Money & Banking

Citi wealth management scam is only symptomatic

N. S. Vageesh Chennai | Updated on January 17, 2011

Most HNIs do not understand products they sign up for

Private banking and wealth management services are among the fastest growing segments in the Indian banking industry. According to the World Wealth Report of 2010 compiled by Capgemini for Merrill Lynch, the Indian wealth market grew 51 per cent in 2009. India has among the highest number of dollar millionaires in the world — there were 1.4 lakh individuals who met the criteria last year. And that number is expected to increase, given our demographics.

No wonder then that every private bank and foreign bank has its own version of a premier offering meant for high networth individuals (HNIs).

Citibank, now in the centre of a Rs 400-crore wealth management scam orchestrated by one of its relationship managers, Mr Shivraj Puri, had identified India as one of its two top growth markets. A couple of months ago, their global head of private banking, Ms Jane Fraser, had this to say in an interview to another business publication, “We have a team approach for covering our clients and it is not just one individual as gatekeeper.” Brave words, now to be taken with a sack of salt, in the light of disclosures in the still-unravelling scam.

For, the clearest thing that emerges from the scam is: either Mr Shivraj Puri, the accused, operated as a lone ranger — which calls into question the state of internal controls at Citi or the lack of supervision. Else, there is a question of collusion by supervisors and monitors, and consequentially turning a blind eye. Either way, the damage to reputation is severe, and it will take a while before Citi can resume business as usual.

WARNING FLAGS

Among the warning flags other experts cite is that both husband and wife worked in the same branch. Most organisations have a policy of asking one of the spouses to move out or transferring them to a different wing/department/branch or place to avoid any conflict of interest.

Second, experts question whatever happened to audits — both the regular and surprise variety. Other banks that offer similar services say their relationship managers are checked routinely. And ironically, the high performers are singled for closer scrutiny — just so that the standard of ethics and integrity is not breached. Says a senior banker, “Our relationship managers (RMs) will be fired instantly if they are found with a signed blank form. Some banks go to the extent of checking tables/drawers and even their cars. The whole business operates on trust.”

Third, what about client visits — why did no seniors accompany relationship managers? That happens routinely, if not every time. Senior bankers say the RMs are questioned intensely on decisions taken for clients, and are often cross-checked immediately with the client. A lot of phone conversations are recorded since instructions by clients are initially given on the phone and later confirmed in writing. So there is a huge mine of information in those conversations.

NOT AN ABERRATION!

So, after this episode, will things be different in future? Talk to wealth managers and the emerging picture is not very encouraging. Despite the warning signals that seem like aberrations at Citi, many private banks do often have similar practices. They acknowledge such things could recur, pointing out that many clients do sign blank forms/transfer notes that create these troubles in the first place. Admits a relationship manager, “People are in a hurry all the time. We are appraised on the sales that we do. We explain the product to the customers. Then they tell us to fill the form ourselves. A whopping 90 per cent of customers do it — ask us to fill the form after they have signed it. Only 10 per cent of customers read everything they sign. This happens in all private banks.”

So what's the advice for clients now? Says a wealth manager, “The one advice that I would give is that clients must understand the product. There are no exorbitant returns possible. Be fully aware and start filling up the form yourself.”

Published on January 17, 2011

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