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Home Again, Home Again Jiggety Jig

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Gautama Dev tapped his forehead as if reaffirming what he had written to Amit Dave, head of Relationship Banking at Kiminey Bank (KB): "When I look back... it seems there was a deliberate move to keep this info away from me...." Now, Gautama simply knew those words held the truth behind what was going on.

Gautama was a 10-year-old NRI customer of KB, which also looked after his wealth and investments. The Bank sent him monthly statements at both cost and market value, a practice it kept up until he invested in Instep. Two years ago, KB had suggested Gautama invest in Instep Insurance's pension-oriented investment product. KB said it was better than mutual funds (MF) as the cost was 50 per cent less (see ‘To Market, To Market, To Buy A Fat Pig'). After Rs 16 lakh and 16 months, Gautama found the net worth of his investment was a negative 3 per cent! And, he accidentally discovered that all this was owing to an upfront 7.5 per cent charge on his premiums of Year 1! And when he began to question this, his bank of 10 years adopted a clipped, dispassionate attitude and told him to take it up with Instep.

So, from being wealth managers who operated on his behalf, KB — especially its Nambiars, Naiks and Suris — were now choosing to play lower division clerks. KB, which had hired these men and women, was effectively backing off its fiduciary role, and protecting itself. Gautama had seen this coming. He knew what it took for an organisation to be ethical; to admit error when it had been committed.

As KB dodged, backed off, cold and unsupportive, he wrote to Dave about how Instep's insurance-linked pension had consumed more of his money as investment but produced negative returns. Then "Instep was mis-sold to me on pretext that the annual cost was very low at approximately 1 per cent, versus 2 per cent for MFs, and no mention of the upfront charge of 7.5 per cent made transparent. None of the 24-25 emails KB has written to me about the Instep investment, refers to the 7.5 per cent charge! I do not believe this meets KB International's standards of ethical conduct in business.


"I request KB to use its relationship with Instep and have the policies terminated without any penalty, which is a reasonable enough request. This means I will get back the amount invested over two years and Instep would have had free use of my money over this period. This opportunity loss is acceptable to me. However, I should not be forced to continue an investment where facts, material to the investment decision, were not disclosed to me."


Twenty seven days passed and the head of relationship banking of KB, a large MNC bank,  had not replied.

Gautama wrote again: "I am sorry to be taking your time, Mr Dave, but it is a month since I wrote to you. This long delay is not making me feel valued as a customer." Dave replied with an auto responder type of script... "Appreciate we are only referral agents; Instep's product features are theirs, approved by Irda...."

KB chose to ignore Gautama's mails. Gautama, who had managed a Rs 15,000-crore business for eight years of his 26-year career, had done so successfully only owing to his ethical conduct and decorum — something he was both known and feared for. He was now surprised. Referral agents? Then what happened to "we have a very special relationship"? What happened to "we have advised all our HNIs to move out of MF to Instep"? That was not how a referral agent behaved!

Gautama finally wrote what he had refrained from till now: "I would like you to think about this, Mr Dave: as a leader of a global bank, the values that guide your decisions in a crunch situation, are what shape the values and culture that people down the line will follow. [I run an organisation as well, and talk from experience.] KB was my trusted wealth advisor for many years. My question to you is: Did it meet the bank's stated customer policies, to advise me to shift investments from MFs to this Instep product knowing that the 7.5 per cent upfront charge would mean an additional cost to me of 2.5 per cent per annum over a three-year period?

"To then fail to advise me of this charge, but instead emphasise that the annual cost would be 1 per cent lower than what MFs charged, does that meet the ethical standards of service of KB?

"Lastly, as a long standing customer who was mis-sold a product, once I have escalated this to your level, should you not, as my banker, be standing shoulder to shoulder with me in taking this up with Instep?

"The banking business is about trust and relationship, both when you deal with your customers and when you deal with your ‘suppliers'. Why then is it not possible to resolve this issue in a spirit of partnership ensuring fairness to me and to Instep?"

Gautama was leaving for a 10-day lecture trip to the US. Three of the Indian managers in the Gibbley Group — Advait Kundra, Shailesh Karnik and Tara Swamy — who had been in close touch with Gautama, came to bid him farewell. They sat and chatted even as he was running around getting his papers together. "The newest is that now Instep wants to charge a penalty of 25 per cent of premiums paid, if I want to discontinue the policy," said Gautama. "This is misuse of a monopolistic position vis-a- vis a small investor; and there is no commercial justification for such a high penalty especially after 16 months of free use of my money!"

Advait: Firstly, there is no commercial rationalisation for a pension plan to have an upfront charge of 7.5 per cent. Secondly, you state it bold and clear, not hide it in small print.
They discussed as Gautama remained busy.

