t been much at risk from the global turbulence even in 2008. Investors lost money because of shoddy churning of products. There were mutual funds that were allowed to collect upfront commissions and wealth advisors would churn these, change from one product to another to make commissions of about 2 per cent each time they reinvested the same capital.

Much of that has stopped now. In the past five years, when it comes to capital markets-linked regulation, India has taken steps that senior journalist Monika Halan hopes would eventually take them towards becoming a “seller beware” distribution model.

‘The only sustainable model is in trail; there the distributor is incentivised to offer me products where I make money because only if I make money, does he make money. He’s sitting on a trail commission and it works for the producer because he gets sticky, long-term assets, and he makes more money if his funds do well. The capital market regulator gets it, we are nearly 90 per cent there, and in mutual fund regulations, we are ahead of several developed economies,’ she says.

Wealth management firms and private banks have also slowly begun to see the premium attached to transparency and how it can act as a powerful hook in winning a client. The competition has necessitated this as have clients who know they can demand more.

MapmyIndia’s Rakesh Verma believes transparency is improving because investors like him probed more now — whether it is a global firm or an Indian one. Wealth managers want to make money too, he said. While that is obviously a legitimate objective, Verma says he’s been upfront with his two primary advisors by asking them to tell him how much they make on each product he buys from them.

‘Is it a one-time commission, a recurring incentive or a percentage-based payment scheme? I’d like to know. I don’t grudge my wealth advisors higher commissions on a specific product that I’ve chosen but I do expect even better service when it comes to a product like that,’ Verma admitted to me. Getting this information is an important way to build confidence.

To his surprise, he reveals, and possibly because the competition in the wealth industry has become so intense over the last couple of years, most people are usually forthcoming about this information. He’s also made it a point to have two or three advisors. In his case, it’s IIFL Wealth and Citibank.

More than keeping each other on their toes, Verma said the more people you work with, the more you learn. That usually leads to smarter, better decisions. Of course, it also makes it easier to validate information. Cross-checking commissions and brokerage numbers and finding that the information his advisors gave him was true has helped hugely to enhance trust.

‘Earlier, there was no professionalism. Your wealth advisors would think they can just come and talk, and you would agree. Now, they have to present data and logic, show why something makes sense over something else,’ says an elusive Mumbai-based investor I spoke to. Now, even when people trust their advisors, they want to understand the logic. The methodology of understanding and selling products has become more refined, he adds.

Sharda Exports’s Gupta says he’s given his wealth managers a hard time — having very clear conversations about their fee and incentive structures. ‘Friends I speak to say one can never really be sure if the answers we get are right so I don’t want to be too sure about how correct they are. But the questions I ask, I do get an answer to,’ he tells me.

The doubt that Gupta’s friends display clearly points to the fact that this journey of transparency is only just beginning for wealth managers. They will have to come to terms with the fact that demanding customers will expect even more. It might be enough for now to tell the clients how much fees they are earning, but soon clients might expect the fees to be linked to specific services provided.

Wise wealth managers will know that they are operating at a time when financial services companies live in a trust deficit. Battered industry reputations take time to reform. To get loyal clients, wealth managers must prove to be trustworthy. Trust would follow once the relationship was entered into. It would have to be demonstrated and earned, slowly — transaction after transaction, month after month.

Senior professionals, especially from the financial services industry, bring an even finer toothcomb to parse through the offers. The India head of a foreign private equity firm says that wealth advisors can’t mis-sell to people like him because he can strip down a product to understand it.

A wealth management outfit needs to understand how it can customise its offering to an 80-year-old widow, a 35-year-old technology entrepreneur and a 55-year-old financial services professional.

Clients understand that the more aware they are, the better they can separate the wheat from the chaff. Because they are more aware, they are also more discerning about the knowledge, insight and subject expertise they expect from their wealth advisors.

If it’s somebody who has sold a business, then he or she has met tax lawyers, investment bankers and private equity funds. This ensures access to various inputs from different parts of the value chain, not confining them to their wealth manager alone for advice.

Wealth managers say that the harsh truth they live with is that they are not the one-stop repository of advice. There is a vast range of experts in niches of the financial services industry to give them competition across asset classes, such as brokers in equities, real estate management firms and banks when it comes to extending credit loans to clients. The competition is not limited to other wealth managers. It is rearing its head from other segments and branches of financial services too[36].

There is a strange dichotomy here. Although customers are more inclined than ever to seeking professional wealth management, they are less trusting and more sceptical. When dealing with money, there will always be some doubt.

‘We’ve found that the more we share, the more we’re able to work around the scepticism. Many of our clients know how our commissions are structured, often up to the ninetieth percentile. The last ten percentile is really the only variable. To be honest, even we don’t know while doing a transaction how much that variable will eventually amount to,’ admits IIFL Wealth’s Bhagat.

The world of private banking has settled into making 60-70 basis points as profits on the corpus it manages. This is a third of what some of them would have made in the good times before the global crisis.

Yet, this isn’t a new “normal” that everybody agrees on. Some wealth managers say the pre-2008 margins were an aberration. They reeked of both immaturity and greed. Yet, the downward spiral has squeezed margins to below what should be considered normal. While some say that 60-70 basis points is a mature, adequate number, others believe 80-90 basis is probably closer to the number the industry should work with.

This tussle for margins also has an impact on, and is influenced by, the dynamics of building and sustaining relationships.

Chapter 12

The relationship roulette

In all my interviews, trust and relationship were often used to describe the dynamics between clients and their wealth managers. Most people seem to view wealth management as a relationship game. It is built on a loyalty that comes from expecting the advisor to provide inputs and service that benefit the client’s long-term interests, and also stem from the intimacy established by a client sharing his financial health, wealth objectives and family’s future needs.

On their part, wealth managers say, building relationships is critical because when they acquire a client, it is with the view that they will manage them for several years or, hopefully, even a generation, if not more. The economics of the business also means that the wealth manager only starts making profit out of a client relationship after the first few years. For these reasons, cementing a relationship is crucial to the business.

Yet, as the landscape of the industry has shifted as sharply as discussed so far, what does the relationship really amount to? If expectations have been reset, powers chipped away at and a healthy dose of scepticism pumped into the client-advisor engagement, both the cost of the relationship and the premium that it guarantees, must necessarily have undergone substantial tweaks.

The death of intimacy?

A senior wealth manager in Mumbai, who has been in the industry for more than two decades, tells me that the value of a long-term relationship has certainly diminished where the first-generation wealthy in India are concerned.

It has made longevity in the context of a relationship seem irrelevant, at least, for now. ‘Clients are not evaluating relationships or making new ones with the view that these advisors will be with them for the next fifteen to twenty years. The conversations are more about pricing, fees and being shown smart products,’ says this wealth manager.

Because this is usually a client’s first relationship with a wealth manager, there are greater concerns about the effectiveness of the new partnership. This effectiveness is likely to be measured in monetary terms. The value of the relationship is possibly the next stage of evolution.

There are others who say, in confidentiality, that the concept of a relationship is overstated because the foundation of the engagement is in demonstrating sustained, continuous performance. The bond strengthens from the services offered and a sense of shared purpose; the relationship acts as a binding tool.

If the fabric of performance goes through too many tears, the relationship is unlikely to survive. The personal relationship works only as long as the firm and the client are in a mutually beneficial engagement. It’s a tough balance to strike sometimes, especially while maintaining the distinction between being a client’s wealth manager and not becoming their munim (accountant).

‘Loyalty earns you coffee at best. And, a weaker blend of coffee if the portfolio isn’t doing well. Three cups of coffee can go down to one quite quickly,’ a young wealth manager with a global firm once told me.

More than on any other aspect, wealth managers I interviewed requested not to be quoted in this issue. In a business where the words relationship, trust and loyalty are often used, few wanted to admit openly that the value of relationships is sometimes exaggerated.

‘Honestly, the relationship lasts as long as we’re doing a good job with our client’s portfolio,’ said one. There is no loyal client, admitted another private banker, just as there is no loyal wealth manager. There are smart clients and smart wealth managers where it is important to remember that although one might be invited to a client’s family events and parties, the relationship depends on how well the portfolio does.

It is much like hiring, believes a successful manufacturing entrepreneur who had three relationships with three different private banks. People got hired on recommendations, referrals and educational backgrounds but after a couple of years in the system, it didn’t matter if they had a PhD, MBA or had called you for their wedding. The relationship was enhanced by the quality of the performance, or certainly, at the very least, the sincerity of effort.

There are others who say that if wealth managers are speaking this language, even if it is within their firms and out of the earshot of the clients, it marks a welcome change because for too long this relationship has been a wildly irrational engagement.

Ten years ago, in some parts of Asia, for example, some reputed private banks would hire hair stylists to strengthen the relationships with their clients, said Kees Stoute, author of Help, I’m Rich!, a self-help book for the wealthy and how they should optimise their relationship with their private bank.

When friendship isn’t enough

Most first-generation wealth clients are also resetting expectations. While many will talk about the relationship being critical, and say that personal rapport can make a big difference to their engagement, the relationship is built on their advisors’ ability to understand and commit to memory their risk appetite; be available and responsive in terms of communication; execute efficiently, and be able to report and track their portfolios accurately.

Relationships do not connote “squishy-soft” aspects, they are strengthened on the back of consistency and getting the job done, quarter after quarter.

Raghav Bahl, whose portfolio is also managed by IIFL Wealth, articulates the relationship sentiment and the extent of its scope well. ‘The ultimate benchmark of the relationship is definitely performance. It hasn’t happened to me yet but I reckon the relationship premium for me would be one percentage point or so on one’s expected rate of return over a couple of quarters, but not beyond that and not sustainably so. You can give your relationship managers the benefit of the doubt for a couple of quarters if they tell you honestly there was a problem and they’ll try and fix it,’ he says.

An aspect of the relationship that most clients stress upon is the expectation they had of their wealth managers maturing into advisors, not just remaining someone who executed on their behalf. It was important, they said, to see that the person had, over time, built the credibility to occasionally challenge them and tell them that something didn’t make sense. It was this facet that deepened trust and cemented relationships more than fancy gifts and posh events.

For an advisor, it was important to be able to occasionally look their clients in the eye and fault their logic without offending the person. Interestingly, in the changed dynamics of the wealth management industry, where clients demand to know more and have a less long-term view of the relationship, they’re eager to work with wealth advisors whose guidance they value and whom they respect as individuals.

‘I actually test my relationship advisors by giving them a very stupid idea once in a while and see whether they’ll tell me it’s wrong. Also, it’s good to have two different relationships so you get more good ideas to think about, and to use them as counsel and sounding boards for each other’s ideas,’ a Gurgaon-based chief executive officer of a pharmaceutical company whose annual compensation is upwards of 2 crore ($300,000) tells me.

The concept of independent advice is still evolving in India, where clients pay someone who has no vested interest whatsoever in the investments they make. Even leading private banks and wealth management outfits in India make a vast quantum of their money from providing clients a service, not advice.

In India, revenue from data and advice is hard to come by, not just in financial services but in myriad industries such as media, market research and knowledge services. The advent of Google had given people, says an entrepreneur who runs a business analytics firm, the illusion that data was “free and asking money for it, however specialised it might be, was highway robbery.”

Some wealth mangers are likely to concur with this: Many say they struggle to get clients to pay for advice. It’s a chicken-and-egg situation, though. A Singapore-based management consultant with several private banking clients says financial advisors and product sellers should examine if clients weren’t prepared to pay for advice at all or didn’t do so because they did not consider what they had received to be advice.

In any case, it’s interesting that when it comes to managing their wealth, there are few places where India’s wealthy actively go to for advice. Interestingly, places can play a strong role in their relationships with their advisors.

The mathematics of geography

In 1899, Mark Twain, the famous American author of classics like The Adventures of Tom Sawyer, wrote about the differences in the cultures of the three largest cities in the American Northeast — Boston, New York and Philadelphia. ‘In Boston,’ he wrote, ‘they ask, “How much does he know?” In New York, “How much is he worth?” In Philadelphia, “Who were his parents?”’

Twain’s insight into these cities hints at the core attributes that matter for success in these different places — academics, wealth or pedigree. Through interviews for this book, I also found that much as pace, source and generation of wealth influence attitudes where they live often impacts how the wealthy think, behave and invest as well. Local context can shape us in dramatic ways. Stereotypes do fly thick and fast about cities, in general. Several of the wealth managers I spoke to confirmed some of these myths and debunked some lazy generalisations.

For most large wealth management outfits, whether pure-play firms or HNI arms of large banks, Mumbai and Delhi make up a disproportionate chunk of their business — both in terms of the number of clients and value of assets. In Delhi and Mumbai — India’s two major hubs for business and entrepreneurship — a newcomer with a smart idea who demonstrates value can still get new clients.

Within the two, of course, the stereotypes do manifest themselves, says a senior Delhi-based wealth manager. ‘Delhi is slightly loud and voluble. They are also more relationship-driven and we need to try hard to build those relationships, to strike that intimacy. To be honest, I like the market in the west of India because it is the most value-driven; all they look for is whether you’re adding value,’ he feels.

Kolkata and Ahmedabad are largely trade-driven markets; clients there are supremely price conscious, and decisions often stop at price. Smaller cities such as Ludhiana, Mysuru and Panipat are the new frontiers of growth for the industry but in these towns the task is cut out for wealth managers; quite simply, making clients in these cities see value in advisory services remained “very, very difficult” and because they saw their advisors as nothing more than product pushers, they are extremely fee-sensitive.

Surprisingly, wealth managers say, Bengaluru — considered India’s most dynamic crucible for innovation and entrepreneurship — is most resistant to new players. Here, as in Pune, client-advisor associations are purely relationship-oriented, not fee-driven. Clients are more likely than not to use Independent Financial Advisors (IFAs) and are almost unwilling to even get into a conversation with a new player, let alone switch advisors.

Pune and Bengaluru are probably the two toughest markets in the country for fresh entrants, even those that represent firms with proven track records. With clients here, several advisors say, you could often draw a blank, not just in your ability to convert them but in your complete inability to even engage them in a conversation.

In Bengaluru, more than in any other hub of wealth creation, the family office — essentially having financial advisors in-house rather than working with external wealth management firms and private banks — has become more the norm for even the first-generation wealthy.

Bengaluru was the main hub for the creation of first-generation riches, ushered in by the professionals-turned-entrepreneurs of IT services. Usually, family offices are the preferred model for the traditionally wealthy families who manage their wealth in-house.

The IFAs enjoy a loyalty premium so high that clients in these cities aren’t worried about missing out on ideas for new products and investment options. Familiarity with, and trust in, their financial advisors — most of whom have been with them for several years — is a much more important filter than engaging firms which, because of their size, might be able to offer them more adjunct services, better technological abilities and a wider array of investment products.

Private bankers say that in working with IFAs who they might have been acquainted with for years, clients in these cities decisively demonstrate that knowing a person, and their objectives and motives, is critical to the formation of the relationship. They seem to follow what celebrated American investor Warren Buffett is known to have often said, that one “never succeeded in making a good deal with a bad person”.

‘If you look at the south of the country in general, it is very conservative. Those in the South feel that they need to trust the person more than the proposition he delivers because if a person is right, he will do right by you. But if the person is wrong, even the right thing will be wrong. Even with new money in Bengaluru, for example, it’s not going to be possible to make inroads if you weren’t around exactly at the time of the transaction, or while the wealth was being created. Timing is critical,’ says Girish Venkataraman, CEO of IIFL Investment Adviser and Trustee Services.

Don’t show, don’t tell, don’t ask

In the last few years, there have been growing opportunities for business builders to talk shop. In the entrepreneurship ecosystem, in particular, there are endless business conference formats, events and groups for peer learning and sharing. These include associations like the Entrepreneurs Organisation (EO), Young Presidents’ Organisation (YPO) and industry bodies such as the Federation of Indian Chambers of Commerce and Industry (FICCI), Confederation of Indian Industry (CII), and their state chapters.

Entrepreneurs, especially, say these are important forums for building networks, cross-industry relationships, learning from and interacting with peers. Even as the wealthy hold discussions on how to grow businesses and making money, which results in frank discussions, managing personal wealth is purely a DIY (do-it-yourself) operation, out of the ambit of polite conversation at industry forums and other social settings.

Nearly everybody interviewed said they were not comfortable discussing their wealth and investments socially at all. Many said they had never met anybody who made oblique references to their wealth at these social settings; at best, people might discuss and seek information on certain sectors and industries they could be interested in — to make angel investments, for example — but amounts and numbers were never brought up. It is interesting to note while people were extremely comfortable discussing how to make money, talking about their personal wealth seems almost taboo.

“Your wealth is your problem” seems to be the gist of most conversations. People say that, at most, they could ask seniors in the ecosystem, or former bosses, and maybe their investor, for references of tax planners or wealth managers. All in the hope that it isn’t too indelicate.

Others said these discussions are a no-go area because one is never certain about a person’s objective in bringing the subject up. ‘I wouldn’t want anybody to think I am showing off, pushing my advice, or selling my wealth manager to them, not that I have one,’ says Infibeam’s Neeru Sharma.

Bain Capital’s Amit Chandra who has spent several years building the investment banking and global markets wealth vertical at DSP Merrill Lynch (now, Bank of America), says he found it odd that, despite his background, very few of his friends have ever sought his advice on managing their wealth.

On the occasion of new year, he has often written about his thoughts on financial planning to some of his close friends. He’s been undeterred by his wife who has told him people would stop reading his boring messages and by friends who have rolled their eyes, although ‘one or two have started engaging in this issue’, Chandra tells me with a laugh.

He is often surprised, he says, by the shockingly low level of financial literacy amongst senior professionals and the lackadaisical, unscientific way in which he has seen even well-educated friends approach money management and retirement planning. Few people really think about their investment decisions with any rigour is what feels.

Interestingly, the new Indian wealthy don’t seem to soak up advice on managing their wealth from experts either.

In the absence of learning from others, books might have been their preferred recourse to understanding attitudes and philosophies. But, less than two in ten, for example, said they had read any books on the subject. Not even the usual choices, such as Berkshire Hathaway chairman Warren Buffett; fewer still said they read websites such as Morningstar, Investopedia or the Morgan Stanley blogs, usually considered the best repositories of investor advice.

Not one person pointed me to a book that they felt had changed the way they had approached investing. Neither could any of the people interviewed think of one person who had influenced or inspired the way they managed their wealth — no senior colleague, an elder family relative, or business associate. The main source of information for market intelligence, essentially limited to news and trends, remained business newspapers and television networks for them.

There may well be a lot of literature out there on investor psychology, as well as the consequences of cognitive biases and behavioural predispositions that decisively shape how individuals manage their wealth. But, it wasn’t information that India’s wealthy had found need for yet.

Entrepreneurs not only want to build companies but also continue to grow their wealth. Never before have so many people been confident of being able to do this by themselves — within decades, if not years.

India’s new affluent want to use their reserves as a vehicle to establish lasting legacies, to redeploy and reinvest their assets in multiple businesses and to continue to create wealth for themselves in a country that is throwing up so many avenues for growth.

Much like other industries in India, a new appetite for risk and bold dynamism has created new markets and expanded the scope of the wealth management industry as well.

In such a rapidly changing world where fortunes can be destroyed as swiftly as they are built, for a company to be successful requires agility, far-sightedness and perseverance in equal measure.

It is in these swirling waters of changing fortunes that the founders of IIFL Wealth have been able to make a mark — by proving themselves to be, above else, a new species of wealth managers.

Part 4

The Rainmakers

Chapter 13

A game of odds

Mumbai, April 2010

It was a typical Wednesday evening for a group of IIFL Wealth employees. About twelve of them were at founder and CEO Karan Bhagat’s forty-fifth floor penthouse in Mumbai’s Mahalaxmi area, with a view of the Haji Ali mosque and a wide expanse of the city’s skyline.

