Wealth management firms tighten internal controls

High net-worth clients are calling Shiv Gupta, RBS’s private banking head, demanding to know whether their money is safe. It’s the latest fallout of the Citibank investment fraud. “We understand that clients have a right to be concerned, and we are addressing their issues,” says Gupta.

He isn’t alone. Wealth managers at firms of all sizes are scrambling to reassure their clients. Take Pawan Joseph, sales head at Motilal Oswal Wealth Management. Joseph has spent the past few days just signing letters — thousands of them.

Queries are pouring in from clients, mainly in the Rs 10-20-crore bracket. Wealth managers said they were the nouveau riche, who recently made money from their employee stock options. “There is a great fear among them. The experienced ones use wealth managers mostly to trade on their behalf. They have their own full-fledged teams,” said a wealth manager.

 

Consequently, banks with wealth management arms are taking several measures. To ensure there is no panic, each of them has started an internal dialogue with their relationship managers. They have been briefed about expected queries from clients and about the firm’s code of conduct. “A relationship manager is the most important interface for any institution. He cannot afford to lose a client’s trust,” said the head of one bank’s wealth management arm.
 

CHANGING TIMES

* Relationship managers are being briefed on client trust issues

* Clients no longer made to depend on just a single manager

* Client engagement is being carried out at various levels

* Many see regulation soon to end power of attorney practice

Banks are also trying to break the cosy relationship between a client and a single manager. “Many banks adopt a team approach, because there is continuity even if one relationship manager is absent. Moreover, it means better control. From the client’s perspective, he sees greater depth in the organisation,” adds Gupta.

A number of other measures are also being taken. One Mumbai-based wealth management firm has quickly introduced multiple levels of engagement with customers. Depending on the assets under management, it has different levels of executives assigned to clients. For example, a Rs 5-crore client will have a manager from the branch and a vice-president from the head office taking feedback. For clients of over Rs 30 crore, the CEO takes feedback directly.

A foreign bank has requested clients to use online services more to execute buys. “We are trying to shift most of the executions of investment online,” confirmed an official. A domestic wealth management firm’s official said a lot of companies are shifting their communications with clients to a central system. This would ensure that statements reach clients, who no longer have to depend on their relationship managers.

Independent audits are also on the way. “We expect such audits to curb mis-selling of products,” said a senior official of a wealth management company. But most fear stringent regulation. The power of attorney, which allowed Shivraj Puri to move money from Citibank clients, could be on its way out.

“Some banks have the right to do anything with your account. They can open or close accounts, move money, even collect chequebooks,” said a wealth manager.

They expect stricter guidelines from both Reserve Bank of India and Securities & Exchange Board of India on managing these businesses.