Mode C is as much for Calvin as it is for Chaos, as much for Cool as it is for Cold, as much for Class as it is for Crass.

Mode C is a way of life, the Calvin way of life which I am so fascinated by as to keep trying to make it my own way of life. But what exactly is Calvin's way of life, you ask...and I say that there are no clear answers to this one.

I strongly believe, however, that almost all the seriously critical fundamental concepts of life, they are just the bogies under Calvin's bed that he is afraid of. Everyhting else...Miss Wormwood, Susie, Mom and Dad, and of course above all, Hobbes...aren't they all merely the means that he uses to attack these bogies?

It is nothing, therefore, but the perspective of each of these players on the stage of Calvin's dramatic life that helps him fight these bogies and move on in his own unique way...listening to all but doing only what finally makes sense to his own individuality. This is what comes closest, I guess, to the Calvin way of leading one's life...

Wednesday, August 13, 2008

Private Banking: Emergence and Growth

The Private Banking industry started out with the Swiss bankers in their immaculate black suits suitcase carrying avatar purposefully striding towards their destination. The element of secrecy and privacy associated with Swiss bank accounts became popular worldwide and even got into places like Bollywood movies (imagine something as remote as that recognizing their existence). As time passed, the Private Banker changed to being more than just a secret hideaway for the moolah that you want to become invisible for all practical purposes.

The Private Banker was already a friend of the client owing to the secrecy, and as a result, trust involved in the entire transaction between the two. This trust, as it expanded its reach, was now used by the Private Banker to act as not just the store house but also the advisor for the clients' wealth and thus was added the role of Wealth Manager to a Private Banker's profile. The aim of Wealth Managers was to not just protect but also manage and enhance the wealth of clients who could not afford the time, effort, or competence required to do it themselves. As global commercial banks got wind of the enormous potential of this market segment, you could see the bursting on the scene of large private banks like UBS, Goldman, and Lehman who wanted to get their share of the pie.

It was, however, difficult to wean away the client from the stronghold of existing Private Bankers because of the years of relationship that they had cultivated with the client. This led the large banks resorting to what they knew best, spending money. They built the most sophisticated of systems, got in the latest of technology, gave away the most exclusive and expensive of freebies, hired the best of managers (often from the same community that their clients belonged to), and in total, elevated Private Banking to an elite platform not seen before. Private Bankers, already part of a distinguished tribe, started getting treated all the more with kid gloves, what with the talent required to mix with the rich and busy being very rare and cultivation of the same not that simple.

As the concept of Private Banking accompanied by Wealth Management gained credence worldwide, it was not without its share of hiccups and showstoppers. Educating the customer was the biggest hurdle that the business faced and with different countries managing money differently, it was not a single stick formula that could work. What, however, went to the advantage of the early Wealth Managers and Private Bankers was that their initial target audience in Western Europe and the USA had fabrics of a common culture. With inherited wealth being the most common source of the riches in these countries, it was easy to build your proposition around the same.

The difficult part came in when the new age professional who believed in the equivalent of the Great American dream came about on the global stage and started demanding much more than the frills that the Private Bankers had got accustomed to pacifying the clients with. They wanted research, they needed financial planning, they needed a focused investment process which was scientific, logical and aligned to what they wanted to do in life. Technology in Private Banking got a new lease of life, more and more MBAs started getting hired, and concepts of Financial Planning, Portfolio Management, and investment theory started getting due importance.

However, till the time it was manageable, such theory was used as sparingly as possible with more form than substance. This was because the Private Bankers themselves had been relying on their gut and instinct in doing things like judging the client's profile, the market's risks, and thus the decisions as to the management and deployment to investments of the clients' wealth was more intuitive than guided by any scientific process. However, with demand growing for something more than just guesswork, Private Banks moved swiftly to processes and research and theory...and then came the disillusionment. Was theory perfect...Wasn't there enough and more scope for the instinct in a market that is not completely efficient and was guided at times by the investor psychology and other forces external to the market. The final transformation, as I write these lines, goes on even today and even in the most developed of markets as debates continue on the efficacy of theories alone and possibilities of scientifically and systematically combining logic with intuition.

India was, as in many other things, a late starter in this field. The traditional method of protecting and preserving money was gold which was stashed away below the bed, under the backyard, beneath the banyan tree. As India became more aware of the use that money could be put to, people started using banks and post offices (enormous contributors to the emergence of savings in India) for fixed deposits typically timed to meet one or more of their life goals...financial planning in its immature infancy. Finally, as the late 80s and early 90s dawned and the Indian economy started opening up, people got their first flavor of the equity markets. As with anything new that comes in the hand of the uninformed, it was a mess to start with. Brokers and NBFCs and scams galore led to consolidation amongst market players and emergence of market regulators that hampered even legitimate activities that could have resulted in faster progress of the Indian financial services industry. Bad taste due to some intelligent scavengers led to tightening of the clamps to an extent that what got done in those unregulated days got done and whoever was slower off the trigger is still waiting.

Private Banks in India are few and far between particularly because the licenses were granted in the golden days for entities to act as Private Banks but as each broker and NBFC started advising the client to invest in each and every security without any bias except money that it made for the advisor, things started getting bad. The emergence of Private Banking in India, therefore, was restricted by not just the regulators but also the equity broking mindset that the Private Bankers started with. With exposure to other asset classes never considered to be under the purview, there was no comprehensive Wealth Management ever. What this did was to delay the arrival of the phase where theory could gain precedence over instinct and consequently the phase where a combination of the two could be sought.

In the current format, Private Bankers in India exist in many garbs, that of a Private Bank (very few), a commercial bank (most of them), equity brokers / portfolio managers (advising on some but not all additional assets apart from equity), or chartered accountants (preferred mostly by the typical lala running a small business that he knows the pulse of but hardly knows the spelling of finance). The advice that these Private Bankers provide their clients is guided by instinct and there is hardly any process that is followed to draw and implement any financial plan for the clients. Even the foreign players that have entered India in the recent past have drawn from Indian companies (essentially in the equity broking industry) and deal with Indian clients with locally doctored mindsets and have thus been unable to bring in the processes that they use with much success globally.

The Indian rich therefore is a poorly served customer today and the unfortunate part is that he does not understand the same and thus does not realize the need for change. The fortunate part, however, is that with global distances shrinking and the exposure that India's neo-entrepreneurs have achieved, they are demanding stuff that promises to expose a lot of frailties of the Indian Private Banks and drastically change a lot of others. New competencies are being sought of the employees of Private Banks with business schools adding courses on Wealth Management (I was just pointed out an advertisement for a chair in Wealth Management at ISB, the other day). Technology and processes are slowly finding their way into the psyche and operations of Private Bankers and they are moving to the retail format (as some of them like to call the introduction of "stifling" processes). With markets behaving the way they are and the customer getting more demanding, there does not seem to be any other recourse and the employees and management will understand it sooner rather than later if they are to survive in a market that is fast on tract to maturity.

India has traditionally seen things move with an extremely fast pace in recent times and in areas where we have lagged behind the developed world by decades, we have caught on and even gone a step ahead in a matter of years. So don't be surprised if Indian Private Banks not only get the systems in place but also find a solution to combining the same with pure gut before the rest of the world can realize what has happened. As India enters into the 61st year of its independence, let this be one more way in which our fantastically vibrant country proves itself to the world.

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