However, the panorama through the floor to glass ceilings faded in comparison to the green of a poker table with its tiny stacks of shiny red and black plastic circular chips that had them riveted.

It was poker night; a weekly ritual started by Bhagat, an avid poker player, bringing together both enthusiasts and colleagues who were more recent converts to the game.

Bhagat plays a mean game of poker, his colleagues say. His head for business and a natural tendency for aggressive albeit calculated bets is on full throttle during poker, as is a competitive instinct that might not be immediately apparent.

On this particular evening though, things took a turn for the serious, a calculation that went beyond just winning a big hand at a friendly game. Not that one can call a poker game with Bhagat friendly — he might not bother to negotiate down the last 5 per cent at work but will “fight hard for pennies” at poker, a colleague told me.

Yet, this evening became more serious than others. Halfway through the game, a senior relationship manager of the firm wondered aloud about its valuation and whether stock options for employees like him would ever prove to be any good. Or would their stock options, in other words, end up as those things usually do in start-ups: A hook to hire people but often failing to live up to the promised upside.

A tad piqued at his colleague’s scepticism, Bhagat offered to personally buy out his shares. The relationship manager dismissed his boss’ offer as a joke but Bhagat didn’t let the conversation die and asked his colleague to figure out what he thought the company’s valuation was likely to be, to settle on a sale price.

The company had just breached 50 crore ($7.4 million) in annual profits and stood at a hundred employees. A valuation of 1,200 crore ($178 million) was his best guess.

Bhagat offered to buy his employee’s share at a premium — at a valuation of 1,400 crore ($208 million)— and gave him fifteen minutes to mull over his decision so they could close the deal. His colleague made a few more frantic calculations, and bumped up the company’s valuation to 1,500 crore ($223 million), a number to which Karan agreed.

Next morning, when the relationship manager came into work, he found a cheque of 1 crore ($ 149,000)— the approximate value of his shares — waiting for him at his desk.

He’d forgotten about the deal made the evening before, having dismissed it as a flippant discussion at a poker table. Foxed by Bhagat’s move, he spent the next two days anxious and confused, not knowing whether his boss was playing a prank on him or whether he had signed away his stock options in the company. Was it a lucky exit or a bet gone wrong?

The story about the cheque was fervently talked about on email and SMS over the next two days and became coffee break gossip for the Mumbai team.

Bhagat was ready to play the game till the end. On the morning of the third day, he told his colleague that as far as he was concerned, the deal was done. A cheque had been signed and the man could simply transfer the shares to complete the transaction — offering him time to think about it till 11:00 p.m. that night.

Bhagat chuckles at the memory saying, ‘If he decided he didn’t want to sell his shares, I would take my cheque back and reverse the transaction only if he paid me 10,000 ($149) for the board of my pool table and apologised for having doubted the value of the company.’

Oft-recounted versions of the incident have made their way into the company’s folklore. ‘A good laugh aside,’ Bhagat says, ‘It was a good confidence booster for everybody because they saw I was confident enough about the company to buy the shares myself.’

Knowing when to call a bluff is a key trick for success in poker; Bhagat successfully put it to business use. Eventually, it was his colleague who turned out to be the smarter player for not selling his shares that day. Only a few years from that Wednesday evening poker game, the 1,500 crore valuation of the company in 2010 would prove to be much too conservative.

New York, September 2015

On a perfect late summer Sunday, five years from the poker game, The New York Giants were playing against The Atlanta Falcons in a National Football League (NFL) match at the popular MetLife Stadium in New Jersey, the team’s home ground. IIFL Wealth’s founding team — Karan Bhagat, Yatin Shah and Amit Shah /–\ didn’t know much about football but were enjoying this most American of weekend sports — outfitted in the Giants’ bright blue and red hoodies and caps.

The next morning, they had a day-long meeting at one of the city’s most legendary firms — the blue-chip private equity major, General Atlantic — in the company’s Park Avenue Plaza headquarters in New York’s mid-town area. The agenda was simple: To get a seal of approval from the General Atlantic (GA) team to invest in IIFL Wealth.

The day began with Bhagat having breakfast with Bill Ford, the private equity fund’s CEO. This was followed by a several hours-long discussion in the office’s boardroom where the IIFL Wealth founding team sat across the table from several General Atlantic managing directors, including Sandeep Naik, the managing director and head of the fund’s India and Asia Pacific business.

Also in attendance were consulting advisors to GA, such as Pierre de Weck, former member of Deutsche Bank Group Executive Committee, who had also served as the global head of the bank’s private wealth management business.

Since its inception in 1980, GA has made investments in more than 200 companies across industries and continents. The fund, which invests up to $2 billion ( 13,403 crore) worldwide every year, has invested more than $2 billion in India across fifteen companies since it first set up shop here in the early 2000s. Its investments in companies like Genpact, Patni Computer Systems and Hexaware had returned close to $1.8 billion ( 12,062 crore) in exits, an impressive run.

Intent on keeping up the momentum in India, it wanted to make the country a key focus of its global agenda. It hoped to use up a fourth of its annual $2-billion investment corpus here in companies in financial services, retail, healthcare and mobile internet.

IIFL Wealth seemed to be a good bet for GA: A young leadership team that had proved its business model in a fast-expanding market segment. Against the backdrop of an emerging India, the unprecedented amounts of private wealth being created would need to be managed.

A little over a month after the meeting in New York, on 24 October 2015, news of the investment went public.

General Atlantic would invest 1,060 crore in IIFL Wealth for 21.61 per cent of the company. General Atlantic would use part of this investment, or about 160 crore ($23.8 million), to buy 20 per cent of shares of the eighty-nine employees who had equity shares and stock options in IIFL Wealth. The transaction valued IIFL Wealth at 4,900 crore ($755 million), over three times the number they had come up with at that poker party long ago.

Setting the deck

Interestingly, the origins of this deal can also be traced back to an evening of cards. This time it was over teen patti or the game of flush, traditionally played during the Diwali season.

Karan[37] has an annual Diwali party where the usually hundred-strong guest list is a combination of colleagues, friends and clients, including several from top private equity firms and other financial services firms.

Shantanu Rastogi, a senior GA principal from the Mumbai office has been a regular over the last couple of years. During a conversation at one of these parties, Rastogi had indicated to the IIFL Wealth founders that if they ever considered bringing on an investor, they should give General Atlantic a buzz.

In August 2015, IIFL Wealth finally got around to making that call to GA.

Karan asked Prashasta Seth, CEO of IIFL Wealth’s Asset Management Company (AMC), to do the honours, because he and GA’s Rastogi had been friends for several years.

That 25 August 2015 call set in motion the events that followed — six weeks of frantic back and forth between the GA and IIFL Wealth teams, resulting in the official announcement.

Industry observers say that private equity deals often take nearly six months of negotiations to close. If indeed, the transaction crystallised from the first conversation to the announcement in less than two months — a striking exception — it was a testament to the eagerness of both parties to seal the deal.

Sandeep Naik, MD and head of GA’s India and APAC business, said they owed the speed to the fact that they quickly established two key elements of the investment thesis — market size and market structure.

With India’s economic growth and wealth creation expected to continue, wealth management had emerged as a very exciting segment with headroom for massive growth. Within the industry in India, only two companies — IIFL Wealth and Kotak Wealth Management — had built a portfolio size of more than $10 billion ( 67,015 crore) and clearly dominated the industry.

Naik’s firm was excited at having an opportunity to participate in the growth of one of the two through this deal.

There was another reason that helped. Since it was founded in 1980 as a private investment firm to invest the funds of The Atlantic Philanthropies — established by Charles Feeney, an entrepreneur and philanthropist — its capital is more long-term and patient because it comes from a group of wealthy families and well-established endowments, foundations and strategic institutions. This added to General Atlantic’s comfort level with the IIFL Wealth deal, believes Naik.

‘Since our money is also ultra-high net worth family money, we understood their business very intuitively because it’s exactly what we are doing — we manage generational wealth as well,’ he says.

Naik had also been an IIFL Wealth client for nearly five years, having met Karan when IIFL Wealth first pitched to him. His first-hand experience added to the speed and clarity in decision-making.

Unlike with some deals, where an intuitive understanding of the industry, or the experience of direct users of the service or product is lacking, GA was confident of its instincts in the wealth business. It seems their instincts about the people they were backing would also pay off.

Chapter 14

Soliloquies

Karan Bhagat

In early 2003, Karan reckons in terms of annual salary he was in the bottom 5 percentile of his 2001 Indian Institute of Management (IIM) Bangalore graduating batch. Six months prior to that, thanks to an enviable consulting role he had bagged in Cluster Consulting — a niche telecom advisory firm based in Barcelona — he was leading the pack with a handsome Euro salary in an exciting European city.

Unfortunately, the tailspin the global economy had gone through in the aftermath of the terror attack on New York’s World Trade Center on 9 September, 2001, had led to Cluster Consulting withdrawing its placement offer. In October 2001, by the time Karan received the Spanish work visa he had applied for, he was jobless.

A fresh job search didn’t go well either. By then, companies had already taken on board the management graduates they needed. In keeping with a pessimistic global economic outlook, most MNCs were in wait-and-watch mode. Hiring was frozen across several industries and a good job was hard to come by even for a bright IIM graduate.

He needed to earn his bread. Asking his parents for money would be much too embarrassing — especially after a top management degree. Karan began teaching Maths and English at a management test preparation centre in Kolkata, his hometown. He kept the job hunt on the boil.

In a lukewarm economy, the two offers he finally managed to get was a sales role with Kotak Securities and credit operations for ICICI Bank in Ahmedabad. These options were a sharp downgrade from his lofty ambitions of being a consultant — in both the salary on offer and the role in question.

‘I never wanted to do sales and I was pretty sure I didn’t want to go to Ahmedabad. It was quite a fall in style, Barcelona to Ahmedabad,’ he laughs.

Although circumspect about selling investment products to the wealthy, Karan soon decided the Kotak role, despite its sales-heavy orientation, was the lesser of the two evils.

Kotak gave him two location preferences: Kolkata and Delhi. A marwari from a business family in Kolkata, Bhagat decided working in his hometown would entail pitching to extended family and friends — a recipe for disaster. He chose to move instead to Delhi in November 2001, which proved to be a boon, he says.

But, the early days weren’t easy. Kotak Securities had a very small office in Delhi at the time. The young sales managers had to fend for themselves.

The sales role didn’t come easily to him either. In the first few cold calls made to corporate lawyers, which he remembers lasting less than twenty seconds each, he realised he wasn’t cut out for it. Kotak allowed him to hire two management trainees to do the calls and Karan set about mining and creating a database of potential clients.

The database was built on a simple filter: Big houses. With his team, he scoured through upmarket south Delhi colonies — Panchsheel Park, Sainik Farms, Friends Colony, Maharani Bagh — to populate this list.

He never made a cold call himself again but would sit in the car while his associates did. The effort began to pay off. Their largest client relationships in 2002-03 came by doing this. Even today, he rattles off house numbers and addresses in Maharani Bagh, Saket and Sainik Farms — all wealthy south Delhi neighbourhoods.

Karan says people who agreed to meet them either thought they were from the camera company Kodak or that Kotak Securities was a company that provided guards and darwaans for homes and offices.

Most of our meetings happened because people wanted to change their security guards, Karan laughs. He didn’t know it then but he would face a similar situation with people confusing IIFL Wealth with IL&FS, the leading infrastructure development and finance company.

Fortunately, the Delhi office did very well in the number of clients, the volume of transactions and satisfied clients, mainly on the back of a good run at the capital markets from 2003-2005. Kotak Mahindra got a banking licence in 2003, which also helped build trust in clients and spurred the Delhi business on.

He hadn’t quite anticipated it earlier but the business of selling financial products suited his entrepreneurial nature perfectly. It’s the only segment of financial services where, within three or four years of starting out, you get to manage your own profit and loss account, he says.

Neither as a management consultant or investment analyst nor as a corporate banker can you go to the source of the deal, acquire clients and decide your own pace of growth so early in your career. In most segments, it would take nearly ten to fifteen years to have your own book, Karan adds.

Kotak also turned out to be an extremely entrepreneurial set-up; a hunger to grow encouraged risk-taking and rewarded performance. By 2005, Karan was doing well within Kotak Securities. He was transferred to the Mumbai office in 2005. He began working with Amit Shah on the McKinsey & Company project that was set up after Kotak got the banking license to migrate the wealth management business from the broking platform to the bank.

Karan remembers being a little apprehensive about the move because clients are a relationship manager’s only asset. To have to put together a new portfolio of clients and leave the one he had diligently amassed didn’t seem, at first, like a great idea. In fact, he wanted to move back to Delhi after the first few months in Mumbai, to leave Kotak and set up an independent financial advisory business. A few of his existing Delhi clients had even agreed to fund his start-up. His boss talked him out of the idea even though he had resigned.

In retrospect, staying back turned out to be a great decision since his exposure to financial services had been limited to Delhi then. As the mecca of financial services, Mumbai offered the scale and opportunities that a branch office couldn’t provide. It was the real deal. The quantum of wealth and the sophistication of the business in Mumbai in the mid-2000s was vastly different from the landscape in Delhi.

‘If I had started out on my own then, I might have made a little more money but the scale of the business I am looking after and the experience I now have would have been very, very different,’ he says.

By 2004, the private client group business of Kotak Securities (JV between Goldman Sachs and Kotak Mahindra Bank) was merged with Kotak Mahindra Bank’s wealth management vertical. The integrated team began operations in early 2005. It was also the time that Karan and Yatin Shah began to work together — a relationship that would eventually lead to the founding of IIFL Wealth in January 2008.

Yatin Shah

Yatin had a somewhat less accidental entry into the world of private banking. A Mumbai boy whose father and maternal uncle ran a small furnishing textiles business, he picked up a strong, basic accounting sense while in school, often helping his father at the warehouse, visiting their trade fair stalls and witnessing the daily book-keeping the business required.

In 1997-98, during his early years of college, he had also worked in the family business for about nine months. It’s around this time he realised that not only did he love sales; he had a real knack for selling.

He enjoyed taking furnishing samples to retail outlets across India, staying in small lodges and hotels, to sell their designs. What he didn’t enjoy was retracing those trips a few months later to collect money from the outlets that were tardy in settling accounts. He decided to look beyond the family business.

The love for sales and the thrill of winning new customers, which he had experienced in his short tenure, was well entrenched though. It would be these skills he would eventually build his career around.

His passion for the stock markets began early, when he was in his early 20s. The first portfolio he managed — and lost money on — was his father’s. ‘The capital I lost was small but it really helped me learn,’ Shah says.

It was the turn of the century. He had enthusiastically invested in tech stocks which crashing down in the 2001 dotcom bust. About the time, he had also started working in equities research at Khandwala Securities, a Mumbai-based institutional equities and investment banking firm. He had recommended these stocks to his clients as well, and the losses they suffered on their portfolio threw Yatin’s career out of gear.

He decided he should get a management degree — to understand how companies are run and become better at analysing their performance. He went to the UK for a management degree from Cass Business School, although he says, that, in hindsight, the experiences he got growing up in a business family far outrivalled the lessons learnt by paying for an MBA.

An avid Bloomberg user from his Khandwala days, in London, Shah attended several conferences and events in the Bloomberg office, using his student login to participate. It was a peek into the world of private banking.

He soon realised his passion for equities, combined with his natural affinity for sales, was a perfect combination for private banking.

In 2002, with his management course complete, he came back to India to apply for private banking jobs in Citibank and Kotak. As Kotak was a broker turning into a bank, it was ambitious and eager to grow. Yatin fit in perfectly.

Yatin’s rise up the Kotak hierarchy in Mumbai mirrored Karan’s journey in Delhi — both acquired clients at a pace that surprised their colleagues and seniors.

Luckily for him, his passionate pitch for equities was complemented by the strong tailwind of the capital markets during 2002-2008. By early 2008, when he left to found IIFL Wealth, Yatin managed 150-plus clients and 3,000 crores in total assets.

Yatin had outstripped the ambitious targets he had set for himself in 2002: To earn 1 lakh ($1,490) a month even though he didn’t know what he could possibly spend that much on.

Kotak, keen to hold on to talented employees, didn’t constrain itself to reward performers like Karan and Yatin. In fact, in 2006, Business India, a leading monthly magazine, listed both as professionals with salaries and bonuses of over 1 crore ($149,000) in India, along with senior colleagues from the bank. These included Dipak Gupta, executive director of Kotak Mahindra Bank then, and it’s joint managing director today, and Jaideep Hansraj, the present head of Kotak’s wealth management and priority banking.

The list surprised Yatin’s dad who couldn’t believe people could make so much money in jobs without the hassles of running a business or managing a shop.

‘To be honest,’ Yatin tells me with a laugh, ‘Even today my father doesn’t quite understand why people give us money. Our business model doesn’t make sense to him. Because he never had that kind of wealth, he can’t understand why people are willing to hand over hundreds of crores to us,’ he chuckles.

Amit Shah

Amit has always been somewhat of a rebel in his family. He belongs to a business family that has varied interests in coal and transport in Ahmedabad. Unusual for a Gujarati business family, his father, and five uncles and their children had all studied to be doctors and engineers before working either in the family business, or setting up enterprises of their own.

Consequently, in Class XI, when Amit decided to opt for the commerce stream, his family thought he was being an “idiot”.

After completing his post-graduation in 1998, he didn’t curry much favour with the family either when he chose to work for IDBI Bank’s fledgling operations in Vadodara, in the investment banking team, ignoring the pressure to be in some sort of a business enterprise.

The 20,000 ($298)-a-month salary seemed like a huge fortune but Shah says he was bored of the job within two years. In February 2000, he moved back to Ahmedabad with a job in the asset management division of ICICI Prudential. This was the peak of the tech bubble and Shah was tasked with selling ICICI Prudential’s technology fund to investors — a business that would soon grind to a halt with the US dotcom bust rearing its ugly head in mid-2000. A move became imminent.

Fortunately for Amit, Citibank was setting up its wealth management business in India, and was actively recruiting investment counsellors, essentially advisors, for HNI clients. Citibank was the bank to work for in those years: It was glamorous and well paid.

Amit remembers his salary more than doubled to 7 lakh ($ 10,430) per annum. ‘It was an insane amount at that time in a city like Ahmedabad, and we didn’t know how to spend it,’ he recalls. Although he did well at the Ahmedabad office, getting “jaw-dropping” bonuses of 40,000 ($596), his growing ambition was limited by the size of the market in his hometown. He was desperate to move to Mumbai to get access to a larger market, disappointing his family yet again by choosing to do the unthinkable: Leave Ahmedabad.

In the meantime, another huge crisis loomed — this time the Enron scandal, which saw the Texas-based energy-trading giant, and once America’s seventh biggest company, file for bankruptcy in December 2001. This followed months of revelations that showed the company had borrowed heavily, was poorly audited and had kept its investors misinformed. This put a spanner in Amit’s plans.

Several large American banks were accused of having participated in Enron’s accounting mess. Along with Merrill Lynch, JP Morgan Chase and Credit Suisse First Boston, Citigroup was also mentioned in a lawsuit filed by the shareholders of Enron. In June 2005, Citibank would agree to pay $2 billion in damages.

In late 2001, as Amit was planning his transfer to Mumbai with Citi, the company announced a global hiring and transfer freeze. His plans were nixed but he remained desperate to shift to Mumbai. A chance to do that came up with Kotak in the second half of 2002, as it began hiring for its in-house wealth management business, leading up to the launch of the retail bank in 2003. Amit joined in November 2002 and moved to Mumbai. He couldn’t have known it then but it would prove to be the beginning of his IIFL Wealth journey.

It would also place the three founders together for the first time.