Shailesh: See, the very fact that the bank failed to reveal the MV of the investment for 16 months tells one story. But I am stunned they would do this to an HNI! I thought they did it to paupers like me — give a loan, then send the debt collectors snarling after me!

Advait: Every bank that is managing portfolios is working on luck! They may have a specified menu of funds in which they will claim they invest... but, in fact, the promiscuity is unimaginable. Just watch how the market has been moving — 14000 points one day, up to 21k, then down to 18k. In this scenario, the fellow has your 3-4 crores. They hang on to hope, living  from one week to the next. Everybody in the industry is breaking Sebi rules and there is no one to find out. That is how fluid the market is.

Tara: But to risk this with an HNI... 

Advait: I would say the HNI is the easiest target! Just think. Who is your HNI? Senior directors, MDs, CEOs, senior VPs. These are people who groom people, systems and situations to be dependable and who are prone to work with the bigger picture, leaving verification, cross checking, etc., to their subordinates. Isn't he a sitting duck? They sign papers with faith in people who work with them. So here is a bank that has built the HNI's faith through its brand and superior English. It comes and says "I will take care of your investments," opens five pages of a 40-page document and says, "Sign here, here, here and here. I will give you back what you value most: time!" And the HNI signs!

Tara: I think the warning signal was flashing bright when relationship manager (RM) Atulya Ambi was moved out. An RM is a psychological ploy, to create for you a sense of care, attention, etc. It is cheaper and more revenue effective than the customer changing bank! So, that is achieved by giving you a sense of ‘You didn't like that RM? Okay, I kicked him out. Let me bring you our best....' as if  selling you good wine.

Advait: Amazing! See how this industry has shaped its strategy with the behaviours that come with it! The HNI himself is used to excusing people, used to small inefficiencies and thinks "organisations are mammoths, finally run by people and people make mistakes, it is part of life". Because this is exactly what happens in his own organisation, and that is how he manages teams — by forgiving, shepherding and indulging now and then.

Tara: A large part of this is behavioural; living overseas makes you sad and grateful every time you deal with India from here. This is a major bonding situation that NRIs fall for. They probably look to bond with their bankers, "Yaar, look after my money." And when your banker tells you, "Sir, just leave it to me...", you heave a sigh of relief. We are such suckers for that kind of talk, and service companies, especially banks, leverage on that emotion!

Advait: Exactly. The HNI is looking for comfort and convenience with no investment of time, because that is one thing he does not have. (They are the last ones who get to use their money, incidentally!) He asks for loyalty, and believes that the person is loyal and trustworthy. Why? Difficult to give one reason, as this is an emerging market of Arrow Shirts and rimless glasses and Oxford English to whom you hand over your wealth. Maybe you see yourself in his demeanour — educated, senior management — and you feel this guy can be trusted. Actually the idea of being cheated does not even occur. In two meetings you gauge that he is a sharp shooter. But ethics is never in doubt!

So you drive him away genially and say, "jao yaar, don't ask me to read these 40 pages, I have other things to do". Why? So many options are thrown at you, and if you are a non-finance guy, you are demolished. Cost? MV? Yield up to maturity with current realisations? That's not even English! One sheet of paper can show you several percentages pulled out with several formulas! These may not be impossible to decode, but it means investing time, you see!

When you see money come into the bank regularly, the regularity and not the composition of the amount lulls you into a sense of well being. You do a quick corner of the head calculation and it makes sense... But do you have time?

This is the malady of the post-liberalisation wealthy corporate man! The market for portfolio managers has grown faster than his investments and, just like detergents these days have power boosters, are oxy-activated, biological, sensory, and what not, the investment business has also thrown up nuances to its products, which we frankly don't care about because the details are more forbidding than the process!

Do you care that your toothpaste has gobbledygook and hibbledylook? Who cares? Need toothpaste at 7 am, anything in tube with a flavour of mint will do. This is broadly the definition of the corporate investor who uses a banker to invest. He is in deep trouble... because the banker knows much more than what the customer does and the banker does a lot more with his money than the customer knows! Face it!

Gautama (stopping by while buzzing about): You guys still discussing me? (answering various questions at the same time)... Sorry? Oh well, actually I caught on much sooner. I noticed in the first statement itself that MV was not showing. I said to myself, she will do it, she is efficient. I didn't want to remind unnecessarily... I thought the system was taking time to respond to the new investment added...

Shailesh: Okay tell me, if the insurance company is telling you that the 7.5 per cent was tucked away inside, you don't have a case, na?

Gautama: Based on my limited reading of the Law of Contract, no. I was supposed to have looked at the 40 pages and unearthed the 7.5. But my view is that I had a wealth manager and I trusted him to look after my decisions. That's what I expected this relationship would do: poke my decisions, question my choices, point out the details, caution me... I use a wealth manager not because I have wealth but because I don't have much time!


