Perks and privileges of being high net worth individuals

The rich have a funny problem. They are too embarrassed to tell the world that they have been taken for a ride. In a bull market, when wealth multiplies effortlessly, they think they are wizards. They buy yachts, gulfstreams, borrow and takeover companies. When they lose money, they try to hush it up. If the word gets out, they downplay it. They neither knock on the doors of regulators, nor write angry letters to the editor nor move courts.

A loss caused by a stupid investment decision is a strange reputation risk. In the cold light of the day, these smart people look like small, gullible savers who believe in stories like a sapling sowed today will become a poppler in 20 years that’s worth a crore. Such a loss can be a great leveller of classes. In the movie Khosla ka Ghosla, the pompous land shark Kishan Khurana, a character immortalised by actor Boman Irani, tells his lackey that no one should ever come to know that he has been royally fooled by a retired clerk. Such a blow can be more deadly than the actual monetary loss.

The men who believed the Gurgaon trickster are no Khuranas. They are honourable citizens, pay tax, run legitimate businesses, and don’t deal in cash - at least not when they dealt with the fraud banker. Some own big firms, some run smaller shops. Most of them are what sellers of investment products call high net worth individuals, or HNIs. Many are in touch with multiple banks and wealth managers who listen patiently about their investment priorities and risk appetite. They pick and choose the hawkers, and take advice from their CFOs - a chartered accountant or an MBA (Finance) or both - who divide time between managing the firms’ investments as well as the maliks’.

Nonetheless, they never asked a few simple questions: “Where will you invest the money? Stocks, bonds, commodities, currencies? And if you guys are so smart, why aren’t you advertising the scheme? I haven’t read it in any newspaper. With such a killer product, you have almost hit the holy grail in a bear market... Shouldn’t you be screaming from the rooftop?” Can someone be so naive? Or, is there something else that newspersons and cops are yet to lay their hands on?

The media lapped up the story of what looked like a plain fraud. With most news sources celebrating Christmas in Goa or at their farm houses in Karjat, the story, complete with photos of the disgraced banker, his family details and the money trail, livened up newsrooms. As reporters tried to fish out details, there was a sense of deja vu that always accompanies such stories.

In mid ‘90s, when finance companies fell like nine pins, thousands of investors lost money. News of a default or delay in interest payment by one company, triggered premature withdrawals in several others. Long queues of investors waiting to withdraw money were a familiar sight. Some carried proofs of medical emergency to convince companies, which had the right to deny repayment before maturity of the deposit. One such investor, a respectable-looking middleaged gentleman stormed into the office of a senior manager in the department of finance companies at the Reserve Bank of India, asking the regulator to help him recover the money. Admitting his helplessness, the central banker had asked him, “How could you believe someone would actually pay an interest of 22%?” “Well, I teach geology,” the gentleman had said. Understandably, a man of few words. The officer, who retired many years ago, still recalls the conversation. “Some things don’t change,” he said the other day.

But some HNIs are better placed than others when it comes to salvaging money . These influential customers will quietly but ruthlessly negotiate and drop effective threats. It can work wonders if HNIs themselves are bankers. A few months ago, some of them managed to armtwist a large brokerage firm which sold them a fancy investment product. These investors, who were senior officials of a large bank, threatened to take up the matter at the highest level.

Backed by one of the country’s biggest business houses, the broking firm quickly paid them off and sacked a few senior officials. The bankers understood the game and blamed the broking firm for mismanaging risks. “You doubled the bet instead of exiting,” the firm was told. But not all investors were as smart. The recent fraud, perpetrated by an employee who forged letters and greased palms, may be very different from the case of risky bets taken by the broking firm. But chances are some Gurgaon investors will turn out to be smarter than others.

Source: ET