Yatin would soon join the same office a month later, in December 2002. Amit and he struck an easy friendship. Within a year, by the end of 2003, Amit was offered a posting in New York to expand Kotak Mahindra’s offshore business, a dream move to the world’s most exciting financial centre. As he waited for his US visa to come through — which came through only in April 2004 — he transitioned his clients to Yatin.

Amit also spent two intense months working with Karan to integrate Kotak Securities — the bigger wealth management unit in the Kotak Mahindra Group and where Karan worked — with the in-house wealth management unit where both Yatin and Amit were employed.

Kotak had commissioned McKinsey & Co, the global consulting major, to help this integration. Amit represented the bank’s in-house wealth division while Karan was Kotak Securities’ representative. It would be the first time the two would meet and work together.

New York proved to be a huge learning experience. ‘Half of the investors didn’t even know where India was on the map,’ he recalls.

India wasn’t the most exciting emerging market destination at that time. The first 80 per cent of their presentation to clients, Amit remembers, used to be on introducing India, and extolling its virtues as an exciting investment destination.

Things started looking up gradually. In 2006-07, Amit and his three-member team got top-notch institutions as investors. By early 2008, when he would eventually quit to start IIFL Wealth, he had raised a book of roughly around $300-400 million ( 2,011-2,681 crore). It was an experience that would prove to be critical to the success of IIFL Wealth, which currently has assets of $4 billion ( 2,680 crore) from key institutions and HNI relationships globally.

Since a large part of this book deals with what is happening in India, and examines the forces that changed the dynamics of the industry here, many of the firm’s international experiences may not find their way into the book. Amit’s role in anchoring IIFLW internationally is crucial. The fact that he leads the country’s global business might not place him in the everyday incidents described in some sections of the book but his voice is well-represented in the larger issues of strategy and positioning — that has evolved with the contribution of the three founders.

Chapter 15

Alchemy of ambition

All through 2006 and 2007, Yatin and Karan built a reputation of being formidable relationship managers, with each of them bringing in and managing a large share of the western region’s wealth business.

Their personal growth had been accelerated by the fact that Kotak Mahindra itself grew exponentially in the mid-2000s with a twenty times increase in its market capitalisation within five years.

Karan eventually headed the Mumbai office from April 2007 till January 2008. By then, they were raking in compensation they wouldn’t have imagined even two or three years ago. Karan reckons he had wiped off the personal ignominy of being in the lowest salary percentile of his IIM Bangalore batch by leaping into the highest percentile across his batch mates in India within five years. Yet, dissatisfaction was creeping in.

The steadily growing salary package and bonus incentive were not enough for ambitious, young professionals like them — high on the confidence that their successes had given them. ‘We felt we deserved more. We wanted recognition for building a business, creating something,’ he elaborates.

It wasn’t about the money, the founders assert. By themselves, their salaries were fine. What rankled was that they didn’t seem fairly linked to their business success. It made them realise that they needed to move from being employees to owners to really benefit from the upside of this growth. It was something Karan and Yatin talked about often.

They knew Kotak wouldn’t be able to satisfy their need for higher stakes, higher returns and greater recognition. It wasn’t even fair for us to expect that, the duo say. By then, Kotak had become a very large organisation and the entrepreneurial zeal had to be offset by a more stringent, process-driven approach.

Their senior colleagues couldn’t understand their restlessness, especially since Kotak’s wealth business had grown so spectacularly and they had grown equally impressively with it.

Personal ambitions aside, Karan says, there seemed to be a wide schism between them and their senior colleagues, apart in age by six to ten years, on their ability to take risks and the very notion of self-fulfillment. It was a generational difference — one that is more evident today than it was in 2007.

Successful young professionals now look beyond their organisations when hunting for growth. They experiment more and are usually more willing to tradeoff stability for risk.

In contrast, Karan says, many of their senior colleagues had graduated from management and engineering colleges in the early 1990s to the mid-1990s. They credited their growth to the organisations they worked in. A stronger sense of loyalty and indebtedness flowed from that.

Their generation — those who started working at the turn of the century in India — had a greater degree of self-confidence, buoyed by the expansion of opportunities in India.

Their ability to leave high-growth jobs came from this distinction, this facility for risk and the urge to be recognised as creators. More importantly, the three founders had started to believe that the industry had a place for a firm that only wanted to focus on wealth management. It was no longer a strategic adjunct, like for banks.

Genesis

The potential for a specialised wealth management offering was something Karan and Yatin spoke about often, as did Yatin and Amit who was in New York then. They recognised that there was a great opportunity for them to build a pure-play wealth management firm distinct from the offerings of banks.

Although not close friends, Karan and Yatin had developed a healthy respect for each other, first as highly competitive peers and then during the six months that Yatin reported to Karan, who was heading Kotak’s western region. But, by then they knew that whatever they did next, it would be together. Amit and Yatin had become buddies. Even though they had worked together very briefly at Kotak, they spoke on the phone virtually every week.

They weren’t quite sure how to go about it. They had to consider two options: Should they go out alone and start their own brand with angel funding from a few clients, or did it make more sense to partner with an established firm?

It was around that time that Donald D’Souza, who had till recently worked with Kotak Investment Bank, and had moved to IIFL Holdings (then India Infoline) to set up their investment banking division, reached out to Yatin. IIFL was interested in setting up a wealth business. D’Souza and Yatin had worked on a few transactions at Kotak. He introduced Yatin to the company’s founder, Nirmal Jain.

Jain, as I mentioned earlier, was a first-generation financial services entrepreneur, a chartered accountant and IIM Ahmedabad graduate, who had founded India Infoline in October 1995 with R Venkatraman.

The duo had a rough ride, starting first as Probity Research (the name was later changed to India Infoline), a company that provided research on the Indian economy, business, industries and companies. They soon acquired clients such as McKinsey & Co, the Tata Group, State Bank of India and CRISIL that paid for these reports. To take advantage of the internet, Probity Research took a counter-intuitive risk: It uploaded all its research reports for free on the newly created indiainfoline.com.

In 2000, they launched an online trading portal called 5paisa.com, allowing investors to trade on its platform for a flat fee of 0.05 per cent. These were the days of the dotcom craze and Intel had invested in the venture. The high was short-lived. The company would have to tweak and change its business focus repeatedly to survive.

In the chaos following the 2001 dotcom bust, it tied up with ICICI Prudential Life Insurance to become a corporate agent for insurance. During 2002-2003 — with the Ketan Parekh stock market scam and dotcom bust — survival, not growth, became the focus. India Infoline used the downtime to create Trader Terminal, its propreitary trading technology that is still in use. Things started looking up again for Jain and Venkataraman.

In 2005, their company received a commodities licence. That year, it also listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE) in April 2005, raising 93 crore ($13.8 million).

Two years later, in 2007, Jain made a bold move, luring the top four people of the institutional brokerage firm CLSA, led by the firm’s well-celebrated rainmaker, Bharat Parajia, to join India Infoline. The offer was a consolidated package of 44-crore ($6.5 million)that included a hefty sign-on bonus as well as a collective stake of 15 per cent for the quartet in India Infoline.

So significant was this news, owing to CLSA India’s sharp growth from the late 1990s to the early 2000s that India Infoline’s share price went up by 30 per cent in a single trading session on 25 May, 2007. It was the day the company announced that Parajia, along with H Nemkumar (country head of CLSA India), Vasudev Jagannath (head of sales, CLSA India) and Aniruddha Dange (head of research, CLSA India ) would be joining India Infoline.

Bringing on a core, senior team on board from a successful industry peer would give Jain the confidence to try this again — with the founders of IIFL Wealth.

In his first meeting with Jain, held at India Infoline’s office in Mumbai’s Goregaon in September 2007, and which lasted more than an hour and a half, Yatin knew instinctively that India Infoline could be a partner to the idea they had been nurturing. Naturally given to optimism, he says he was fascinated and impressed with Jain’s self-scripted success story: What he had achieved coming from a middle-class background, much like his.

‘He was giving us a similar opportunity to do that in wealth,’ he says. Karan, however, never having heard about India Infoline wasn’t convinced. ‘My first reaction was a “no”, to be honest,’ he says.

The company might have done extremely well as a financial services firm but because more than 60 per cent of their business at the time came from broking; their DNA was in retail, he felt. It was a very different mindset from servicing the wealth segment they had in mind. Some people he spoke to questioned whether IIFL — a lesser known brand then — could win the trust that lies at the heart of wealth management.

Karan remained keen to start up independently. Raising 25 crore ($3.7 million) of capital to get the business going wouldn’t be a challenge for them — it could have easily come from within their network of clients.

Yatin kept up the conversation with Jain, meeting him soon after their first discussion. Convinced that this would work out, he coaxed Karan, telling him that they were on to a “100-crore idea”; that joining hands with India Infoline would enable them to mount their offering on a bigger scale, right from the starting line.

Shah’s “100-crore idea” pitch has become IIFL Wealth’s oft-repeated origin story.

The decision eventually boiled down to the fact that they knew the opportunity would not wait forever. Waiting for the regulatory approvals required to start-up a completely new entity, creating a proprietary technology platform and getting the balance sheet in place was a time-consuming affair.

With India Infoline, the founders say, they could do in five years what it would take them ten years to do alone. With an equity research and sales team, and an NBFC, India Infoline offered advantages that were difficult to immediately create from the ground up. Without these arms, a wealth firm’s value to their clients would be limited[38]. It would eventually limit their growth. It was important to be able to create an institution that was bigger than three people.

Besides, financial investors had nothing to offer other than capital, Karan began to realise, from examples of wealth management firms started by professional private bankers much like them. Raising funds alone was not going to be enough.

Neither was this sufficient to build a full-fledged platform, nor did it include any incremental benefits such as research, broking and access to capital to offer clients credit. By already diluting majority equity early on, the room to raise more funding would be compromised; yet, without capital, the size of the business would remain “boutique-ish”.

Poised on the horns of a dilemma, Jain’s quick thinking, fast decision-making and a no-holds-barred risk-taking attitude began to appeal to Karan as well. He first met him in October 2007, and in their third discussion, a couple of weeks later, Bharat Parajia also joined in.

The young professionals laid out their ambitions frankly. They might become an offshoot of a larger entity if they came on board but the philosophy and mechanics of their partnership should be constructed on a simple foundation — that they wanted to be entrepreneurs of the new business, not its managers. They wanted both: An opportunity to create wealth for themselves and the satisfaction of being recognised for what they would build.

Jain could relate to the frank speak, having started India Infoline when he was twenty eight years old, as he could to the aspirational, middle-class backgrounds of both Karan and Yatin.

In fact, what they had in common was a tactical commercial sense, seeded in by the small-business environments they grew up in. None of them were plugged into any of the powerful old boys’ networks or had access to the kind of family money that opened doors.

It was a promising bet as the young duo had domain expertise, passion, entrepreneurial zeal and age on their side.

Jain got back to them within two days with a simple formula — 66 per cent stake owned by India Infoline, and the remaining 34 per cent with employees. Of this, 24 per cent was allotted as common stock and the remaining was kept for performance-driven options. He also promised them full management control.

That he had recently concluded the CLSA deal, displaying the willingness to share ownership to build something larger seemed to suggest that he was eager to follow a model of professional entrepreneurship.

With the deal verbally struck, Karan and Yatin called Amit in New York. His experience of managing international business and regulatory systems would be critical for setting up their offshore unit.

Without giving him too many details, they flew him to Mumbai, business class from New York. Once he agreed to be on board, however, they bought him an economy ticket for the return leg! His life changed the fastest, Karan tells me with a laugh.

They also invited five junior colleauges from Kotak to join the new venture — Jiten Surtani, Himadri Chatterjee, Sandeep Jethwani, Kuber Bhalla and Dhawal Kothari — all of whom, other than Dhawal, have stayed with the firm. Each of them had worked with either Yatin and Karan as sales ‘cubs’ or management recruits with a couple of years of experience.

Surtani was the first to get involved, as early as November 2007. He helped draft the MoU between Jain and what would be the new subsidiary. Today, he is one of the firm’s most prolific relationship managers, handling approximately 5,000 crores in assets.

They also recruited a new group of people to complete the early team. Japhia Walker, Pankaj Fitkariwala, Prashast Seth and Pravin Somani joined them from other companies.

The three founders made another crucial decision — to identify Karan as their CEO. His leadership was well established and it wasn’t a decision they dwelled on or debated, the Shahs tell me.

Nearly as promptly, they divvied up their equity ownership as well — Karan had 5.86 per cent, Yatin 3.95 per cent, and Amit 3.5 per cent. It was a pretty scientific way of settling equity and valuation, the trio laugh heartily at the memory. More seriously, it was driven by shared trust, they say.

This spontaneous decision-making offers an interesting insight into the world of entrepeneurship, and also into the nature of the team at the backbone of the enterprise.

In the kind of private equity transacations like the one IIFL Wealth went through with General Atlantic in 2015, valuations are carefully arrived at on the basis of market potential, past balance sheets and a whole set of other business metrics that feed a complex algorithm.

In hindsight, however, most companies are really forged on a heady combination: A leap of faith generously tossed in the excitement of an idea.

When issues such as equity stakes and partnership contracts are getting drawn up, families, friends and well-wishers often come armed with doubts and scepticism. Karan remembered friends who questioned whether the 76-24 per cent ownership structure with IIFL was really such a good model. Considering that the parent company owned such a large majority stake, were the IIFL Wealth founders’ wrong to believe they would have the freedom founders enjoy?

If you’re reporting to the board of a listed company from the very beginning, how much decision-making do you really have? The founders assert they weren’t anxious about being edged out of the decision-making, confident as they were of the domain expertise, client relationships and ideas for growth they each had.

In any case, success and failure are both two-way streets.

Seventy six per cent of a failed venture doesn’t amount to much anyway, 24 per cent of a successful business is definitely more valuable.

‘If it’s not going to be successful, how does it matter who owns it,’ says Amit. The reason why models such as the one they struck with Jain don’t work across the world is because of a lack of trust. If you can get that trust, which is very difficult to do, being incubated within a larger, parent company is a viable approach — especially when professionals become entrepreneurs.

It has clearly worked out for both parties.

IIFL Holding’s 22-crore ($3.2 million) investment in the wealth subsidiary has multiplied in value to 2,700 crore ($445 million) — more than 125 times in eight years. It has been similarly fruitful for the IIFL Wealth founding team and senior employees as they have been able to scale up a business without having to raise multiple rounds of funding — and, in turn, diluting their ownership.

Fortunately, for them, inspiration had been close at hand as they established the dynamics of a multiple-member founding team being seeded in by a larger parent company.

Back in 2003, as a still-relatively new sales manager at Kotak in Delhi, Karan had met Vineet Nayyar, the vice chairman of Tech Mahindra. At that time, Nayyar, a former IAS officer — who had also been managing director of HCL Corporation and vice chairman of HCL Technologies — was the CEO of HCL Perot Systems, which he had co-founded.

Nayyar became Karan’s client and is someone he has since looked up to as a role model. In 2007, along with his colleagues Sanjay Kalra and CP Gurnani (at the time, the company’s president and head of global operations), Nayyar joined Tech Mahindra in a somewhat similar professional entrepreneurship model with equity ownership for the founding team (each of whom had an almost-equal percentage) plus a pool of equity for employees.

It was similar to what the three entrepreneurs were trying to do with IIFL Wealth. ‘I was quite influenced with the way Nayyar had approached it, with the founders having an equal share irrespective of who the CEO was, and the way they managed to do this within a much larger company, Tech Mahindra,’ recalls Karan.

By early 2008, within two months of the first meeting Yatin had with Jain, the new venture took formal shape on paper; shareholder agreements were signed and IIFL Wealth Management Limited was legally instituted as a fully owned subsidiary of India Infoline.

Eye on the money

When three of them resigned from Kotak, as did the other six who would be joining them, the fallout wasn’t pleasant. Testy, tough conversations took place. There were disappointments and disillusionments, made worse by the fact that they were taking a few other employees along with them.

Also, rumours were rife — as they often are when a group of high-performing employees leave to start a competing venture in the same space — about clients who would follow them out.

In the first year, Yatin says they met each of their clients at least ten times to convince them. He and Karan did a lot of joint meetings — putting up a united front.

Most people were unsure about the success of their venture: A breakaway group, however large and successful, leaving an established player to join what was then a small brokerage firm, didn’t inspire much confidence.

As it turned out, only a handful of clients transferred their assets to IIFL Wealth when it started out. The few, who did, moved at best 5 to 10 per cent of their portfolio, to honour their relationship with the founding team.

They were hedging their bets on whether IIFL Wealth would be able to stabilise. Their wait-and-watch attitude had as much to do with the company, as it did with whether the founders could go beyond being ambitious and driven sales managers — a job that needed smartness, maturity and an entirely different set of skills.

However loyal some clients are, you “can’t poach your way” to assets under management of over 86,000 crore ($12 billion) in eight years, Yatin adds with pride, alluding to the charge he knows comes up against them.

A new firm, especially one without the benefit of a pedigree brand such as a Merrill Lynch (now Julius Baer India), Citibank or Kotak Mahindra — who were the most active wealth advisors in 2008 — could not hope to have a typical, wealthy south Mumbai family with existing advisor relationships give them money.

Even if they had managed to impress a traditionally wealthy family with a passionate, well-researched pitch, they knew that, at best, they would get 2 or 3 per cent of the family’s portfolio to start with. This was nowhere near a meaningful enough amount, in most cases, to build a full-fledged business on.

To grow, they realised that, they needed to look beyond their existing client relationships and bring newer clients into the fold, so to speak. Even more, they had to reach out to people who were beginning to earn wealth, to be there at a time when these new wealth creators began shopping for a wealth manager for the first time.

As it eventually turned out, it was a good time to hunt for new wealth builders. In several cases, this was the first time a lot of these individuals were coming into wealth. IIFL Wealth chased aggressively after this segment.

This strategy came with distinct advantages.

In many cases, the newly-affluent had never used advisors before or even if they had, their relationships were still largely transactional and ad-hoc, limited at best to executing a few mutual fund investments. Because they hadn’t yet built any deep relationships, a new firm could aspire to a fair fight especially if they were quickly at hand, a critical factor in the selection of a wealth manager, like in the case of TaxiForSure’s Aprameya.

Unless a wealth manager or advisor really messes up, people are hesitant to transfer the details of their financial portfolio to new or multiple advisors too often. With old wealth created before a company is even launched, there was a slim chance of a fair fight.

With India minting new millionaires at an unprecedented pace, the field was thrown wide open to those who could swoop in fast and fight hard. In the first four years (2008 to 2012), nearly 70 per cent of the assets they managed (they had 35,000 crore or $5.2 billion in assets by the end of 2013) was first-generation money.

With the competition still focusing on the old suspects — traditional business families — Yatin says they had a clear runway in the early years to convert the emergent rich.

Their acquisition and sales teams zoomed in on websites like VCCircle and DealCurry to eke out any transactions where promoters and entrepreneurs were likely to come into money.

‘We were like bees to honey. Sometimes, we would be at their offices even before the transaction deal was signed,’ Yatin recalls with delight.

In the middle of 2012, Anirudh Taparia, who used to head the North India business for Citi Select — the wealth division of Citibank India — was flummoxed by how his team’s ability to bring in new business had seemed to slow down in Delhi, where he was based.

Peers from other banks like HSBC and Standard Chartered were similarly complaining. Things didn’t add up because the economy was doing well. Where had the clients disappeared, he remembers wondering.

Around the same time, Taparia began to come across Karan, in pitch after pitch. The mystery started to solve itself. The clients he was losing were ending up with IIFLW. Taparia was impressed — not just with Karan’s quick thinking, sharp sales talk but with the firm’s detailed approach. The homework they did surprised him. He knew their thinking would appeal to the savvy entrepreneur who was keen to be on top of all the moving parts of his portfolio.

