‘Uninformed buying is as bad as wrong selling’

Ask Rajiv Bajaj, MD, Bajaj Capital, as to where the buck stops in mis-selling or, for that matter, mis-buying. His answer is categorical: The accountability is with the players themselves which need to take corrective measures. And it’s expected that with proposed regulations on financial distribution and advisory services, things can get only clearer from here.

In an interview with Aswathy Varughese and Megha Mandavia, he underlines the need to catch investors young and prepare a road map for their investment as “they can amass wealth and guide the economy, going ahead”.

How are you dealing with the challenges faced by the distributor community? Do you think the new regulations the Securities and Exchange Board of India (Sebi) is working on will make any difference?
We are going by the spirit of the regulation, which is quite healthy. We have interpreted the regulation that there will be a clear demarcation between distribution and advisory services. In the distribution system, there is a principal-agent relationship and basically, you are getting a commission from the principal and adding value to the consumer, simply by selecting the best possible schemes. So, we are helping them with product selection and basic need analysis. Essentially, the responsibility of choice and execution is on them. So, we support them with good execution and support. That has been the growth capital of Bajaj Capital over the past 50 years. We have a million clients and continue to help them out. In addition, we will start an advisory service where we do not charge commissions and work only on a fee-based model. We will not reserve this service only to high net worth individuals (HNIs) and will take it to the emerging wealth segment.

What is your target segment, going ahead?
We will find people who are going to become wealthy in future. We will catch them young and talk to them regarding the necessity of it because they are going to be the people who amass wealth and guide the growth of the economy. So, our focus will be on that segment, which is most time constrained. They do not have time but they have the intent and the knowledge. So, they have the will to create wealth and we are going to roll out a service for this particular section soon.

Mis-selling of financial products has been rampant. From your side, how are you trying to curb it?
There is mis-selling and there is mis-buying. So, uninformed buying is as big as wrong selling. So, there is no denying this fact. But as a responsible long-term player, we take corrective actions for that. We could have a strong self-regulatory regime in the company. We not just follow the regulation that comes from Irda or Sebi, but internally we have very strict guidelines. In our company, no one is fired for being unproductive, rather we fire employees when they do wrong selling. We have created the right environment in the company to control internally. Also, we have systems and processes to track.

Financial advisory services are still not very popular with Indian investors. In your view, how should this segment evolve and have some iconic wealth managers?
Currently, there is no momentum in the market. Wealth management is a push business. You have to really sit with the people and make them aware about their financial needs and goals. People come by themselves when markets are bullish. There has been no pull because we are 5-6 years down cycle. With every bull run, the growth comes. Now, you need to utilise this opportunity to fix the business model. There is customer opportunity over customer value. Most of the current business models are customer opportunity driven. For instance, I am in the loan business that lets me also sell financial products. This is just 10% of your income, for banks it may be 5% of the income. So, it’s not as important business segment for them whereas in the other model if this is your bread and butter where you are a small financial planning or distribution firm or if you are an international bank which has a strategic intent to be in this business and have a wealth management background for quite long, it is a core business and does not matter on the percentage of income. We want more committed players in this segment and do not want the concept of third party distribution.

Now, we do not have any iconic wealth managers. When will people from this segment emerge as iconic and credible wealth managers?
If core committed people will be stepping into this space, that will improve the perception of people, too. Also, they will invest capital and train more people, which will create role models. That is how you build reputation and credibility.