Who’ll protect investors from mis-buying?

Rajiv Bajaj, Vice-Chairman and MD of Bajaj Capital, talks of the firm’s journey distributing financial products over the last 50 years and how the profession needs to change.

How did Bajaj Capital get started on the financial distribution business?

Not many know this; the company fixed deposit market was flagged off in India by Bajaj Capital way back in 1964. MS Oberoi, Founder and Chairman of Oberoi Hotels, and KK Bajaj (our Chairman) together conceived this instrument for raising funds from the public for one of his hotel projects. The overwhelming response prompted other private and public sector companies to start accepting deposits from the public. In the same year, UTI launched its maiden US 64 and we became UTI's first corporate agent. Since then, we have grown to include many other investment products — mutual funds, bonds, life insurance, general insurance, stock broking and now real estate. We offer select corporate fixed deposits as well.

Many individual financial advisors have been dropping out of the business because of reduced commissions and new regulations. How is Bajaj Capital coping with this change?

No doubt the going has been tough in the last five years, and only truly committed players have stayed back. The intermediaries that have dropped out were probably part-timers and those who were not very serious about this profession. Why would any player with an established client base leave the business?

One thing I believe, which is essential for success in this business, is to build a lifetime relationship with clients. Instead, many intermediaries follow a short-term transactional approach. They see clients as money-making machines and go to them only when a new mutual fund scheme or insurance plan is launched, but fail to maintain a consistent relationship, after selling the product. Investors really get cheesed off with this attitude.

We follow a lifecycle approach at Bajaj Capital. We assist clients in building and monitoring their investments and lead them towards achieving their financial goals. We use a 360 degree assessment to give them a complete snapshot of their financial life. We keep reviewing their financial situation on a regular basis. We have done financial assessment for over one lakh clients so far. Only last month, we reviewed close to 17,000 clients’ investments. We have families who have been using our services to manage their finances over four generations now.

How many investors does Bajaj Capital service today? And how many qualified advisors make up your feet-on-the-street?

Our client base would be close to a million with assets of ₹12,000 crore invested through us. We have around 500 certified relationship managers in-house and over 4,000 independent associates who route their business through us.

Recently, regulators have opened up direct options to investors, so that distributors can be completely bypassed. The direct plans are cheaper too. Does that pose a threat to the distribution business?

Not really, because I feel most investors lack time and awareness to take investment decisions on their own. I recently read about how the insurance industry in Australia has been selling direct plans in a big way. And that has become a headache for the industry as many investors are avoiding life insurance altogether due to lack of assistance in settlement and rejection of claims. No one explained to them the exclusions due to pre-existing conditions. The same can happen with unguided sales in mutual funds also.

There are so many rules and regulations to guard the investor against ‘mis-selling’ by distributors. But who is to protect the investor against ‘mis-buying’?

When you are investing to create wealth over a lifetime, saving a small amount on transaction fees should not be the objective. People often make mistakes while investing on their own. While going direct, one may not choose the right asset allocation, or buy unsuitable products. For instance, if you buy an equity fund with a two-year goal, it is quite likely you won’t get the expected returns. I am not averse to direct plans because they keep distributors alert to not take investors for granted. But they aren’t suitable for all kinds of investors.

I haven’t ever met a product manufacturer who comes and tells you — “my equity fund is not performing, please pull the money out from my fund and invest it with my competitor". This is the intermediary’s role.

As you complete 50 years, what do you see as the way forward?

We are very excited; we entered our 50th year on February 19. This has been a journey full of learnings and yes, a few mistakes. Expect us to be much more client-centric. We want to be more discerning in product selection, conducting mandatory reviews, using technology to further enhance the service experience and offering online and mobile transactions. This is an extremely important milestone for us and we are looking at this opportunity to reconnect with our clients.

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