What they lacked in pedigree, the team believes, they made up in entrepreneurial zeal. In conversations that I had with over two dozen of their clients, the one thing that came up constantly as a vote of confidence for the IIFL Wealth team was their entrepreneurial spirit.

Their competitors are less impressed.

From the conversations I had with other wealth managers and private bankers outside of IIFL Wealth, its aggressive, brash selling came up often as a big negative. The no-holds-barred didn’t quite become the restraint and privacy that private banking called for was the gist of the criticism. It wasn’t unlike the cold calls that credit card sales companies are singled out for, said a senior banker from a nationalised bank that has recently upped its focus on the wealth segment.

In contrast, several first-generation entrepreneurs — the client segment they were chasing — say it was the kind of persistent “hustle” that resonated with the way they had built their own businesses.

Smart wealth management firms anywhere in the world try and build niche client segments, like IIFL Wealth did with first-generation entrepreneurs. In fact, a 2011 Bain & Company report says that developing tailored offerings by profession or source of wealth is a superb way to cement good customer relationships[39].

‘ Coutts, the London-headquartered private bank and wealth manager, for instance, offers services specifically for landowners (mainly farmers), executives and sports stars. At Coutts, teams that specialise in agriculture and know how that industry works advise landowner clients. Professional athletes receive investment help and advice from former sports pros or team managers who understand their needs,’ the report said.

IIFL Wealth was fortunate to mirror its client experience and journey of building high-potential companies; they were, in a sense, entrepreneurs serving entrepreneurs. It gave them a clearer, more incisive understanding of the entrepreneurial mindset, which came in very handy.

With clients who are inking an engagement with a wealth advisor for the first time, the conversion pitch isn’t about what you do better than others. It hinges on one simple fact: Can you convince them that you will do a better job at managing their money than they can themselves?

Today, it wouldn’t be wrong to say that they have become “stake-sale” specialists — entrepreneurs such as Network18 founder Raghav Bahl and Freecharge’s Kunal Shah, being perfect examples of the rewards of this focus. Both are IIFL Wealth clients.

Their tax planning and investment proposition, the founders say, for a business owner who experiences a sudden infusion of wealth has constantly been refined.

Having worked with several entrepreneurs in those situations, they have developed an understanding of the unique short-term and long-terms requirements in these cases. In the immediate, the newly minted rich didn’t know how to manage the tax obligations that arose from their new wealth. In the long-term, they had to think deeply about allocation, trusts and the objectives of managing the wealth — for example, did it need to be multiplied for future business use or merely protected to ensure a family’s future?

As the firm has grown, it’s been able to win large allocations from the more established business houses and industrialist families as well but, even today, the portion of multi-generational, inherited wealth is less than 30 per cent of its portfolio.

Chapter 16

Chessboard

Certainly, the IIFL Wealth founding team wasn’t prepared for the industry landscape to change so dramatically and rapidly. ‘When we resigned from Kotak on 3 January, 2008, the markets went to their highest-ever that day. After that, they just went downhill,’ Yatin says.

As it happened, the shifting sands of the global financial world gave the team an unexpected shot in the arm. ‘Looking back, instead of 2008, if we had started the company in 2005-06, we probably wouldn’t have been as successful as we are today,’ Amit adds.

For starters, it brought down the cost of getting the business up, at least in the United States. Talented manpower and great infrastructure were available at prices that would have been impossible even up to a few months before they started.

IIFL Wealth’s first office in Manhattan came at 30 per cent of its usual rental price. Also, the carnage in the global economy, Amit says, made them focus on investing in the best-in-class auditors, custodians and guarantors such as Standard Chartered and HDFC Bank. Stability and foolproof compliance became a greater necessity than ever before in a world where chaos ruled and cynicism dominated.

For IIFL Wealth, the newbie tag helped. Being a firm that didn’t carry the baggage of losses or bad memories of poor advice gone wrong became a distinct advantage. In fact, the founders reached out repeatedly to clients they had managed previously but who had suffered losses on their portfolio due to the erratic stock market through much of 2008.

‘We even apologized for the mistakes we may have made,’ the founders recall the difficult meetings through those years.

Several clients I spoke to said that this would happen often: Their relationship managers would do a vanishing act, avoiding them because they were worried about confronting their own failures.

It’s actually easier to build businesses during a slowdown because you can hunker down to work on the basics and get the processes up and running, explains General Atlantic’s Naik. ‘IIFL Wealth was lucky to get some large clients early on who became “referenceable” for them. When the markets picked up, they were able to motor ahead,’ he adds.

But, the initial year was still slow and arduous against these strong currents, the toughest of their eight-year journey so far.

It became important to get some clients on board in those first few months, while making sure their service standards were nothing short of impeccable.

While the focus on first-generation entrepreneurs and new money evolved by the end of the first year or so, their first group of clients came purely on the basis of personal relationships the founders had built in their previous organisations. Whether institutional or individual — and regardless of the quantum of funds they gave them to manage — clients who came within days of them starting out remain most significant to the journey, the founders said.

On the offshore side of things, assets were essentially collected from institutional investors abroad, to invest in India. A large emerging markets investments fund in the US that Amit had been trying to work with for over five years wrote them a cheque for a couple of million dollars right off the bat. ‘This was huge for us as we were starting out,’ he recalls.

Another early win was a Jewish-American diamond merchant who allocated a similar-sized amount of his family wealth. Today, IIFL Wealth’s offshore business, spread across eight centres (Dubai, Singapore, Hong Kong, Geneva, London, New York, Houston and Mauritius) has nearly $5 billion ( 33,455 crore) in assets under management but every bit of that business has its genesis in the difficult period between 2008-2010.

Introspection had set in by then as investors and clients lost money. They were forced to examine the risks they had taken — knowingly or unknowingly — in their hunt for abnormally high returns.

Seismic shifts and an industry in turmoil

In response to some of these setbacks, many countries introduced new sets of regulations to try and insulate their respective economies from the turmoil, and to minimise the damage to their financial systems.

These developments changed the complexion of the industry, making it more difficult for global players to sustain and grow in India. The cost and complexity of compliance, combined with the high price of setting up shop and playing the waiting game for markets to mature in India just didn’t add up to a winning formula for foreign private bankers.

In fact, the new era of wealth management in India would become vastly different from the model that was perfected by Swiss private banks, where the world’s money would move out of the countries in which it was created to the European nation, to escape taxation and be secretly housed.

As regulations in India changed, banks could not take overseas wealth created within the country; currency convertibility norms did not allow it. This made it tougher for foreign players to offer a gamut of their products to an Indian client. Wealth created in India had to be managed in India or onshore as per industry jargon.

‘The new wealth being created by a new group of entrepreneurs, which had to be invested and managed in India is what makes the wealth management industry in India unique right now,’ says Bharat Parajia.

Once that reality set in, and the options for taking money out to benefit from low-tax regimes outside of India became limited, it was clear that local providers would be able to offer more relevant advice.

Privacy concerns, where Swiss private banks held an enviable edge, became less of an issue for the first-generation Indian wealthy. Not only did regulations make it difficult to evade monitoring, much of the new-generation wealth was being created via deals and transactions that were reported, details of which are in the public domain. This, too, gave local players a fillip.

The Bain report[40] cited earlier also said that globally, many wealth management firms are built either for global scale or built for a single country. For the first kind, keeping up with local country trends was difficult and the local players found it difficult to expand outside their home markets. The one-size-fits all strategy made the global players uncompetitive locally.

Atul Singh, managing director and CEO of Julius Baer (India), and one of the country’s most experienced private bankers, says that in the post-2008 period, institutions such as his (he was heading DSP Merrill Lynch before Julius Baer acquired Merrill’s global private banking business in 2012), had to evolve even more stringent processes.

This obviously compromised their speed in offering solutions to clients, especially to the new cadre of wealthy where speed was key to getting their business.

‘If you weren’t able to offer them solutions just when they needed them, because your internal compliances took time, there was no way you could reach out to them six months later. By then, they had probably started working with another wealth manager,’ Singh tells me with a sigh.

In the aftermath of the 2008 crisis, this was true not only for India but for much of Asia too, Michael Stanhope, founder and CEO of Hubbis, tells me. ‘Business models were not just being refined, they were changing quite rapidly,’ he recalls.

Along with Citibank, Merrill Lynch and Kotak Wealth, the clear market leaders around that time, domestic entities like Anand Rathi Financial Services, Motilal Oswal, Client Associates and Edelweiss Broking were already active in the wealth management space.

In fact, as IIFL Wealth was starting out in early 2008, the Indian wealth management industry — although still quite small — was already splintered and fragmented.

From 2007 to 2009, India saw hectic activity in the wealth management space. Several new players entered the fray. Motilal Oswal Securities launched its PURPLE offering in October 2007 and Reliance Money dived in with its “cradle-to-grave” wealth management services in July 2008. Global players such as Barclays launched their private banking services in the country in the first half of 2008. A little later, in January 2009, Religare Enterprises and Australia-based Macquarie Group tied up to offer active wealth management, targeting HNIs in top Indian cities.

There was a clear market opportunity to offer wealth management services to the nation’s burgeoning millionaires in a growing economy. For domestic brokerage firms, the wealth vertical was fast becoming a possible frontier for growth as a volatile stock market made revenues from broking operations unstable.

Local edge, global ills

By 2012-2013, global players were finding it increasingly untenable: The cost of doing business and the complexities involved had made their operations unviable. What followed was a series of exits, retreats and resizing of business plans and strategies.

In May 2013, Morgan Stanley sold its Indian wealth management business to global major Standard Chartered. The very next month, Swiss bank UBS AG started to wind down its wealth management and commercial banking businesses in India. In September 2013, Macquarie Financial Services (Asia) decided to exit its wealth-management operations in India by selling its entire stake in the business to joint venture partner Religare Enterprises. The two firms had an equal joint venture, Religare Macquarie Wealth Management that had been formed in 2007.

The exits have kept up a steady pace since then.

In November 2015, HSBC announced it was shutting down its private banking unit in India. Earlier in 2015, the Royal Bank of Scotland sold its wealth management business to Sanctum Wealth, who was heading the business, in a rare management buyout. There were also firms that had procured licences to set up wealth management businesses in India — such as EFG International, a private bank and asset manager, headquartered in Zurich, Switzerland — but gave up their India plans even before getting started.

Out of the twenty eight wealth management firms that were active around 2010, ten have shut shop and resized, and all of them are global players.

Along with the above reasons, business in India posed two additional challenges for these players. First, big private banks used to differentiate themselves by their lending book or the fact that they could provide loans to their clients at a cheap rate. In India, given its high interest rates, lending wasn’t something firms could differentiate themselves on.

Second, adding to the limitations that regulations already posed on money going out of the country, few Indian HNIs were taking large amounts of their wealth outside the country. Globally, there are few markets that are as attractive investment destinations as India. Returns here have been higher than anywhere else in the last few years. Global banks are a compelling choice when the motivation is to access different markets. They make less sense when that isn’t an objective — or a need.

This was not specific to India. The churning that global private banks went through in India was similar to what they had been through in other markets as well, especially in Asia where the competition to manage the wealth of emerging entrepreneurs has been intense.

It’s a trend that continues, says Lonnie Howell, the co-founder and former CEO of EFG International, in an article in a handbook for Asian Wealth Management, produced by Hubbis[41]. More global private banks are likely to further streamline operations, he writes.

‘Global private banking, in its current form, is an outdated business model that only a handful of the largest or most specialised players are capable of or even interested in making it work. The largest global wealth firms like Credit Suisse and UBS, along with more specialised firms like Julius Baer, for example, have become the exception rather than the norm for their seemingly robust and sustainable strategies. This is more than just an identity crisis for this 300-year-old industry. Banks need to either refocus or get out of the industry,’ writes Howell, who is now a chairman of UCAP Asset Management, a Hong Kong-based independent asset manager.

Many global players have had to pull out of these markets or downsize their business substantially. For example, in October 2014, Singapore-headquartered DBS Bank, Southeast Asia’s biggest bank by assets, acquired the Asian private banking business of French bank Societe Generale in Singapore and Hong Kong, as well as select parts of its trust business.

In any case, Network18’s Raghav Bahl, says that he works on a simple philosophy when it came to domestic players versus global firms: All others things being equal, for him, Indian entrepreneurs usually brought more to the table than global players.

As a media owner who worked in joint ventures and content partnerships with a clutch of leading foreign media brands, including Forbes, History Channel and Viacom, he believes Indian wealth advisors were as good as their global counterparts.

Moreover, a shared cultural prism, helped in appreciating the unique personal predilections, constraints and special family situations that can come up. There is also the element of bhaichara, he says, which can be quite useful.

‘The way Indians work, we manage to bring in a little accommodation that a process-driven global player might not be able to. You do this because you have a long-standing relationship, or because you understand a specific personal situation. Somehow, we are able to offer this quite well without compromising on quality,’ Bahl told me.

As part of the trend, the new model for private banks has moved towards being decisively local to cater to a wealth that has been created and must be managed locally. Even with global players beating a retreat, it hasn’t been easy sailing for the local ones. One of the biggest challenges posed has been the need for flexibility and the ability to constantly adapt to the many changes. The regulatory environment for private banking has changed more rapidly in the past five years, than in the thirty years before that, bankers across firms and cities say.

Adapting to surprises the regulators threw at them required agility and nimbleness. A young, local player could respond more decisively and promptly. Firms headquartered outside of India would need to constantly check back with regional and global headquarters in Geneva, Hong Kong or London as they set up new processes, compliance mechanisms and fresh strategies.

Where IIFL Wealth stood out was their ability to back up the agility with strong execution. ‘They beat the local firms on execution and global firms like mine on agility and risk-taking,’ the head of a foreign private bank admits frankly, although he refused to be quoted.

Having been through the grind of so much change in such a condensed period of time, Karan says, has made them somewhat immune to changes in the external environment or the regulatory framework — even those that affect them adversely.

In FY2014-2015, their revenue from mutual funds was 286 crore[42]. According to AMFI, the nodal association for mutual fund companies in India, IIFL Wealth was fourth in the country as per income from mutual fund for FY2015. HDFC was the largest mutual fund distributor for the period by earning an income of 329 crore. Axis Bank ( 304 crore), NJ IndiaInvest ( 303 crore), IIFL Wealth ( 286 crore) and Kotak Mahindra Bank ( 255 crore) made up the top five industry spots.

In March 2015, AMFI had issued a circular to all fund houses urging them to put a cap of 1 per cent on the upfront commissions to distributors. The industry body further said that fund houses should not pay in advance the trail commission of future years; also trail commissions of future years was capped at the level of trail commission that a fund house pays in the first year. This would impact the revenue of distributors like IIFL Wealth[43]. At the end of 2015, SEBI wrote to all mutual fund houses to ask if they were abiding by AMFI’s guidelines. By all indicators, regulators seem intent on changing the way mutual fund houses reward their distributors.

With the new rule, IIFL Wealth’s revenue from their mutual fund sales — had the rule existed in 2014-15 — would have dropped to 144 crore ($21.6 million), a big hit on the firm’s balance sheet. After this was announced, there was much unrest in the distribution industry. Firms talked about coming together to see if they could fight or challenge the provisions.

IIFL Wealth decided it would be unwise to spend time fretting over something they had no control over. Instead, the focus was diverted to thinking new ideas and products that would fuel its growth, and make up for the hit the balance sheet would take.

‘We recover very fast,’ says Karan. ‘We slept on it on Friday and by Monday; we were on to something new. There is always something else to do as long as your overall market is expanding, which it is.’

The rapidly changing landscape of the industry might have been a conducive playground but the quantum of their success has certainly become a talking point, says a mutual fund manager. Its success is unique because non-bank firms face significant competition from banks, he adds.

Whether it is wealth that comes in as part of a large transaction or the wealth of professionals that is gradually amassed, the first destination for any money is a bank account.

Banks track inflows every day. Every time an IIFL Wealth client invests through the firm, they have to do so by withdrawing money from their bank accounts. A bank would definitely try to prevent that from happening.

‘The competition is fierce and to be able to fight banks to get a disproportionate amount of the wealth is outstanding,’ says a senior banking industry stalwart, adding that he has urged his private banking executives to look at how IIFL Wealth is doing what it does.

There are reasons aplenty why the global players have not been able to scale up. But what lies behind the inability of the many domestic wealth management firms that started out around the time of IIFLW, or even earlier, to grow the way they have? If the larger, global players had ceded way, why didn’t others convert these advantages to build a business as successful?

Domestic banks do not occupy a lion’s share in the wealth management space because according to GA’s Sandeep Naik, the reality is, banks know that the premium of their business comes from the retail arm, not their private wealth book. He gives the example of HDFC. ‘It’s one of the biggest banks in India but it’s tiny in the wealth management space,’ Naik points out.

The non-bank domestic wealth managers largely fall into two categories: Brokerages that also offer wealth management services such as Edelweiss, Religare and Motilal Oswal, or strong local city firms such as Client Associates and Wealth Advisors.

The first category of companies was very similar to IIFL Wealth, part of brokerages that brought the advantages of an NBFC and equities research to their wealth management offerings. They could also be nimble and agile, much like IIFL Wealth was, helmed as many of them were by first-generation entrepreneurs.

Yet, their growth has possibly been stymied by a lack of focus on wealth management alone, Yatin reckons. People missed out on the fact that there was a huge market in focusing on wealth management alone.

From fluke wins to grudging respect

So, at more than $12 billion ( 86,00 crore) in assets under management now, IIFL Wealth’s current market share in the organised wealth management space was by no means a likely eventuality at a time when so many new ventures were also pitching in their tents.

There are no established league tables in India’s wealth management industry. Wealth management companies, in fact, differ even on the definition of assets under management (AUM). Some include promoter assets, credit given to clients and inactive assets that they don’t really manage. Since the AUM is a self-declared figure, and one that each company tabulates on its own, it is difficult to be certain how the companies stack up.

Over the years, there is high concentration at the top and most private bankers agree on a rough pecking order although exact numbers are difficult to come by: IIFL Wealth and Kotak Wealth Management make up the top with more than 80,000 crore ($11.9 billion) in AUM each, followed by Julius Baer (India) at about 25,000 crore ($3.7 billion) reportedly. The third level is made up of Anand Rathi, Edelweiss, RBS, ASK, Client Associates, all of which have approximately 10,000 crore– 20,000 crore ($1.4-2.9 billion) in AUM.

IIFL Wealth’s current success was little more than a slim outside chance as they were starting out. Of all the other players that started out around the same time, few would have placed their bets on a young, breakaway team becoming the market leader. There was enough business for niche firms to survive on, as there has been for Independent Financial Advisors. At best, the market had pegged IIFL Wealth as yet another player.

The company’s early success was dismissed by the larger wealth management industry. Akin to talk about the e-commerce bubble, the more established firms believed that IIFL Wealth’s too-good-to-be-true tale was inherently poised for self-destruction or a certain fizzling out.

Yet, as their client base grew and references became easier to get, negative perceptions proved to be less of a problem, says the IIFL Wealth team.

Ironically, during those years, the company also began to get noticed and win awards, most notably those given out by the magazine Euromoney that has an annual ranking for private banking and wealth management firms.

The voting is based on a wide range of categories such as innovation in technology, research and asset allocation, equity portfolio management, commodities investment and relationship management, but what makes the awards special is industry peers voting for each other.

Each company — from about hundred wealth management firms and asset managers for India — gets only three votes each. In the last three years, IIFL Wealth has won the Best Private Banking Services Overall category for India twice, in 2014 and 2016.

Private bankers say that more than other awards; the Euromoney ranking is possibly the most competitive because there is no way for companies to influence the decision.

We have always been the “bad boys” of the industry, people don’t love us for a million reasons but it’s good that when they sit in front of a computer, they are willing to vote for us, Karan says with pride.

