RM: Weakest Link In Your Wealth Strategy
The concept of a Relationship Manager (RM) arose primarily to meet the personalised banking needs of HNI clients.
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Have you ever wondered why your investment portfolio underperforms the benchmarks? The productivity of any process is defined by its bottleneck. Likewise, the weakest link in your investment strategy has the maximum bearing on your future wealth.
The concept of a Relationship Manager (RM) arose primarily to meet the personalised banking needs of HNI clients. However, over a period of time, the role transformed from that of being a service provider to that of a ‘Product Pusher’ under the garb of a Wealth Manager. Today, Relationship Manager is a much-abused word in the financial services industry. Almost anyone who is presentable can qualify as an RM. In Hindi, the term ‘Saleu’ is used to define them — someone who can sell you almost anything. Frankly, that’s the only skillset that a future RM is evaluated on a while being hired.
So, a 20-something who has changed three jobs in the past five years is now advising you on your long-term wealth strategy. Don’t you see the irony in that? It is important that you should have seen a down cycle so that when the markets crash, you are not swayed by the negative sentiments. You should have the maturity to decipher facts from noise and provide sane advice when your client’s knees are trembling. Also, wealth creation is a marathon, not a 100-metre sprint. It needs a very different kind of mindset. Do you think a person who changes jobs at the drop of a hat for a few thousand rupees more has the temperament required to advise you on your long-term wealth creation?
But, why is this relevant for you? After all, you invest in mutual funds which are managed by professional fund managers. It is relevant because the two most important decisions, how much to invest (asset allocation) and when to invest (timing) are decided by your RM. During euphoric times, when the markets are climbing new highs, it is important to maintain sanity and not be swayed by the positive sentiments. But this is exactly what happens, as suggested by the inflows into mutual funds which are at their highest. Even the best fund manager can do little if he receives the majority of inflows at historically high valuations. The reverse is also true. When the markets tank, the inflows fall drastically.
Why does this happen? It happens because it is easier to sell your products during euphoric times when you are more receptive to investing in the markets. You forgot that your RM is no wealth manager, he is merely a product pusher. Just think about the frequency of his visits. Was it not more during euphoric times? Where is he now, when the markets have tanked and the sentiment has soured? Answer: he is finding new clients.
Why do you ask? Because you don’t have more money to invest, and the money you had invested earlier on his advice is now sitting at a loss. Had he given heed to asset allocation, perhaps you would still have some money left to average your investments. Now you have no choice but to wait it out till the tide turns.
A day will come in the future when the sentiment improves and out of the blue, you will receive a call from a stranger claiming to be your new RM. ‘What happened to the earlier one?’ you ask. He left, and along with him left the history of bad advice and your anger.
The first thing the new RM will do is to dis-regard almost every advice given to you by your previous RM. We must start with a clean slate. After all, if you don’t sell your earlier investments, where will you get the funds to buy the ones that he recommends? Thus, a new cycle will begin. All will be fine till the times are good. And then the same cycle will repeat.
What happened to the goal of wealth creation? It was lost in the midst of this melee. How should you overcome this problem? Invest in SIPs. Invest for the long term. Timing the markets is for experts. You aren’t an expert and neither is your RM.
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