10 years of RIA: Sadagopan’s journey as a financial planner

Describe your career before you registered as an RIA in 2013.

I started a consulting practice in 2004. Obviously, the fee I could charge was less. This was due to my own understanding of financial planning and the early stage of the market at that time. So, I had a fee and commission model. Over time, I developed some maturity in the financial advisory business and my fees increased as well. I was also a mutual fund distributor at that time and this was helping me financially. We had a gentlemanly understanding with the client that if I would do their financial planning, they would come to me for products that were recommended. And the clients were fine too because after all they had to go to someone for it.

In 2010, we moved towards advisory model. We told our clients that we would charge a financial planning fee, create a plan and give it to them. If they want to come to us (for products), they are welcome, but if they want to go somewhere else, it is up to them. This was not really a fee-only model, as enabled products, ie commission-free products, were not available anywhere at the time. So, probably around 50-60% of our customers stay with us, some choose to do it on their own or some do it through others. Meanwhile, the advisory landscape was also undergoing changes, and anticipating these changes, we separated the distribution business and the advisory business even before the regulations came in. Now, when we started fee-only advisors, we didn’t go into direct plans because although direct plans were introduced in 2013, the feeds were not available to the advisor community. This happened only in 2016.

Therefore, there were two fundamental changes – one on 31 December 2015 and the other on 1 January 2016. So, one, there was an enabling clause by SEBI which mandated that both advisory feed and direct feed are to be given to RIAs, and MFUs (MF Utilities) have started offering direct plans on their advisory platforms. After that we slowly started adding clients, and I say slowly, because there were a lot of problems and a lot of data was missing, but until 2018, it was kind of okay. Therefore, we decided to completely give advice in 2018. We told all of our clients that we are going to be advisory only, and there will be no regular products and no commission-based products. Also, we had to assure the customers that we are going to advise them on all these things and give them a complete set of services, and we will charge for that. So, we were able to bring over 90% of clients into advisory, and from that point on, all new clients were through advisory and direct plans only. It has grown fine since then.

And then in 2020 this regulation came out which had its own set of googly. For a long time we wanted to turn into a corporate. That’s why we had formed a private limited company in 2016 itself. At that time, the individual RIA net worth requirement was raised by from 1 lakh 5 lakhs. And anyway, from a regulation point of view, the 150-client norm also came up (registration as a non-individual advisor for those managing more than 150 clients). So, in 2021, we incorporated our practice.

What was the industry scenario before 2013? What were the issues consumers faced back then and has that changed?

I don’t think there has been a big change in the way consumers look at things. The problems are still the same. People are making money; Financial awareness is not very high. They still have goals and want to invest their money so that they can retire appropriately. The only thing is that the advisory landscape has changed a lot. So, 10-15 years ago, we had to tell some people what is financial advice and why you should go for it. Now, the people who are coming to us know exactly what we’re talking about, and they know words like fiduciary, etc. This is a huge change.

How have things changed over time, in terms of the type of people who come to you, their wealth and goals or anything else?

So in the beginning because I was approaching people myself and those who became my clients were also referring some clients so all kinds of people were coming.

We do not discriminate between our customers at all. But generally, what has happened is that the people who are coming to us now have a certain level of wealth. broadly speaking, 2-3 crore is the average asset size. Those who have a lot of wealth also come to us. These days we’re not really going out and getting clients. Mainly, there are people who found us online or were referred to us by an existing customer.

Has the client profile become smaller? Do you see more young people from the IT sector?

Yes, we also have youth coming. Typically, 70% of our customers will be nearing 40 and going up to 55 years of age.

What I understand from this is that people early in life are not really paying much attention to planning. They are investing wherever they want and have multiple goals. They are also fine with spending money on vacations, vehicles etc. It comes at some point that they hurt – I haven’t done anything, I’ve got a family now, and I have some loans too, so I have to have a plan. That’s when people actually approach us.

How many customers do you have?

Over time, we are losing customers. We have consciously decided to only take on clients who are suitable for an advisory practice. Once upon a time, we used to have far more clients than were suitable for our delivery practice. Since 2013, since we have been purely an advisory practice, we have gone down from 400 clients to 160.

Besides not saving enough, what is a common financial mistake you see people making?

The flip side of not saving enough is spending. So, suppose someone is earning 2 lakhs and their expenses are 1.5 lakhs, so they are saving 50,000 per month. it 50,000 is his 10 days’ expenses. for someone else who is earning 80,000 and savings 40,000 per month, this means his savings are worth one month’s expenses. We have to look at everything from the point of view of how many days of expenses you can save because ultimately for retirement we need to see how many years of expenses you have. The problem is that people are not saving enough or rather spending is too much.

What has been your proudest moment serving a client?

There are many clients where we have made a huge impact. Let me tell you a case. We had a client who worked for Idea, and after its merger with Vodafone India, he was not given a greater role to play in the merged entity (Vodafone Idea). The quality of work was very poor, and he was asked to work all the time. Even then he had been with us for 8-10 years. So, he wanted to know whether it would be possible for him to leave the job. So, we calculated the numbers and found that it would be possible for him to retire. But he was not ready to leave the job as he was not very confident. But at the same time, it was ruining his life. After talking to us for two and a half years, he finally resigned. And after that he was very relieved. We are still managing his portfolio, and he says, “The kind of courage you gave me at that time has changed my life”.

any regrets? Any advice given in good faith but later you feel you should have given different advice?

So, 2008 was a very, very difficult time for all of us in the financial services industry. It was a frightening time for everyone, and in fact someone said that the Sensex would go to zero.

So, at that point in time, three of our clients were very focused on exiting equity. Hence, they moved to liquid funds. The problem was that the market stagnated for a while and then it started moving upwards. So, we’re looking back and wondering if it was a dead cat poop. The market situation at that time was not at all stable and it could potentially go further down and nobody knew. So, we were kept waiting, and some of these customers came back much later. So, the customers who stayed put did 3-4 years better since 2008 than these three customers. While the customers were panicking, I think we were panicking too. Also, they were a little under pressure, so we should have done the same thing for these customers.

Is there anything in SEBI regulations that you would like to change?

One pain point which we all are feeling is that we have to give the same gatekeeper exam again and again. This is unprecedented in any profession in India, and it is unprecedented anywhere in the world. If they want us to do a bridge course for a few days or if they want us to watch a video and then take an exam, I’m fine with that. But we are not gaining anything by making that consultant go through the same gatekeeper test. I have been doing financial planning since 18 years, now don’t ask me what is financial planning. it’s not necessary. You should test me on something new. And if you want to tighten the Continuing Professional Education (CPE) criteria, then tighten it to some extent and let all education providers know what the criteria are and let them award CPE marks based on those criteria. From our perspective, it’s a business continuity risk and for the rest of my team, it’s a headache.