‘We’ve actually moved from the seventh rank five years back to consistently being towards the top. They might be judging us in public but it does demonstrate grudging respect,’ he adds.

Whatever be the height of their success, their approach has worked for others as well. Within the financial services industry in India, and for non-bank groups, the benefits of zeroing in on a niche area and having complementary verticals to strengthen that specialty seems to have emerged as the model for success.

For example, Edelweiss, has emerged as a strong credit-driven financial services group with nearly 55 per cent of its 23,000-crore balance sheet coming from credit (as of December 2014). The company also offers asset management, commodities and insurances services.

Avendus Capital, founded by Ranu Vohra, Gaurav Deepak and Kaushal Agarwal in 1999, is another good example of a financial services firm that picked a niche to build a high-quality business. Avendus is well-recognised as one of the country’s best investment banks, with strong expertise in first-generation Indian businesses, especially in the internet commerce and technology segments.

Interestingly, it’s worked on deals like the Freecharge-Snapdeal acquisition and Ola Cabs’s purchase of TaxiForSure, incidents that led to the founders of these companies becoming IIFL Wealth clients. With IIFL Wealth, Avendus shares another striking similarity. It too has trumped its global peers in the investment banking space in India, emerging as one of the top three players in the league tables with several high-profile deals in its kitty.

Chapter 17

A blueprint for growth

Loud, rhythmic beats resounded from inside a cavernous hall. The jingle of hand-held tambourines and the deep bass of percussion tubes rose and waned in a high-energy composition. The music was part of a therapy workshop at IIFL Wealth’s seventh annual offsite, in Goa, in April 2015.

The upbeat tunes matched the company presentations that followed later in the day. They had recently breached 75,000 crore ($11.2 billion) in assets, and the “opportunity of a decade” awaited them, said Karan in his address to the 350 people packed into the large conference area.

The enthusiastic self-congratulations was echoed in the confident theme for the year’s retreat — Bond Hain Hum (We are Bonds), to mark seven years.

Yet, as people spilled out from the session into a leafy courtyard, Karan seemed almost flummoxed by just how many people there were. In the three months up to the offsite alone, they had hired more than eighty people, taking the headcount to nearly 400.

Till the year before, at these offsites, Karan told me he knew everyone by face, at least, even if putting names to the faces was becoming a challenge. ‘Now, I don’t recognise four in ten people — I wouldn’t know they worked in our company if they sat next to me on a flight.’ A year later, in April 2016, that number had gone up to over 500 people across twenty two offices in eight countries.

Those looking in at IIFL Wealth from the outside share Karan’s disbelief.

There are enough companies that, despite being in the right place at the right time, have blown the chances because they have been unable to create processes, systems and a company DNA that they can thrive on. But beyond the favourable convergence of external forces that IIFLW was fortunate enough to tap into, how did it capitalise on the opportunities?

When I posed this question to the company’s leadership, regardless of how many different ways in which I tried to frame it, it was difficult to avoid hearing the three Ps — product, platform, people — that they consider to be at the core of their growth.

Right down the line, from the founding team to their regional heads and senior private bankers, the three Ps were repeated to me in nearly every conversation I had with them across the year I spent interviewing them for the book. Getting the three to work in tandem is the winning combination in wealth management, they insist.

Simply explained, the ‘platform’ is the combination of having an NBFC (with its ability to lend to clients), equities and research, technology and a brokerage/execution desk.

The ‘product’ refers to the suite of investment vehicles and ideas that the firm offers to its clients and, quite obviously, ‘people’ refers to the quality and calibre of talent within the firm. The three combined have helped build the framework. ‘You get the right people to build the right platform that in turn will build good products,’ the team avers.

The inability of other players, such as some of the domestic firms mentioned earlier, to match its growth lies in the balance between the three Ps going wrong.

Few of their competitors, they claim, have been able to figure this out. Some might have great people but don’t have a platform that can consistently build the right products for their clients. Others, possibly brokerage houses, have the platform but don’t have the brand strength or the inclination to get the right people on board.

If you look at most companies, one of the three will be missing, says Taparia. ‘In my previous organisations, we had great people but we didn’t have the right platform and thus couldn’t create the right products,’ he says. ‘Getting people is somewhat easier, especially if you’re a marquee brand with money to spend,’ he adds, ‘but refining the platform was the trickiest bit.’

It’s what had impressed him about the company when he ran into them as a competitor pitching to the same clients in Delhi during 2010-2012. It also made him call Karan to see if they could explore working together when he decided to move out of Citi. The company was not yet the success story it is today, and his family and friends thought he was being foolish in joining a small firm run by ‘unknowns’ when he had offers to move out of the country with much bigger, global brands.

When Taparia did move to IIFL Wealth in February 2012, he brought in several team members from his previous employer to the company as well. The Delhi team has had a very successful run. Now, they have 11,600 crore in assets under management, up more than five times from when Taparia joined. But, it wasn’t so much the relationships they had brought with them from Citibank that was the reason for growth, it was the new platform they could use to acquire new clients, not merely poach new ones that worked like a charm.

‘The funny part about private banking is that clients whom you expect will definitely move with you may not do so while others can surprise you. Several of my clients took a couple of years to move with me and we manage more assets from new clients than old — the ones that the platform, not just the relationship, helped us acquire,’ he says.

Finding the right fit

Wealth managers are distributors of products such as mutual funds, government bonds and debt instruments, manufactured by asset managers.

In most cases, distributors earn commissions from the manufacturers of the mutual funds (companies such as HDFC AMC, Reliance AMC, State Bank of India, IDBI, Franklin India) on the products they sell. In the case of wealth advisors such as IIFL Wealth, they ask their clients to put money in to these products.

Clients can be ill advised by a distributor or wealth advisor when either or both of these things happen: Distributors aggressively sell poorly-manufactured products because those particular products give them higher commissions; or when the distributor and the manufacturer of the product is the same.

Also, when short-term interests rule, a relationship manager of a wealth firm wants to maximise commission, and sells an ill-suited product to a client. Indian investors didn’t suffer as much from the chaos of the global markets, as they did from their advisors peddling mutual fund products for easy, upfront commissions.

Mutual funds had become a product-pushing game. The objective simply was to make a killing. Things began to change only after June 2009 when the Securities and Exchange Board of India (SEBI) came out with a circular that abolished ‘entry loads’ or charges upto 2.25 per cent that an investor had to pay upfront at the time of investment. Till then, distributors would “churn” the products in their client’s portfolio, earning commissions every time they invested in a new product. Subsequent regulations, as mentioned earlier, have tried to negate the greed further.

A client’s interest and corpus would often be lost in this opportunistic hunger for commissions. This eventually became a self-limiting game; clients began to understand that their returns from an investment were often inversely proportional to their advisors’ commission. Also, few clients were getting consolidated advice on their portfolio as each distributor/advisor they worked with only handled the investment that was routed through him or her.

IIFL Wealth decided to address that tendency by introducing a fixed-fee advisory model on which it would charge a percentage of the client assets it managed as fee: Considered a best practice model for financial advisory-related businesses, it was rare in India then.

Things have changed rapidly since then for the entire industry. Recent regulation, including SEBI urging large distributors to become advisors, is a push to the fee-based model.

This advisory approach — where wealth managers get paid for their advice to clients and not compensated in commission by the manufacturers of products — might soon become the new norm for India’s wealth management industry. But when IIFL Wealth was trying to introduce it, it was a departure from how business was mostly done. Success was not easy.

During 2008-2010, IIFL Wealth launched an offering called Marquee Clients for ultra HNIs who invested over $25 million ( 167.2 crore) through them. Under this, it would advise clients on their entire portfolio, including the assets they might have with other asset managers, and charge an advisory fee instead of distribution fees.

This, they hoped, would chip away at the insidious conflict that is at the heart of the advisor-client dynamic — pushing the client to buy financial products that shored up the firms’ revenues but might not be suitable for the client.

That model has undergone several tweaks over the years with more than 50 per cent of IIFL Wealth clients currently on the fee advisory model today. Yet, that mindset became an important peg to construct its offering on.

Its core USP, and the backbone of its pitch to clients, was aimed at establishing a research-backed, long-term investment strategy for them. ‘Clients would be surprised that we didn’t talk about products in the first meeting: We were the ones saying, “let’s build a process first, establish a system and figure out a reporting mechanism,”’ Yatin recalls.

The company introduced documents, including what it internally calls the Investment Policy Statement or IPS, what were essentially a manifesto of the understanding between a client and the firm. It captured details such as the distribution of asset classes and type of investment instruments in a client’s portfolio. For example, what percentage of the overall assets would be invested in debt instruments and how much in equity? What was the client’s overall objective?

The IPS also detailed the rate of returns the client expected, the model of fees that was agreed upon (fixed, income-based fee or distribution-driven); the frequency with which they would meet; who would be the participants of a meeting; and the managing partner who was to be their skip-level point of contact in case they wished to go beyond their relationship manager. The IPS was first used as a pitching tool when IIFL Wealth bid to manage Piramal Enterprises’ account in 2010 and eventually evolved into the main document for clients.

Clients’ portfolios were continuously aligned to this manifesto: To check whether the investments they had made or the break-up they had agreed upon (how much to invest in debt and equity, for example) were being constantly maintained. While the IPS itself has gone through several tweaks, its reworking is still an important event. It indicates a big change — either a shift in the client’s objectives with relation to the set of investments, or the overall philosophy of wealth guiding him or her.

The way the wealth management industry has changed over the past few years, in response to various regulations, an IPS-style document is being used by most large wealth management outfits today. In those days, however, it was rare, the founders insist.

The product rolodex

In May 2008, right after starting out, IIFL Wealth launched an ambitious investment product they called the Nifty Enhancer. The CNX Nifty is a well-diversified 50-stock index accounting for twenty two sectors of the economy. It is used for a variety of purposes such as benchmarking fund, portfolios, index-based derivatives and index funds.

Nifty Enhancer had a simple proposition: It provided investors with the dual benefits of capital protection and the upside of participating in equities. IIFL Wealth marketed it aggressively to their early clients and managed to collect a corpus of 183 crore ($27.4 million). It was the largest single-day issuance of Nifty-linked capital-protected debentures India’s capital markets had ever seen, IIFL Wealth claims.

At a time when the market was becoming defensive and investors wanted to stay away from equities — worried about the dips and troughs of the stock market and the fallout of the global crisis — they went with trying to restore the faith of their clients in equities and more importantly, in India. Most of the market was doing the opposite, the trio remembers.

When it came to equities, the strategy team at IIFL Wealth was given a simple mandate: Buy the company’s stock only if they would be comfortable running or owning the business in the long term, and not just speculating on it.

It was a tough strategy to follow, especially in 2008, when the BSE Sensex (the Bombay Stock Exchange index) went through several days of massive intra-day crashes. In fact, of the ten highest ever Sensex crashes in India, eight occurred in 2008[44].

Problems loomed large a couple of months into the launch of the Nifty Enhancer. It was the company’s first structured note and its first big outing to demonstrate what it had promised clients: Research-backed, carefully thought-out, innovative products that gave robust returns. Karan knew they couldn’t afford to have dissatisfied clients especially since they had hard-sold the Nifty Enhancer.

It required an urgent rescue operation. First, they tweaked the product. Then, Karan personally went back to each of the hundred plus clients who had put money in the structured note to ask them to move to the new model. Doing this wasn’t fun, or easy.

He had to point out the flaws in a product they had so enthusiastically sold only months before, and convince clients of the merits of their new thinking to fix it. This did little to boost confidence of an already skittish clientele, worried about putting their faith in the young company.

When the markets rebounded and the product eventually reached its maturity in June 2011, the revamped Nifty Enhancer proved to be an immensely profitable investment. Clients were euphoric as they ended up making at least 50 per cent more than they would have with the earlier structure. ‘It was some save,’ laughs Sharmistha Chakraborty, a relationship manager who had sold the product to several of her clients.

The secret sauce

Umang Papneja, the company’s president & chief investment officer, joined IIFL Wealth in 2009, after equity research and private banking experience at Motilal Oswal, HDFC Bank and Societe Generale, and has been responsible for the firm’s strategy on all its investment products.

Right off the bat, IIFL Wealth set up a bond desk, a real estate desk and worked closely with the parent company’s institutional equities team: A move that gave it deep insights into all key asset classes in its clients’ portfolios.

The research skills that the company had built gave it the confidence to move beyond what the big asset managers were manufacturing. In fact, the special products it co-created or manufactured with funds such as HDFC Mutual Fund, Reliance Asset Management and ICICI have been some of their most successful ideas — bringing in new clients and delivering robust returns.

This close-architecture (of products that are only available to its clients) model, competitors say, is a slippery slope fraught with the same kind of dilemmas that big banks have faced in being both manufacturers and distributors of products. There is a danger in your advice becoming distorted when you sell what you build.

Papneja sees it differently. ‘All manufacturers have their own view and if we agree with all of them, it means we have no view of our own. For example, how can you be invested in different fund philosophies — one heavily into large cap, the other into small cap? What’s your view then? Either, we say, we are very bullish on large caps, and go the distance on them, or whole hog on them, or we don’t,’ he says.

IIFL Wealth currently has over 220 people in sales that serve as the point of contact for clients, although its managing partners and the founding team are all “sales guys” at heart, and routinely meet every client. In wealth management firms, the relationship manager becomes the company’s brand: Any company is only as good as the advice given to a client by its weakest relationship manager. Relationship managers select from an array of products and investment ideas when pitching to clients. IIFL Wealth has tried to centralise that function. It was important to do this as they scaled up so they could control the advice being given to a client. It’s impossible to control what 200-plus people are saying otherwise.

They focused instead on curating the products offered to clients and training their sales teams and relationship managers. The focus was on creating twenty good products a year — making sure they were well constructed — and making sure that these found their way into every client’s portfolio. For example, their maiden alternative investment vehicle, the Alternative Investment Fund or the IIFL Income Opportunities Fund raised over 600 crore ($90 million) in early 2013 and was extremely successful.

Initially, some relationship managers resisted ideas like these, and continued selecting and advising clients from a wider array of products that they thought were best suited. But once they saw the benefits of bringing clients onboard with an innovative product, they came around.

Out-of-the-box thinking has not always worked, Papneja adds, citing the example of an inflation-index bond that they had launched in 2014. The product was designed to take advantage of the growing inflation at that time. Almost immediately, inflation began to drop. It’s done so in all of 2015 and 2016. Right now, the product may be looking “stupid,” Papneja admits, but with its tenure of nine years, they will have to wait and watch for a final analysis.

More recently, in July 2015, they launched another alternative investment fund — this time, to help clients invest in start-ups. Market sentiment influenced this product.

During 2014 and 2015, venture and growth capital investments in India were on an upward spiral as both start-up valuations and the number of deals shot up. In 2014, PE and venture capital deals worth $15.2 billion ( 1,0,165 crore) were closed, an increase of 28 per cent. This is the highest within the last five years, and close to the 2007 peak of $17.1 billion ( 1,14,364 crore). Equity and growth-stage deals accounted for 80 per cent of all deals in 2014, with highest investments seen in customer technology, real estate and banking, financial services and insurance[45].

Such was the start-up frenzy in 2014 and 2015 that even those who might have earlier been dismissive began to think they were missing out on the action. It wouldn’t be wrong to say that 2014-15 was when the start-up ecosystem began to go mainstream, with valuations of some rivaling older, established brands.

In May 2015, Flipkart, after raising $550 million from existing investors, was reported to be valued at $15 billion, higher than the individual market capitalisation of over 99 per cent of the 5,500 companies listed on the BSE[46]. These included majors such as Tata Motors, Mahindra and Mahindra and Indian Oil Corporation.

The 2013-2015 period also saw robust exits in the start-up space. The number of reported exits rose by 14 per cent with the value of exited investments estimated at $5.3 billon[47]. For example, a $1-million investment in 2007 in RedBus, the bus ticketing platform, returned over twenty times that amount when the start-up was acquired by Naspers, the South African media conglomerate, at an equity value of $140 million. Similarly, an initial investment of 54 crore in 2006 in Justdial returned twelve times more when the company went public on the Bombay Stock Exchange with a valuation of 3,700 crore in June 2013.

Healthy returns from transactions like these inspired confidence in start-ups as a must-have asset class, especially for the first-generation wealthy. Since much of their wealth has come from an exponential growth in equity, they understand the value of private equity investments.

It also matches their ambition for high returns as well as their appetite for risk that traditional asset classes might be unable to give. Investing in start-ups fulfilled another objective many first-generation wealthy seemed to have set out for themselves: A chance to mentor and support young entrepreneurs and bright ideas.

As things stand though, only 15 per cent of HNI investor portfolios are allocated to alternative investments, found a study. Within that, PE investments counted for less than 1-2 per cent of most portfolios, most made through funds.

IIFL Wealth’s Seed Ventures Fund has been built to do this — increase the opportunities for its clients to add private equity as a strategic long-term asset in their allocations. Evaluating and selecting from the many seed funds, private equity funds or making direct investments into companies is difficult.

As IIFL Seed Ventures Fund has been set up as a “fund of fund” structure, it allows investors to put in money across the different funds that have been chosen.

In creating the Seed Ventures Fund, IIFLW has an immense advantage — the counsel of its clients. In fact, its advisory board is made up of Anupam Mittal (founder of Shaadi.com), Aprameya Radhakrishna (co-founder of TaxiForSure), Ashutosh Taparia (joint managing director, Famy Care), Atul K Nishar (founder, Hexaware), Dileep Nath (attorney-turned-entrepreneur), Sandeep Tandon (co-founder, Freecharge) and Anil Ahuja (CIO, IPEplus and Asia Star Funds).

It’s a formidable list.

Their personal experiences of building businesses, working with marquee investors and having access to a network of founders and promoters gives the IIFL Wealth team deep insights on how to do this right.

Some of the buoyancy around start-ups has abated in the past six to nine months, as several high-profile ventures have been called out for their choppy operations, skewed balance sheets and poorly calibrated expansion plans. Many start-ups in segments such as food technology, for example, have seen closures, retractions and de-growth. The IIFL team is not worried about this tempering of sentiments. In fact, they say, the froth settling down will help in making judicious investment decisions. As the book goes to print, the IIFL Seed Ventures Fund is still to make an investment.

Where they have invested smartly is in the team they have built.

People power

Keeping the long-term in mind and embedding it as a culture, especially in a relationship-oriented business such as wealth management, had to come from having the right people on board.

Successful relationship managers are the central point of contact for clients, for executing transactions, providing convenience and being accessible. Above all that, their role in the business goes further: They need to intimately understand their customers’ financial situations and become advisors, not just executors.

In wealth management, in most firms, as in IIFL Wealth, the relationship manager who acquires the client usually serves as their relationship manager as well. This requires the same person to both chase new business and have an equal measure of self-restraint when pitching to the client and setting expectations.

IIFL Wealth has laid out for itself an attitudinal combination for a perfect hire that was tough to match: A hunger for growth combined with the patience for the long haul.

Employee ownership — by way of equity — has been crucial in getting this mix right. It takes care of locking in senior employees for a longer-term, prompting greater patience.

As a consequence, employees with actual ownership of the business have given IIFL Wealth a competitive edge that others in the wealth space can’t offer. It’s a pretty good example of how running a business like it’s yours, under a larger umbrella, and knowing that there is a huge growth potential, a senior banker says.

As a consequence, employees with actual ownership of the business have given IIFL Wealth a competitive edge that others in the wealth space can’t offer. It’s a pretty good example of how to run a business like it’s yours, under a larger umbrella, and knowing that there is a huge growth potential, a senior banker says.

The rewards of the model were there for all to see after the General Atlantic transaction in October 2015 where eighty nine employees had ownership stakes that translated into approximately 1,500 crore came into significant personal wealth.