For the Law of Contract to be invoked, a consideration for services is crucial. Banks will not document a wealth advisory relationship, and naturally will levy no fee. Hence, there is deemed to be no contract, as there is no direct consideration!

Tara: Yes, ‘the banker does a lot more with his money than the customer knows!'

Advait: Everybody is in cahoots! I invested in some MF in September. When I looked at my statement now, I was expecting 7 per cent but the yield was 5 per cent. Duniya makes money on MFs, but not me! Yeh sabko maama banaate hain! This is standard operating procedure. People don't talk about it because you don't want to look like a fool in front of others.

Tara: But MFs advertise that you can earn crazy amounts... 

AK: Grammatical error I would say. The MF earns the money. Their definitions are always so nebulous. A 7.5 per cent upfront charge... 16 per cent gross margins — what is gross margin? So who knows what is being put on a piece of paper is gross margins, net margins, what are the loadings, net of overheads? You expect banks and insurance companies to tell you there is an entry cost, but they don't. Colleges and schools tell you fees is Rs 5,000 a month; until you discover there is a Rs 25,000 registration fee! Most nebulous and meaningless! Everybody is playing with words! 

Gautama: Okay, enough bitter talk. The core issue is this: when I hand over my money to a bank that offers to invest it for me... what happens to the trust? To the fiduciary relationship? To the "don't worry, sir, you are in safe hands"?
This trust cannot be documented or proven in a court of law, because that is what goodwill is all about. Trust is the underlying substratum on which the banker-customer relationship stands. But the moment you disagree with him or he errs, he will blur away and become scarce. How can trust be based on opportunity?

Advait: I have a theory called The Fig Leaf of Rationalisation. In India today, 75 per cent of the software is pirated. Try telling the guy who is using an underground version of Windows that he is thieving. This behaviour is subscribed to by the team first, then the department and then the organisation. This rationalisation is called ‘common practice'. Therefore, ‘he is an HNI, it is his job to take care of his investment'. 

Shailesh: Every industry has these rationalisations. In Teffer India, we had zero defect factories and the defect rates were factored into our bonuses. For the factory manager, the key parameter was cost per tonne. So when faced with a quality problem, his dilemma straddled release or reprocess the batch? My bonus or company's short-term gain or loss? Release the minor defects for sale or reject the lot? Both are tough choices that impact conscience and coffers.

Advait: Fabulous! So let me add, as the bonus component or ‘opportunity to earn' gets bigger, the brain conjures up more rationales making choice difficult. Now, if a majority in the industry is making similar choices, that becomes a way of doing business, loosely called industry practice. Customer wealth improvement may not, therefore, be an overpowering goal.
Shailesh: All this is symptomatic of the fact that if you don't balance off the variable component of a manager's salary with the fixed, then such things will happen.

Advait: Very true... Intelligence should definitely be rewarded, but not so much that it dulls an individual's ethical quotient.

Shailesh: And a consideration for these rationalisations, powers it. So be it a murder for fuel, or a 2G scam, or land usurped or a garland of currency notes, the impetus is money.

I will sell what sells, as long as the consideration is money. If sex sells, I will sell it saying India should not be a prude! It is a question of rationalising it, and when your rationalisation gets stronger, you get more voices behind you as the money riding it gets bigger and bigger. And presently, you believe in your stupidity.

Tara: See, the dividing line between a greed-led rationalisation and wilful fraud is very thin. The lure of bonuses is definitely the silent persuader. Then it comes down to your personal ethics quotient, and how hard you have trained your mind to stay on the line.

I know there are audit practices and standards such as Companies (Auditor's Report) Order (CARO) for every operation in a manufacturing process, but are the sections pertaining to banks and service companies as sharp? I doubt. If a small coterie was to operate to further its personal interests or be target-driven but contrary to accepted procedures (not being rationalisations) — like the Citi case — are there control objectives woven into the system that will beep weakness on encountering them? Seems not, considering that the fraudster got away with his work way past a financial year and CARO did not ‘find' him! 

Kundra: Good point! Then again, banking customer service is qualitative and even CARO can only opine on fairness, not on accuracy. 

Shailesh: I feel there has to be an internal audit procedure for bankers as individuals because they are the housing in which the entire service resides — the thought, the creative, and the intention from where the strategy is manufactured. Hence, their functioning has to be auditable. Therefore, a banker as a human has to be under continuous audit!

Gautama: As Alan Simpson says, "If you have integrity, nothing else matters. If you don't have integrity, nothing else matters!"
Classroom DiscussionA designation and salary is not for our academic might but in the consciousness that we deserve them.


(This story was published in Businessworld Issue Dated 14-03-2011)