The company’s equity has since become a more legitimate currency. In the early days, it was really just cruising on a hope, wing and a prayer. Now, people coming in know it’s a place where they can settle in and work hard to create wealth for themselves, the founders say.

It has significantly bolstered IIFL Wealth’s ability to hire. Over the past year, they have brought on board large teams of senior private bankers from Barclays and Standard Chartered. This is helping shore up their reach in cities such as Bengaluru, for example, where they have only recently begun to see the kind of traction they had hoped for.

This stability has also made them stand out from the global wealth firms in India, many of which had seen a steady rate of attrition, including transfers within the organisation. That relationship managers were constantly churned in wealth management units of banks was a criticism that came up often during my interviews with clients.

Clients aren’t happy with having to constantly build new relationships with managers. Even when the transfer of the portfolio proves effective, it’s difficult for a new relationship manager to hit the ground running.

Typically, several verticals of a bank are dependent for business on the same customer. As oft-accepted, sales and relationship managers are moved within these departments, possibly to make sure that one individual doesn’t “own” the client, and that the client always belongs to the bank, not the person servicing them on its behalf.

Sometimes, the relationship managers are the problem, believes Apar Group’s chairman Dr Desai. Several have their eyes on next postings to London, New York and Hong Kong, and that it was never good to feel that his business was a stopgap, short-term objective to that eventual goal, he told me.

A steady pace of attrition was also to blame. It made clients perceive their relationships with their advisors to be temporary and transactional.

Since the firm began, the founders claim, they have lost less than 5 per cent of their senior employees. Attrition at the firm for the top fifty people has been “nearly zero”. The only notable exit has been that of Kaushik Deva, a managing partner, who had joined the firm in 2012 from BNP Paribas but left in early 2015. The large team that he had brought in though from BNP is intact at IIFL Wealth, a testimony to the growth opportunities employees perceive they have at the firm.

Stability across the middle and senior management has enabled a sustained client engagement; as has the fact that some early clients are still managed by the sales relationship managers who brought them into the firm six or seven years ago. Institutional memory and ability have both benefited.

Pravin Bhalerao, IIFLW’s Pune-based managing partner, feels that the tenure of relationships has several advantages. They might be a young company but the three founders and four managing partners, including him, each had more than fifteen years of experience in the field. That makes for several ‘client-decades’ in experience.

Client relationships yield profits for the firm only after a few years. For clients to see the same faces, continually and consistently, Bhalerao believes, helps establish credibility — even more so, when the industry has gone through so many changes. The tenure of the relationship usually indicates consistency of delivery, he says.

It also means that getting the right people on board, and having them stay with the firm, is critical for success.

The relentless hunt for talent

Vinay Ahuja joined as a managing partner at IIFL Wealth in early 2014 after several years as a senior private banker heading Morgan Stanley’s business in south India, mainly Chennai and Bengaluru.

Over the past eight years, if there is one region that has stumped the IIFL Wealth, it has been the south. Their growth there has come only in the last two years. Much of this had to do with the inability to build a good team in these geographies. Largely driven by independent financial advisors, finding a good team in these cities was proving to be a tough battle. It’s why Karan had been chasing Ahuja to join the company since mid-2008.

Over the nearly five and a half years before he eventually joined, Ahuja and Karan met countless times for lunch in Chennai, where Ahuja lives. Despite Karan’s insistent hard sell, Ahuja seriously began even considering the offer only in mid-2012 after the company’s name started cropping up in conversations with his clients in Bengaluru. Those who had worked with the new company had good things to say about them and Ahuja said it was becoming difficult “not to be impressed” by what IIFLW had managed to do in such a short time and so convincingly.

Till then, he had been sure they had caught a strong gust of beginners’ luck but would eventually buckle under. By 2013, five years after IIFL Wealth had started, the “fluke-win” theory no longer seemed to add up, Ahuja says.

Ahuja wasn’t the only one who proved difficult to convince when it came to hiring. In the first few years of operation, the founders said it took them nearly twenty to thirty man-hours each to convince nearly everyone who joined.

Often, convincing them wasn’t enough. Private banking is a small industry in India, with very few experienced people carrying a book of existing client relationships. Competition for good relationship managers was intense, especially since there were so many wealth management ventures starting up around the same time. Even after offer letters had been accepted, making sure people joined would prove to be a struggle because every resignation kick-started a competitive hiring frenzy.

This isn’t unusual for most new ventures. Without the comfort and arsenal of a big brand name or a certified growth trajectory, attracting talent to a new company is often an uphill task. Yatin remembers how it often felt like they were being interviewed and grilled by the people they wanted to hire. They were forced to bring their best client pitching skills to employee acquisitions!

The biggest perk on offer, the founders say, especially to middle management and senior employees, were stock options and an opportunity to create wealth. Few others could offer this. Large banks obviously couldn’t go down that path and few of the domestic companies had adopted the shared ownership model.

Still, in the first few years, given the uncertainty and flux in the industry, the IIFL Wealth team admits to being quite kanjoos (stingy) about spending the 22-crore ($3.3 million) capital that the parent company had put in for its 76 per cent stake.

They couldn’t afford to continually entice large groups of senior private bankers to join — they were just too expensive. Instead, they decided to hire bright, young management graduates from good business schools with a sharp nose for business sense and an entrepreneurial spirit.

Hiring young people gave the company an added advantage of tapping into a generation of professionals — mostly in their mid 20s — who hadn’t seen a recession or slowdown. Their memories weren’t scarred by downturns and they didn’t play on the back foot.

With senior people, it was critical to get the fit right. Karan made a habit of meeting prospective employees countless times.

For example, Papneja, who worked in, Societe Generale at the time, met Karan nearly ten times from January to September 2009, talking for hours about his ideas on investment vehicles and products. Armed with a repertoire of doubts and questions, Papneja spotted the entrepreneurial opportunity, within the first few meetings. Yet, during these marathon sessions, Papneja said Karan never ‘popped the question’ till around June, when he was leaving off for the US on a holiday — and had more or less given up on IIFL Wealth. He eventually joined IIFL Wealth in September 2009. ‘Karan wouldn’t agree’, Papneja laughs, ‘but I would have joined sooner if he had made up his mind faster.’

In hindsight, the entrepreneurial yardstick developed into a filter of sorts. There was so much chaos in the first couple of years, what with their business model being tweaked from a fee-based to an advisory-based one, to a combination of distribution commissions and fees, that it was only those who enjoyed working in that frantic and fluid atmosphere were likely to join. Most people who came on board in the early years also had to hit the ground running because any hiring needed to keep plugging gaps as they emerged.

From 2013 onwards, hiring became easier, as the company’s reputation got built. In fact, the General Atlantic transaction’s biggest benefit — besides a cash inflow to bolster the ability to lend to clients at better rates — has been the ease in hiring.

Within a few weeks of the transaction, the ability to convince other people of the value of the company had gone up ten fold, Karan tells me. A big reason people joined IIFL Wealth was that the company created wealth for its employees. While offering stock options to new hires, the question of the company’s valuation would always come up. ‘Everybody would make their own calculations; some believed the company was worth 2,500 crore ($375 million), while others put the figure at 3,000 crore ($450 million),’ he says.

With the GA validation, equity has become a more legitimate currency to trade on and has given them the ability to better structure compensation for new hires. Within months of the transaction, IIFLW was able to hire a large team of nearly ten private bankers for the south, especially Bengaluru. The company still only nets 8 per cent of its revenue from there, as opposed to its largest competitor, who Karan reckons, possibly net 20 per cent of its revenue from the city.

Yet, even with an added advantage for bringing talent on board, the founders say, people remain the greatest inherent risk of a business such as theirs. Losing people for any reason, be it due to compensation expectations, morale or integrity is more likely to upset its growth than even regulatory changes or macro events.

As the organisation has grown, no longer does the senior management control all relationships. The relationship managers helm the company’s most valuable asset: Client relationships. A disruption in that could prove difficult to manage.

With growth, the human resource challenges have changed as well. No longer is acquisition for talent their primary concern. With over 220 people in sales, they are already the largest wealth management firm in the country.

Big shifts have taken place in the last year or so. In a largely sales-driven enterprise, the hierarchy has been flat. The four managing partners — Vinay Ahuja, Pravin Bhalerao, Anirudha Taparia and Himanshu Bhagat — and the two co-founders report to Karan, the CEO. All other relationship managers and senior private bankers reported to these six. Some of their most successful private bankers manage 5,000 crore ($750 million) in assets each. To structure their progression within the company is a challenge. How does one do that without creating too many hierarchies? The group of senior private bankers they have added pose a similar challenge.

The increase in the number of managing partners also demanded a delicate balancing act. The founding team, especially Yatin and Amit, had to get used to the expansion of the management team where everybody had an equal vote. In turn, more recent additions to the senior team had to learn to appreciate the equity structure the founders had devised, as well as the emotional bond that the early employees continue to enjoy with the founders.

In a fast-growing company — especially one where people are the centre of the business — calibrating these personal dynamics is critical. In the case of IIFLW, the fine balancing act had to stem from the top. Multiple co-founding teams have the unenviable task of constantly aligning and adjusting management styles to the tempo of the business.

Management literature is teeming with case studies of founder dynamics wreaking havoc on high-potential businesses. How founders work together can make-or-break a venture. Karan, Yatin and Amit realise that: When asked how they have managed to do this, they say it evolved organically. They might make light of the challenges — at least, to someone on the outside — but how they have managed to make it work offers an interesting look of how entrepreneurs must grow to become business builders.

Founders Code

The division of labour within the co-founding team works somewhat like this: As the CEO, Karan heads the company’s strategic direction. He’s logical, analytical, conservative in his risk appetite and driven by data: His ability for rapid calculations and quick computations has impressed both clients and employees. It explains his love for poker: A game most enthusiasts enjoy for its scope of statistical probability and varied permutations.

He is the architect behind the company’s platform, the one who best understands how different verticals interact with each other, much like how a coder will know a programme he has built. His conservative, calculated risk-taking has defined the company’s DNA as well. Not even forty years old as this book goes to print, Karan somehow seems much older. His natural style is that of a workhorse, not a show horse: He’s dressed unremarkably and isn’t easily given to hyperbolic terms such as mission and vision that, over years of covering entrepreneurs, has become par for the course for business journalists.

There is little of the bluster and bravado of being a successful entrepreneur, somebody who has built a company with a valuation of more than 5,000 crore. He seems almost stoic, when having to talk about the company — especially when it’s not a client.

When he sells to a client, his team members say he’s “school-master-ish”, doing calculations, drawing out models and lowering his tone and pitch of voice to prompt answers from the clients, much like how a teacher would do with their students.

Over the four years that I have tracked the company, it’s undergone big changes. In early 2012, when I first met them, it was still a spunky challenger that others in the industry believed would “blow up” soon enough, although they managed assets upwards of 20,000 crore ($3 billion) by then. In 2016, the company is comfortably entrenched as one of the largest wealth management firms in the country; even their harshest critics acknowledge that their steady rise is noteworthy.

Nothing in Karan’s temperament or attitude seems to have fed off this trajectory though. He seems almost dismissive of media attention, isn’t interested in crafting an image and doesn’t seem to enjoy being at industry forums or entrepreneurship events unless these are places where potential clients might be present. At a time when the celebration around start-ups and successful businesses has reached an almost feverish, shrill pitch, he seems immune to that glamour.

Yatin comes closest to the image one might have of an affluent private banker working and socialising with the city’s most successful and wealthiest people. Fashionably attired, flamboyant and ambitious, he’s the firm’s enthusiasm benchmark, easily given to excitement while talking about either the company’s achievements or its potential for growth.

In a sense, Karan and Yatin are studies in contrast. While the former brings an academic subtlety to his pitches, Yatin is an aggressive sales person, leaving no one in doubt about his intention of getting new business or converting a client.

If Karan’s core competence lies in being able to construct the model and have a macro, top-level view of things, Yatin gets those ideas translated on ground. He operationalises ideas and plans and is often given to micromanaging the execution — although that has had to change as the company has scaled up. He also seems to understand and enjoy the intricacies of how brands are built and perceptions are moulded.

While all three of their calendars are deliberately and consistently skewed towards client meetings over internal brainstorming sessions, media interviews and external industry events, Yatin is more likely to make time for and devote energies to the brand-building aspects of the business.

Of the three, he is also the quintessential stock market guy; Sharmistha Chakraborty calls him the “biggest bull” she’s ever met. He can make gut-driven decisions, was comfortable taking big bets and had the stomach to digest the anxieties that bold moves require. His interest in the stock market (he has built for himself a personal investment portfolio that colleagues said was “huge”) has given him a great ability to take risks; a trait Karan confesses he could imbibe a little bit more of.

As all entrepreneurs and business builders are often wont to do, the IIFL Wealth, founders live and breathe their business — each of them says their social, personal and professional lives have converged into one with their friendships and social ties also coming from within their circle of employees and clients — but Yatin brings a passion to the business that both his co-founders and colleagues said was special.

Colleagues said that of all the founders, he had undergone the most change, working on deepening his domain expertise, product knowledge as well as picking up leadership traits that weren’t natural to him. A colleague, part of the seven-member team that came in from Kotak right at the beginning, said Yatin had learnt to both delegate more and in complete contrast to his time at Kotak, where he was given to a quick temper and impatience with colleagues, he was today the person most unlikely to lose his cool.

His role has also changed most frequently over the past eight years. From leading sales for the entire firm in the early years to now leading quality processes, delivery efficiency and management information systems (from a very external role to a more internal operations role), Yatin has been called in to take up different responsibilities. In a sales-focused organisation, where the glory for growth goes to the sales people, these roles demand greater motivation.

It’s required him to evolve comfortably with change as well as the ability to shed some of the emotional resonance of being a founder. In fact, both Yatin and Amit have had to accept others as peers in a growing organisation. For founders, to get used to being one of the many voices within a leadership structure is a sharp, treacherous learning curve. Their personal growth had to keep pace with the growth of their business. Being able to do so is another recipe for success.

Because he is based in Singapore, looking after the company’s offshore business, Amit has the most independent role in the company. Having worked abroad for most of his career, he scores over his co-founders in terms of his meticulous attention and adherence to processes. He’s the only person from amongst the three, who, you can be sure, will invariably keep his meeting commitments, for example.

Amit’s approach to the business is different because he largely works with institutional clients across the developed markets of London, New York and Singapore. More often than not, professionals manage this money. There is little need to cater to the always-on style of functioning that the new rich in India demand from their advisors. Amit pushes the India team to adopt these professional best practices, constantly urging them to refine internal systems.

As their window to the world, Amit’s insights are also critical for the company’s understanding of how the global markets are evolving. It’s a unique inside out perspective for a senior team member to bring, especially valuable because the India operations — and the leadership team here — is so immersed in the day-to-day and client-to-client interaction that the bigger picture is sometimes easy to miss.

He also offers an important counterpoint when it comes to risk. More conservative than his co-founders, Amit, says a senior colleague who has worked closely with all three of them, will thrash out the upsides more judiciously. If a calculated risk, for example, had a 10 per cent chance of an upside but that upside could possibly lead to ten times more returns, the probability of Karan and Yatin going in for the odds was much higher than Amit. He would be more comfortable with a 50-per cent chance of win that promised four-times the return instead. In that sense, his contrarian point of view enriched the internal decision making process and boded well for corporate governance.

In a business where brand reputation is key, and one that has been fuelled by entrepreneurial can-do, having a custodian who constantly factors in a conservative point of view, isn’t just a much-needed advantage: it is possibly the difference between boom and bust.

Chapter 18

Client Sutra

More than anything else, IIFL Wealth’s impressive client acquisition ability stands out. In a business substantially influenced by relationships and customer referrals, acquiring and managing clients is a part-science, part-art formula, and one that has been at the core of the firm’s growth story. The contemporary Indian consumer is a demanding one, driven by a value-for-money mindset, influenced by quality yet deeply motivated by cost. By virtue of what they do, wealth advisors and private bankers work within a universe of Indian consumers who not only share these attributes but, more often than not — owing to their business success and professional stature — are even more discerning.

Key client relationships have served as milestones for IIFL Wealth. They also offer valuable insights into the philosophies they have worked with to successfully acquire and retain their clients, the mistakes they have made and the lessons they have learnt along the way.

Many of IIFL Wealth clients are well-regarded entrepreneurs and business owners in their own right, and their relationship with the wealth management firm has, in many cases, been forged from special circumstances coinciding with milestones from their own journeys. Some of those episodes find their way into this chapter, offering a fascinating behind-the-scenes look at how businesses are built, and the partnerships and collaborations successful promoters stitch together to run their enterprises. Often, it illustrates the power of social capital in the inter-connected world of business.

Going the extra mile

Anirban Banerjee is IIFL Wealth’s chief people officer. With an MBA in HR from the Xavier Labour Relations Institute (XLRI), Jamshedpur, Banerjee joined IIFL Wealth in June 2008, one of the first twenty employees to do so.

Twenty-six years old then, Banerjee was moving from ITC, the fast moving consumer goods (FMCG) giant, where he was in the human resource function. At the time, he told me frankly, he had very little understanding of financial services at large, and even less of private banking, but was curious about the idea of building something from the ground. He was convinced to do so by Jiten Surtani and Himadri Chatterjee, senior IIFL Wealth employees now, who were friends of his from University of Delhi.

Karan added a push by meeting Banerjee more than half a dozen times for conversations that would go on for hours, and which took place mostly at 1:00 a.m. at night in a coffee shop in Mumbai’s Grand Central after the end of a workday. ‘My family wondered why the meetings took place then and whether I was considering joining a BPO,’ Banerjee laughs.

Karan’s reasons for hiring the young human resource professional was that he wanted somebody from the FMCG industry to head their human resource practice — somebody who was willing to understand the business deeply and was excited about taking bold risks to grow a venture.

Change was the biggest job perk on offer, Banerjee told me. Although initially unsure, Banerjee decided to join because he says he realised that even if his decision proved to be a misstep, at that stage of his career, it wasn’t going to be a mistake he couldn’t recover from.

The promised change was visible from his first day at work. Karan was out for meetings and told Banerjee to go meet an older gentleman sitting in a room in their office. That the gentleman’s name was Dileep was all the background information he provided the young recruit.

The gentleman, Banerjee later discovered, was Dileep Nath, co-founder of Kanbay International, a Chicago-based IT services firm, which, after it was founded in 1989, had been one of the early beneficiaries of the IT outsourcing boom.

In July 2004, Kanbay had listed on the NASDAQ, raising $93 million. In October 2006, European technology consulting firm Capgemini acquired Kanbay for $1.25 billion ( 8,360 crore), a much-tracked entrepreneurial success story of the time. Nath had exited the company in 2006 to settle down in San Francisco, after selling his stake in Kanbay.

Nath, who had been Karan’s client in Kotak Securities for a few years had encouraged the IIFLW founders’ entrepreneurial ambitions; a group of professionals starting out together mirrored his own experiences at Kanbay that he had co-founded along with Raymond Spencer and John Patterson after working with them on a non-profit community development organisation in Maharashtra.

Nath was IIFL Wealth’s largest client when they started out, deciding to move a small portion of his portfolio to the new firm to help them get started. For Banerjee, the very fact that a fresh recruit like him had been introduced to Nath /–\someone critical to the company’s future at that juncture /–\ made him sit up and take notice.

‘It was a sign that things were actually going to be different. I can’t imagine any other bank or consulting firm where this would’ve been possible — being left alone with your largest client,’ Banerjee told me.

In a foreign bank, a 26-year-old new recruit — even one on track to becoming a relationship manager — would perhaps have spent weeks at the job before being allowed face time with a client.

The anecdote illustrates the important role key client relationships have played in the company’s journey; beyond the assets they have brought to the book. Client relationships have often marked the beginning or end of different phases of the growth phase.

Take Nath, for example. He wasn’t just the firm’s largest client when they started out. Over the years, his portfolio has become a repository of learning, almost a test case where strategies and their implementation have been successfully replicated for other clients.

Nath, who used to run a law firm in Mumbai before co-founding Kanbay, was deeply immersed in managing his portfolio, especially after he decided to move it entirety to IIFLW, merely a year after starting out with a small chunk.

Sandeep Jethwani, the young relationship manager Karan got to back him up on that account, said restructuring Nath’s portfolio after he moved it to IIFL Wealth was as intensive as prepping for an academic presentation, much beyond creating just a regular reporting document for a client.

Nath pushed them to think deeply about his tax structure and his asset allocation to help them understand his objectives. He would respond to emails sent to him at 1:30 a.m., sometimes picking up the phone right away to get into a discussion — typical of the “always on” mode several first generation entrepreneurs work in.

A lot of work was also done around his succession planning — between his sons, Sanjay Nath (who runs early-stage investment firm Blume Ventures) and Sameer Nath, an investment banker based in Singapore. In 2010, Nath had relocated to Singapore, setting off a restructuring exercise that, Jethwani says, forced them to dive even deeper and figure out new taxation regimes and structures for.

Much as Nath has been critical to IIFL Wealth’s internal development, there are other relationships that have been crucial because they have helped shape external perceptions towards the firm.

The booster shot

When Ajay Piramal, chairman of the Piramal Group, sold the domestic formulations business of his flagship company, Piramal Healthcare, in May 2010, it made front-page headlines. The 17,300-crore ($3.7 billion) acquisition by drug major Abbott was the second-largest deal in the Indian pharmaceutical space till then.

In the middle of 2010, IIFL Wealth was still relatively small with an AUM of not more than 22,000 crore and a total head count of less than hundred. Every private banker and wealth manager in the country was bidding for the Piramal account.

It is believed that the Piramals met close to thirty nine private bankers. In the end, IIFL Wealth was enlisted as the lead advisor for the family office, with nearly a dozen other private banks making up a consortium. While the prestige of working on the account was huge, it would require the firm to invest a disproportionately large number of resources, time and effort to the account. This was tough since the fee on the portfolio was modest, thanks to the incredibly competitive environment in which it had been won.

There are some relationships where you don’t care about making money, the founders say. They decided to go ahead and do it because everybody in the industry — every asset manager and banker — was closely tracking the developments.

The Abbott-Piramal deal had an interesting staggered payment schedule with the Piramals getting 10,000 crore ($1.5 billion) immediately, and the rest in four equal tranches over four years. Post-tax, the corpus — even after the first payment installment — was a formidable nearly 6,000 crore ($900 million) approximately.

That a relatively new and small firm was given the mandate for one of the biggest acquisition deals by size did not go unnoticed by the industry. It was the point at which, the founders reckon, people started believing that IIFL Wealth wasn’t some fly-by-night operator or a group of enthusiastic upstarts.

Himadri Chatterjee, one of the six people who moved with the founding trio to IIFL Wealth from Kotak, and who worked closely on bidding for the Piramal deal, says they had to widen the size of the columns in their MIS technology platform to accommodate extra digits after corpus that came in! ‘At that point, we hadn’t crossed the twelve-digit, 100-crore mark,’ Chatterjee recalls.

Another similarly high-profile relationship that helped the company both attract attention and establish its legitimacy in the early days was the one Yatin Shah built with Mohan Goenka, director, Emami, the Kolkata-headquartered FMCG major.

In early 2008, just as IIFL Wealth was getting started, Yatin went to Aamby Valley, a weekend destination a few hours from Mumbai for a car rally, with Ashish Kacholia, considered one of India’s most successful stock market investors. Goenka was there too. During the weekend, Yatin and Goenka established an easy rapport, with the Kolkata-based businessman even attending his wedding in Mumbai a few months later. Despite the growing friendship, Goenka kept a professional distance from IIFL Wealth, leaving Yatin wondering why the personal rapport wasn’t converting into a business association.

From May to October 2008, Emami was involved in a takeover bid of Zandu Pharmaceutical Works — whose flagship brand is the Ayurvedic pain relief formulation Zandu — from the promoter Parikh family. On 3 October, Emami sought shareholder approval to invest 430 crore ($64.5 million) in buying Zandu shares — 18.81 per cent from the Parikh family, and another 20 per cent from the open offer it had floated. To complete this transaction, Emami had put together a plan to fund this through internal resources and external borrowings.

Yatin was quick to spot the opportunity. The promoters of Emami needed a short-term fund to finance a business expansion. Yatin pitched that IIFL Wealth, through its parent company’s NBFC, should extend that loan. It would demonstrate their ability to be big pinch hitters when called for.

It was enough to finally push Mohan Goenka into becoming a client. Soon after, Yatin met Goenka’s uncle, RS Agarwal. Today, a large part of the Emami promoters’ family portfolio is managed by IIFL Wealth.

Goenka says that he appreciated the grounded, down-to-earth working style of the IIFL Wealth team, as well as the fact that relationship managers across the organisation seemed to speak the same language. More importantly, Goenka said their engagement has deepened because, over the past seven years, Emami has taken a conscious call to consolidate its wealth portfolio from ten fund managers to essentially three or four. These include a global bank with expertise in private banking and two Kolkata-based long-term independent financial advisors.

In a business where reference is key, names like Goenka are truly what the old metaphor “worth their weight in gold” stands for.

The domino effect

‘Scale begets scale, especially in this business. The more references you have, the more business you’re likely to get. If I call up five of my friends and tell them my money is with these guys, they are likely to follow suit,’ says Sandeep Naik, managing director of General Atlantic’s India & Asia-Pacific business.

It’s a natural bias, he adds. It’s akin to how another key social association works: When one’s children go to a school, people want their friend’s children to attend the same school as well. People tend to market their lawyers, architects and wealth advisors in a similar fashion.

Naik recalls an incident from the weeks leading up to the GA transaction. He had called on a few of the firm’s clients to get their perspective. In the middle of one such interaction, the IIFL Wealth client he was speaking to received a call from a friend who too was considering signing on with the company. ‘I requested to listen in on the conversation, and this person pitched for them as if it was his own company,’ remembers Naik.

Most of IIFL Wealth’s clients I met said the firm had been incredibly canny and clever in connecting the dots, and in having friends and trustworthy business associates call them up to give references while mulling signing them on.

IIFL Wealth relationship managers say that the moment they finish a meeting that seems like it has gone well, they try and identify which of their clients could possibly know the person they are pitching to. These include alumni from the same educational institutions, neighbourhoods they live in, shared board directorships in the same companies and non-profits, common memberships of professional groups such as the Young Presidents’ Organization, Entrepreneurs Organization, or industry-specific committees, to name a few.

Of course, a company can afford to do this — encourage their clients to speak to one another — only when it has been able to deliver a strong performance. Weaving, and benefiting, from this social web isn’t possible if a firm had disgruntled, unhappy clients.

References can have a dramatically negative influence as well. It is like a game of dominos — every block extends and grows the pattern but even as it does so, it continually exposes the whole structure to the weakest link, and its potential to be a game-destroyer.

“I hope you are paying these guys well, they are so good.”

In the context of references, senior corporate executives have proved to be extremely worthy assets for the company — their professional networks, beyond their own companies and industries, are strong and varied. Their references often carry more weight than, for example, that of the promoter of a family business even if they have much larger asset portfolios, wealth managers say. Usually, successful corporate professionals are also more willing to speak about their wealth advisor relationships.

In many ways, the professional rich represent the biggest structural change for the wealth management industry. They are new entrants to the wealth game and the group is likely to sustain over the next several years because their attitude to wealth, and managing it, are fundamentally different from business families. They have simpler portfolios, usually demand lesser face-time, and usually track and monitor their investments better.

IIFL Wealth caught early on the advantages and business potential of the professional rich. They actively chased industry stalwarts and well-recognised senior corporate professionals to add to their dossier of client relationships.

Keki Dadiseth, former chairman, Hindustan Lever Limited, the Indian subsidiary of the FMCG giant Unilever, was somebody the IIFL Wealth founding team was determined to bring on as a client. On the board of more than thirty five organisations, including Britannia Industries, Siemens and The Indian Hotels Company, Dadiseth has enviable credibility in Mumbai’s business circles.

Nirmal Jain had worked in Hindustan Lever as a management trainee after his MBA from IIM-A. Jain, who knew Dadiseth from his years in HUL, introduced him to Yatin and Karan soon after IIFL Wealth started.

Dadiseth was fond of Jain and remembered him well as a young management trainee. The introduction, however, didn’t cut much ice. Convincing him was an uphill task. Used to working with marquee banks and firms, Dadiseth was unwilling to engage a brand with little vintage and one helmed by a young team he had not heard of.

IIFL Wealth kept up the chase, clearing ground slowly by meeting him once a month for over eighteen months to chip away at the hesitation. It took Dadiseth nearly ten meetings to even agree to share his portfolio with them. Determined to not let that slim window of opportunity go to waste, IIFLW did a thorough diagnostics on his portfolio, pointing out where he was losing money with his current advisors, comparing its returns to others of the same size and laying out better tax planning solutions.

The thorough homework surprised Dadiseth. Although impressed by their report on his portfolio, he told the IIFLW team that he would sign only an advisory agreement with them. This was limited to listening to their ideas and acting on them independently if he felt they were right. He would neither move his assets to their custody nor open his demat account with them.

‘That they agreed to give me advice irrespective of the amount of business I was giving them impressed me. That is a very, very powerful way of working with clients if you can convince them that you are really interested in what is good for them, not just what is good for you,’ said the 81-year-old, when I met him in his Malabar Hills office in Mumbai in April last year.

‘They surprised me. Their creativity is difficult for others to replicate,’ he adds.

Since then, Dadiseth has become one of the firm’s most cherished relationships, encouraging of their efforts and generous in his support to them. ‘After every meeting, when we would be leaving his office, Mr Dadiseth would call Nirmal and tell him. “I hope you’re paying these guys well, they are so good,”’ Yatin recalls with a chuckle.

He has also introduced the IIFL Wealth team to several senior professionals and industry leaders. With his towering credibility, an introduction or endorsement by him packs quite a punch, says Yatin.

As one of the country’s most senior bankers, Keki Mistry, vice chairman and CEO of HDFC, commands respect not only in the developer community but across financial services and other industries for being at the helm of a brand as formidable as HDFC, which he had joined as an assistant accounts manager in 1981.

When it came to Mistry, Bharat Parajia, who heads IIFL Holdings institutional sales team, introduced the senior banker to the IIFL Wealth team in May 2012. It was rare for Parajia to introduce clients to them. In fact, he cautioned them from pitching products or doing a hard-sell when they met Mistry.

Instead, they requested Mistry’s wife, who is actively involved in managing his portfolio, for his demat account and presented an in-depth analysis. Just as that approach had worked with Dadiseth, it worked with Mistry too. He gradually began executing his transactions with them. Fastidious, Mistry, who is also on the board of several companies beyond the HDFC Group such as IL&FS, The Great Eastern Shipping Company and Bombay Stock Exchange, pushed the IIFL Wealth team to improve on its reporting systems.

Getting Mistry on as a client, the IIFL Wealth team says, is a huge testimony to their efforts considering that someone like him can command access to absolutely the best in the industry.

Winning clients was only half the battle. For a young team, being able to sustain relationships through the ups and downs was going to prove trickier.

Chapter 19

Rules of engagement

The aggression and ability to keep bringing marquee names and clients on board has certainly caught the attention of their competition. While they concede that this is an impressive achievement, many wonder how IIFL Wealth has “really” managed.

In fact, the abiding criticism about them from a cross-section of the competitors I spoke with is that its robust acquisition of clients is driven by a low-margin game that cuts the industry. In some cases, competitors allege, to bring a new client on board, IIFLW actually waives off the client fee or “passes back” to clients the commissions it earns on the investment products it distributes, a hawkish move that makes it impossible for others to have a fair shot at winning business.

The founders dismiss these charges, saying that they understand wealth management is a long haul, multi-generational game. It is almost myopic, if not completely unrealistic, to think of only short-term profits from clients.

They add that their competitors’ charge wasn’t just unfair to them; it was an inadequate portrayal of investors, in general. It is unlikely that their clients, most of whom are commercially smart and successful people with access to a gamut of advisors would choose to stay with somebody solely on the basis of lower fees.

Going beyond the call of duty to cement relationships, Yatin says, is an important way of demonstrating their eagerness to do a good job. Smart sales people know that they can differentiate themselves and leave an impression on occasions when someone has a problem they need a solution to.

Retaining an existing client is more cost-efficient than gaining a new one in this business. The relationship managers at IIFL Wealth say that they keep their eyes and ears open for opportunities to show their clients — however well entrenched they might have become in the system — that they want to go beyond contractual obligations.

‘We look out for such occasions and have a very sharp eye for them,’ says Japhia Walker, who heads the firm’s client servicing vertical. She recalls an incident about a client whose octogenarian parents needed their passport documentation to be set in order and visa applications done to travel abroad. Her team took care of the entire process. The client was travelling overseas for an extended period of time and couldn’t have managed this alone. That IIFL Wealth pitched in with help when he needed it, and did so beyond the scope of their mutual contract, made an impression on him, Walker adds.

‘These moments help us stand out and show our client orientation,’ Walker explains.

Ten Commandments

There are other client delight mantras they believe strongly in. Karan, for one, swears by what he calls his Ten Commandments for Successful Client Pitches. Every batch of new recruits, especially relationship managers, is taken through this during its induction process.

His commandments are really a simple list of do’s and don’ts, including tricks and tips that have been most critical in his evolution to becoming a relationship manager with an impressive strike rate.

He says: ‘First, write down what you’re going to say and practice that in front of the mirror before meeting a client. In the first few years when I started out, I did that all the time. Second, brush up on your commercial math. Memorise tables up to thirty rigorously, essentially grade five math but practice this so well that you calculate faster than most clients.’

This isn’t easy when pitching to the sort of clients they have, many of whom are pretty good at commercial calculations and are used to going through large amounts of data daily. ‘So, if you can calculate 35X19 faster than them, they’re pretty impressed,’ Karan adds.

A lot more goes into acquiring clients than mere mental math though; it goes well beyond the products on offer and the platform created. A repertoire of softer skills, mainly the ability to instill trust and demonstrate a client-first orientation in every communication and follow-up action is critical, he says.

For comfort to develop, it is also useful to recognise that in an inherently people’s business, personality type, communication styles and other affiliations (such as alumni networks, social communities and professional associations) can play a crucial role in catalysing a client relationship. People want to broadly work with people who mirror who they are and the values they hold dear.

For example, a client in his 50s who is conservative both in his lifestyle and appetite for risk might not prefer working with a brash, aggressive 28-year-old outfitted in clothes that scream expensive designer later, even if they bring sophisticated domain expertise to the table.

In fact, this is not only true for junior or mid-level sales and relationship managers. Perceptions of risk appetite and communication styles can influence client preferences even at the level of managing partners.

External manifestations — the pitch itself and the frequency of communication — do lead people to guess how somebody would manage their money.

General Atlantic’s Naik tells me that in conversations during their due diligence process with people who did not eventually sign up with IIFL Wealth, a reason for worry was that the firm was as aggressive in managing its portfolio as it had been in its initial pitch. What one person might consider admirable perseverance, another could perceive as zealous aggression.

Why wine won’t take you far

Sandeep Jethwani, one of IIFL Wealth’s top relationship managers, who handles a team of twenty people and roughly 5,000 crore ($750 million) in assets, tells me that this kind of imaging can be very important.

People in their 60s and 70s, Jethwani adds, are usually not big lifestyle spenders themselves and often look down upon those who are, especially if they are first-generation entrepreneurs. ‘I would dress differently, or go for meetings in a different car in that case. Sometimes, I would ask told my driver to drop me outside the gate so I could walk in without having the client see my car.’

Younger clients are more laid back about these things. At best, they would come up with a good-natured jibe if they spot their wealth advisor with an indulgent purchase like a fancy car or an expensive watch. In some cases, these attitudes can become predictors of which way the relationship will go: Whether the first sales pitch would move to an eventual conversion. They also pre-determine any future work rapport between the client and the advisor.

Interestingly, in contrast to the perceived importance of region and language, personality type is probably a more important filter and influencer of the relationship dynamic than whether you’re a Gujarati or Kannadiga.

‘People used to believe that, let’s say, if you want to do well in Chennai, the team should be led by a Tamil-speaking person. Our Chennai office is headed by a Sindhi, the person heading my team in Ahmedabad is a Mangalorean, and in Goa, where people might believe work happens over beer and wine, we have a teetotaler leading all client engagements,’ Jethwani reveals to me.

Wealth management is, first and foremost, about listening to the client, even before you begin speaking. Bright students from top-notch management colleges, hunting grounds for new talent for the firm, are bred on academic competitiveness with a large chunk of the syllabus focused on how people should project and present themselves to audiences. Few people are trained, or interested, in the act of listening. Potential recruits need to be asked: Can you keep your ego in check, listen, absorb and answer only when certain?

Often, while hiring people, especially if they are new to wealth management and have come with a pedigreed educational background, familiarising them with the essence of what a good wealth manager must have — sound listening skills — is difficult. This could also be due to a big misconception about relationship businesses, especially in segments of financial services such as private banking. Enough people believe that these relationships are built on a heady, glamorous mix of dining and wining, a frenzy of socialising where deals are made over fancy meals and expensive alcohol.

Amit told me that when Kotak Mahindra sent him to New York in 2002 to expand their offshore business, several people believed a vegetarian and teetotaler like him had but a slim chance of making inroads into the social networks of wealthy Indian-origin entrepreneurs and professionals, or of those people who managed institutional wealth and endowment funds. ‘I don’t party late into the night and have never taken clients to places where I would not have gone myself. See, a good proposition will work even if the packaging is not great. You need over-the-top packaging when there is an issue with your product,’ Amit believes.

IIFL Wealth has a full calendar of events and conferences aimed at their clients: Marquee Indian and international speakers are invited to these. At their flagship client event in Mumbai last year, attended by over 1,500 of their clients, there was a cigar tasting station, a specialty-tea sampling kiosk, and an agenda featuring stylised dance performances and choreographed fashion shows. Yet, the leadership team says that such events are neither a tool to gauge nor foster client satisfaction. Portfolio performance drives 95 per cent of customer delight, Yatin says. Everything else is 5 per cent— great branding, exclusive gifts, big events and media attention.

The intrepid travellers

In the fifteen months that I researched and wrote this book, getting meeting slots with the IIFL Wealth team — across all levels — was a challenge so extreme that there were times I felt the book would be impossible to finish.

The company seems to be travelling on steroids. At its core, IIFL Wealth functions as a sales force on fire, an intense, customer-facing organisation where everybody seems to be in an endless stream of client meetings. After all, the relationship manager isn’t the only one with access to a client. From managing partners, to the head of equities research, the leader of the propositions or investments teams, and even their head for human resources and marketing, are touch points for clients.

The travelling has been aggravated by the fact that unlike in several other wealth firms, geographical jurisdictions haven’t existed here for most of the past eight years. While there is now a centralised acquisition and lead generation team — something that has come up in the last eighteen months. A relationship manager in Mumbai can try and pitch to a technology entrepreneur in Bengaluru; just as a Delhi relationship manager can chase to convert a client in Hyderabad.

While this does help keep territorial issues at bay and has infused the organisation with a competitive spirit, it annoys potential clients who are often unhappy about being pitched to by multiple people from the same company. A new enterprise software to monitor lead generation and sales calls, as well as instituting a do-not-disturb filter while a client is in touch with another sales manager have now been put in place. The company says that, in balance, their zeal has got them more clients than they have lost due to aggression.

Having so many people across levels being exposed to clients isn’t an easy call to take but it has been critical in establishing a speedy flow of information. The response times they offer their clients makes them stand out. Technology platforms such as Charles Schwab and Vanguard in the US might have shown that there is a huge market opportunity in moving the advisory function online but there is no substitute for face time when it comes to fostering deep engagements, especially with HNIs and UHNIs — and, more so in India where large number of the rich are new.

‘A key reason clients select us when they are looking for an advisor is the level of engagement we offer. Our turnaround time for the information a client seeks is very fast. We are also comfortable giving them access across the organisation — from our research team right up to the managing partners. This approach really breeds trust,’ Amit feels. In fact, their ratio of senior-management-time-to-client is possibly the highest in the industry, he adds.

When they started out in 2008, doing this was critical for survival. Showcasing their young, talented team was a way of inspiring confidence and getting clients to realise that the company had built managerial depth. Several of their active clients — and I spoke to more than two dozen — did say that all things remaining the same, the quality of the people they have on board is a clear differentiator, when compared with their peers in the industry.

Hits and misses

‘Sir, it is a very big client; sir, it is a very good client; sir, the meeting went very well,’ laughs Yatin when describing the post-client meeting feedback he often gets from his younger relationship managers.

In a company that prides itself on always being hungry and ready to hunt, the founders say that they have had to work hard to balance aggression with restraint: Understanding that being client-centric should not mean becoming servile. In their line of work, relationship can be a loaded word that can often lead both advisors and clients to assume obligations that are unnecessary and maybe even, damaging.

While it is important to establish a comfort level and build a rapport with the client, one of the biggest mistakes relationship managers can make while working with individual clients is to believe they “own” them — that the client will follow them, Karan says. Client relationships are tricky: They need maturity.

Risky behaviour by individuals doesn’t just destroy interpersonal relationships; in an industry where trust is key, mistakes can rapidly erode brand value and organisational reputation.

Karan admits to the founders having made enough mistakes as young relationship managers to be able to better anticipate the traps their teams can get caught in, including taking disproportionate risk on behalf of a client. There is usually no great reward to be had by taking great risks, they say. This might sound contrary to the founders’ personal entrepreneurial philosophy but being able to separate that from organisational culture was necessary.

More mistakes happen when things are going well, he warns. While risks escalate, rewards often remain the same. If things go well, clients will be happy with the extra returns on a bold move but it’s not like they will pay you more. But, the impact of a daring bet gone wrong can result in losing a client — something the founders say they try and drill into their sales teams. At the core of their proposition, they say, is that they are wealth preservers and managers — not the creators of riches.

Don’t promise the moon, keep things real

When Yatin began his innings as a wealth manager in Kotak in December 2002, the Gujarati community in Mumbai served as the catchment area. It was early days in the wealth management industry. He confesses that the advice doled out was often unsophisticated. The focus was on grabbing low-hanging fruits and distributing financial products was the way to do so. The Gujarati community he worked with emboldened this short-term approach. Gujaratis have traditionally been a largely trading community, comfortable with taking risks against their portfolios. Their ability to absorb anxieties amplified Yatin’s natural inclinations.

From 2003-2007, the Gujarati community became the bedrock of his success. The capital markets in India were doing well in that period. His roster of clients had the requisite liquidity and mindset to take advantage of the bull-run. His personal equity within the community was on the rise.

Little did he know it would soon be tested.

In April 2007, while Yatin was still with Kotak, the Bombay Stock Exchange was selling a 51 per cent stake to non-brokers, a third of which went to overseas investors. Kotak Mahindra was one of the investment bankers working on the BSE transaction. It was tasked with the responsibility of finding institutional investors as well as large families to invest 50 crore ($7.5 million) each, or higher. ‘It was a unique proposition for an individual or family to become a shareholder in a stock exchange, and India’s most successful, well-regarded exchange at that,’ Yatin recalls.

Yatin admits he pulled out all stops to convince his clients: Selling the idea as one they couldn’t afford to miss. He first tapped into Mumbai’s top ten diamond merchants, many of whom bought into the idea. He collected 200 crore ($30 million) from a clutch of investors and lined up several others eager to participate in the deal as well.

Clients were thrilled at being given a chance to participate, an excitement only heightened when a list of all the investors was made public after the transaction. Along with the names of marquee institutional investors such as the Bajaj Group and Reliance Group, names of Yatin’s clients — around four diamond merchants — were also listed. Yatin recalls that he and his colleagues did pat their own backs for having done so much for their clients. The self-congratulations would be short-lived.

During 2007 and 2008, the BSE went through a turbulent period, wracked by some of the largest single-day Sensex (BSE’s benchmark index) crashes.

When the markets crashed in the eighteen months following the BSE transaction, Yatin’s clients believed he hadn’t given them full information although the truth is, in April 2007, nobody in the industry could have foreseen the scale or the consequent fallout of the global financial crisis being as severe as it ultimately was.

Trust is the currency of business in the Gujarati trader community, Yatin says. When damaged, trust is not easily repaired. ‘Even today, they believe they were misled by me,’ Yatin tells me with a sigh.

The warmth of the personal relationship couldn’t thaw the ice that had set in the professional relationship.

It’s not as if his relationship has eroded: They might not do business together but he continues to be invited to their family events. A top diamond merchant who had bought a stake worth 75 crore ($11.2 million) in the BSE deal, had two suits made for Shah during a family wedding from a Belgian suits tailor who custom made suits for the entire family, as gifts.

Keep emotion out of the equation

In December 2012, a successful Mumbai-based generic drugs pharma company sold its business to a European drugmaker. Although the transaction amount wasn’t disclosed, the buzz on the street was that the company’s founder had come into a large infusion of personal wealth. Wealth advisors started to close in on this significant business opportunity. IIFL Wealth was keen to win the portfolio. It was just the kind of transaction they had by then developed a strong knack for.

Because the transaction happened in the last quarter of the financial year, IIFL Wealth pitched a proposal to the company’s founder. By that time, the money from the European major hadn’t come in. The founder liked the ideas but didn’t have the funds yet to invest in the products being suggested. Yatin was leading these conversations and suggested that IIFL Wealth would invest the money on the founder’s behalf — a loan that could be repaid as soon as the money came in.

On his part, the pharma entrepreneur gave his house as mortgage for the loan IIFL Wealth was extending to him, the value of which was less than ten times the value of the loan. It was a big leap of faith for Yatin and the company, but one they were confident would win them a lifelong relationship. Their potential client seemed to appreciate their team’s passion, calculated risk-taking and drive.

As it would turn out, IIFL Wealth’s worries, about the repayment of the loan, at least, were unfounded. As soon as the money came in, the founder returned the loan. By then, Yatin remembers, they were confident that he would work only with them even though others hadn’t given up the chase either. IIFL Wealth was prepared to match the best commercial terms in case another player emerged as a strong contender — if it came down to that.

But they were in for a surprise. The “client” called Yatin one evening to tell him that he had decided to work with another large wealth advisor, as well, since they seemed similarly driven in terms of getting the business, judging by the advice and research they had presented. Besides, their commercial offer was better.

Yatin remembers being shell-shocked at this; that they lost the business to their closest rival added insult to the injury. It seemed like a personal setback for him. Against the advice of colleagues, soon after the phone call, Yatin went to the client’s house to air his disappointment. It was an emotionally charged conversation. He believed IIFL Wealth had been treated unfairly.

No client is going to feel happy about being made to feel obliged to work with anybody. ‘I realised I had said too much, spooked him off,’ says Yatin.

It took IIFL Wealth six months to get the relationship back on track again. The incident taught the company, and Yatin personally, a very important lesson: That sales aggression can’t become an emotional, egotistic battle for validation. It’s a fine line that, when crossed, can become counterproductive, and a tough one to see, in an organisation that prides itself on its tireless pursuit of new business.

Chapter 20

An eye on the future

Success in the risky world of wealth management hinges on trust. The circle of trust gets built, client by client, but can be destroyed far more quickly. A few client relationships can mar the company’s reliability. Personal reputations can suffer swiftly as some of the episodes mentioned in the book indicate.

The IIFL Wealth team has been up for the challenge, building a company on a foundation strong enough to withstand tremors that have brought others down. Yet, success can be ephemeral. The trends may have worked in their favour so far but their world continues to be a volatile, ambiguous and complicated one.

For one, attitudes towards wealth might well change in their dominant client segment — the first-generation wealthy. It is an unpredictable, whimsical group, still getting used to creating and managing wealth. To assume that it has settled into a template would be a mistake the team at IIFL Wealth can’t afford to make. Clients’ expectations from their wealth advisors are always a work in progress as are the relationships they enter into.

The first-generation wealthy want high returns and push their wealth managers to show them exciting products that can deliver big on high expectations. IIFL Wealth’s biggest successes have come from their ability to craft exciting investment ideas for their clients. It has placed them on the top of the pile in the industry. Yet, the same flair for inventiveness can become a dangerous risk the moment something goes wrong.

MapmyIndia’s Rakesh Verma says that even while he trusts his wealth managers, he’s set up a firm rule for himself: If either of his two advisors come with a product they have crafted in-house, he gets it double-checked by the other. Network18’s Raghav Bahl echoes such caution. In a business like wealth management, even with the best intentions, any investment is, at the end, a market-driven product and can prove to be an unwise call.

There could be economic disturbances, global events that spook markets, or other external stimuli. At times like these, clients will question how a product their advisors pledged full faith in went wrong. The line between negligent or misleading can be very fine in a client’s mind. Trust is fragile.

In a November 2015 article[48], Bloomberg News noted the emergence of “robo advisory”. ‘The automated investment platforms industry has seen dramatic growth, from almost zero in 2012 to a projected $300 billion in assets under management at the end of next year. Robo-advisers could manage $2.2 trillion by 2020,’ the article says.

The metrics and avenues for performance might change completely as well. Technology hasn’t disrupted the wealth management space in India yet as clients largely use it to monitor their investments and portfolios. A technology-driven platform that can take over the advisory aspect hasn’t yet been a disruptive force. It might happen though. Global examples of companies such as Charles Schwab, FutureAdvisor and Personal Capital show that in the mass-affluent segment, “robo advisors” are beginning to play a more dominant role in substituting human advisory. Such a disruption in the wealth segment — led by a smartphone application, for example — could change the market environment substantially.

IIFL Wealth’s founders are young. They have shown themselves to be adaptable. But as the company grows, will they continue to be able to tweak and change? Can they sustain the momentum?

In a world where social media has necessitated transparency and the financial services industry continues to suffer from a mounting distrust, can they build a reliable, long-lasting institutional brand from a thriving business?

Hard knocks and the battle for trust

Already, conversions are becoming more difficult than they were two years ago, confesses IIFL Wealth’s Chakraborty. Clients are galloping ahead by years in their education of the financial advisory business. The increased competition, a more aware client base and fresh regulation governing the space has opened up several options for clients.

With new clients, the competition for the share of their portfolio is intense. In a situation different from even two or three years ago, IIFL Wealth’s share of a client’s portfolio is becoming smaller. What continues to be a great shot in the arm for the team is that they have consistently managed to make inroads and foster relationships with every large stake-sale transaction across India’s main business hubs. That gives them a foundation to build on.

The image crisis — of being greedy commission hunters — that wealth managers continue to suffer from, adds to the struggle of acquiring clients. Interestingly, much of the cynicism about wealth managers comes from those who haven’t used one. Several of the new wealthy, who do not use professional wealth advisors, are sceptical — or even mildly disdainful — on what wealth managers can do for them, if they ever need one at all. The industry has a fair distance to go to build respect and trust, especially when it comes to entrepreneurs.

Entrepreneurs, especially those who have substantial equity in their growing businesses and run it full-time, seem most dismissive of the services wealth managers may be able to provide them. They feel the potential to scale up their wealth through their own businesses is much higher and thus a wealth advisor’s bouquet of products and propositions are not of much relevance to them.

Stellar Group’s Sethi says that only if they ran out of opportunities for growth in their own company would they be “forced” to think about investing in other products. Moreover, the private bankers and wealth advisors he says he has met don’t inspire his confidence.

‘I tell the wealth managers I meet, or those who pitch to me, that I am already managed,’ Paytm’s Sharma says. ‘Everything I have is in my company. I can’t think in terms of asset allocation and diversification. I’m either all in, or out.’

Sharma adds unflinchingly that his respect for fund managers and investment managers is in the negative because they are not asset creators. ‘I think I am better off by investing in and working hard for my own company,’ says the entrepreneur.

There are others who see the entrepreneurial mindset as being in an uneasy conflict with the attitude and skill that managing money needs. Because business builders consider the process of creating wealth to be superior, it does leave them with condescension for wealth managers: Perceived by many to be a “rent-seeking business”.

‘Meeting with several wealth managers after the deal, I knew I didn’t want to work with them,’ says Freecharge’s Kunal Shah. IIFL Wealth does manage his personal portfolio though, largely at the behest of his business partner, Sandeep Tandon. ‘The language most wealth managers speak is so protectionist that it just doesn’t agree with how I think. For most advisors, wealth is a sugarcane factory. They are concerned about how to get more juice out of it. I am interested in creating more sugarcane factories, or actually, in planting new sugarcane fields.’

The question of ethics also continues to loom large over the financial services industry. The wealth management industry — or IIFL Wealth — isn’t insulated from such biases.

Mint’s Monika Halan says she continues to be cynical about ethics in the financial sector. If they could cheat, they would, she feels, because over decades of evolution, that is part of the industry’s DNA. Even in the high-net worth segment, where the danger of the information asymmetry that plagues the retail investment segment isn’t as dangerous, careful tracking and a healthy caution must be constantly maintained.

These may seem like harsh words but, interestingly, wealth managers across the spectrum agree that their industry deserves some of the condescension for the self-serving advice several players may have doled out. It’s a perception issue and one the IIFL Wealth team will have to continuously battle.

The problem of plenty

Things have changed rapidly for the company in the past year itself. First, the shutting down of foreign private banking outfits as well as the infusion of funds from General Atlantic has made it possible for them to hire a group of senior private bankers from Citibank, Barclays and Standard Chartered. This has led to a continued momentum towards growth. No other organised player in the wealth management space is 500-people strong, according to the company’s leadership.

However, the problems of growth can sometimes be as crippling as the fight for scaling up. A fast-growing company, especially one built around its people, has to make sure that new teams hit the ground running, are integrated quickly and imbibe the company culture.

Since relationships with clients are no longer managed only by founders or those who work closely with them, the learning-by-osmosis model has outlived its use. In its place, must come a well-designed and carefully executed training framework.

Himanshu Bhagat is a managing partner at IIFL Wealth, having joined the firm in late 2015 to take charge of the non-sales functions of the company. Focusing mainly on learning and development, technology and internal processes, he says, that training will determine their ability to stay the course. In its first eight years, the company hadn’t focused on it. Its rampant growth had imbued the organisation with enough energy to offset any damage from the lack of training. This can no longer be sustained, the founders confess.

Even as perceptions about the industry remain deeply entrenched, IIFL Wealth’s leadership team say they have as yet underinvested in building a “brand”, something they saw their former employer Kotak do extremely well after getting a retail licence. They recall how the bank’s leadership spent several months and took personal charge of this exercise in the run-up to the launch of retail banking in 2003.

In their case, the founders believe, all functions have been subordinate to acquiring, managing and retaining clients. These are big gaps they feel they need to address in the next phase of their growth. It could determine their ability to grow from being an aggressive and smart new kid on the block to becoming a stable, solid industry major.

Regulation and the need for agility

Author Kees Stoute, tells me the market in India wouldn’t improve till the focus shifts to having wealth advisors who are professional and skilled. A robust system of certification for financial planners and wealth advisors needs to be stringently introduced.

In the eighteen months alone that I worked on the book, the landscape of the wealth management business has changed. Regulation has evolved quite rapidly — the general direction being towards making the business more advisory-focused, less commission-led. The aim is to ensure that clients get objective advice that is devoid of the lures and temptations of the commissions doled out by creators to the sellers of products.

This has substantially impacted the revenue of companies such as IIFL Wealth. In January this year, Karan had warned me, that by the time my book gets published, his company’s proposition to clients would have completely changed. It’s driven today more by advisory and asset management fees as opposed to transaction and broking fees.

That adoption hasn’t completely taken off but it will need to. One senior wealth manager calls it a question of time. Essentially, SEBI is pushing mutual fund distributors to not have upfront commissions. They want the distributor to disclose the commission made to the client in a statement even if the mutual fund manufacturer hasn’t told investors.

Much like the confluence of the wealth effect and the ruptures in the global financial services industry created new vistas for growth, the current changes in the wealth management industry come from the combination of both the clients and regulators displaying greater maturity.

The changing nature of the industry has made the entry barriers to the business tougher. New players will need more capital to start off now, since they can’t rely on the quick revenue that comes from commissions. Asset management and advisory fees are usually structured on an annual basis. A company must be capitalised enough to offer client services and be able to wait it out for fees to come in.

Keeping pace with these forces will be critical for a big firm if it doesn’t want to lose clients. This convergence has provided a natural advantage for independent advisors and boutique firms because they can pivot to the new regulations without having to overhaul their technology and systems. It was the kind of nimbleness IIFL Wealth had been able to marshal in its first eight years but will find more challenging now as a larger firm. ‘It requires us to take strong, decisive calls,’ Karan says.

Could this be the next eight years of the company’s journey? Only time will tell but it does mark the end of an exciting phase, one that has coincided with dramatic forces shaping India.

Notes

[1]Author’s Note: Currency conversions throughout the book have been pegged to the exchange rate on June 7-8, 2016

[2]Anthony Shorrocks et al., Global Wealth Report 2015, Zurich: Credit Suisse AG, 2015.

[3]Sri Rajan and Prashant Sarin, India Private Equity Report 2010, New Delhi: Bain & Company, 2010.

[4]World Wealth Report 2015, Capgemini and RBC Wealth Management, 2015.

[5]Like this book’s definition of HNWI, the World Wealth Report 2015 also pegs HNWIs to those having investable assets of US$1 million or more, excluding primary residence, collectibles, consumables, and consumer durables

[6]Spotlight on the New Wealth Builders, The Economist Intelligence Unit and Citibank, 2014.

[7]2015 Top of the Pyramid India: Decoding the Ultra HNI, Kotak Wealth Management, 2015, http://wealthmanagement.kotak.com/topindia/index.html

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[9]Anthony Shorrocks et al.,Global Wealth Report 2015, Zurich: Credit Suisse AG, 2015.

[10]“World Economic Outlook: Adjusting to Lower Commodity Prices.” Washington: International Monetary Fund, 2015.

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[12]Monika Halan, “Money Mantras for my Diwali,” Live Mint, March 14, 2016, http://www.livemint.com/Money/5h9P0VfemlNeo3MjcBEtBM/Money-mantras-for-my-Diwali.html

[13]The Great Unskilled, Kotak Institutional Equities http://www.kotak.com/kotaklp/Kotak-TheGreatUnskilled/GameChanger.pdf
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[37]Author’s Note: To make it easy for my readers, I have decided to use the first names of IIFL Wealth’s founders from here on, mainly to avoid the confusion from Amit and Yatin’s shared last name. Also, having interviewed the three of them multiple times over fifteen months, I feel this is a liberty I can take to make the story read better.

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[46]Reeba Zachariah and Partha Sinha. 2015. “Startups Challenge Listed Cos’ Valuations; At $16 billion, Flipkart Beats IOC, Tata Motors.” ETRetail, September

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[48]Hugh Son, “A Money-Managing Robot Is About To Join BofA’s Thundering Herd,” Bloomberg, November 6, 2015, http://www.bloomberg.com/news/articles/2015-11-06/a-money-managing-robot-is-about-to-join-bofa-s-thundering-herd