5th December 2011

WF: You are counted among the most successful pure retail IFAs in Western India, with a mutual fund AuM in excess of Rs.200 crores from over 1500 clients. Can you take us through your journey from where you started to the position you've reached today?

Sadashiv: Yes, actually I started out with Insurance, the moment I passed my graduation in 1986. A close acquaintance of my father's who was in general insurance, wanted me to become a development officer but as I had not completed 21 he asked me to become an agent. So with that license my insurance business started and that time it used to be a single license for Life and General both. I then added on agencies for postal savings, PPF and RBI bonds and then UTI. Those were the days of assured return MIPs from UTI.

My first experience with fluctuating NAVs was when we sold UTI Mastershare. Then came Harshad Mehta in 1991 and 1992 - he showed us things which we never believed was possible. Closed ended funds were quoting at 4 and 5 times higher than their NAVs! Mastergain and SBI Magnum Multiplier would have NAVs of Rs. 20 and market price of Rs. 100 ! Then of course came the crash after his scam was exposed. That was my first real experience of capital markets.

WF : Did the Harshad Mehta scam scare you off equity related products?

Sadashiv: On the contrary, it opened my mind to a new set of possibilities. I saw how hungry people became for returns. I saw the excitement in them. I understood the power of capital markets to create wealth. I also understood how to create and how not to create wealth.

When private sector mutual funds like Kothari Pioneer, Templeton and Reliance came in with their equity funds, I began selling them as I became convinced that these would outperform all the other products that I was selling, over the long term.

I made a call in my business at that time that I would purely focus on mutual funds as I was convinced that these were much better for my clients than all the other instruments I was selling at that time. I was one of the few who decided to get out of all forms of fixed return products back in 1997. I did not renew my PPF license in 1997. I did not get into the Bima Nivesh craze at that time. My father was upset with me on this decision. But there is one thing I understood clearly in 1997 - and that was that all these fixed return instruments will not help my clients stay ahead of inflation - only equity funds could do that for them.

As things turned out, my conviction paid off. Between 1998 and 2000, not only were many of the assured returns schemes withdrawn, but my investors made a lot of money in equity funds in the boom of 1999 and 2000.

I was fortunate that I never recommended technology funds at that time - I only stuck to diversified equity funds. My clients suffered less in the crash that followed in 2001. Between 2001 and 2003, I was one of the biggest sellers of equity funds in Mumbai. AMCs told me at that time that my volumes were higher than many of the national distributors too, at that time, in equity funds. Many of these distributors were busy selling income funds and completely ignored equity funds - while I did the opposite, as I was fully convinced about the wealth creation potential of equity funds, especially when investing at those bottom levels.

WF: How did you instill confidence in your clients to invest in equity funds during a bear market?

Sadashiv: It all depends on the advisor's conviction first and then his ability to communicate and present the picture appropriately to clients. Half the problem with advisors is that they themselves lack conviction in recommending equities in a bear market. Have conviction and keep your advice simple, keep your message simple. Even today, I follow exactly that approach. I never talk about volatility and Greece and Europe and USA and all of those things. That is for us as advisors to understand. All that will just confuse a retail client.

What I tell clients is simple : equity markets have a natural process of ups and downs. It is a natural process that has always happened and that will continue to happen. Events may vary, circumstances may differ - but it is like a law of nature - ups and downs are a natural phenomenon. Once we accept that, we simply have to invest when it is down. That's all.

My ability to get my clients to invest into equity funds in 2001-2003 was a big reason for my success. A lot of my AuM today is due to appreciation in investments made during that time, which we have continued to stay invested. Today, my AuM is around Rs.225 crores, of which over 70% is in equity - and it is all purely retail. I have serviced over 1500 clients - some are inactive today, but many continue to invest regularly.

Clients appreciated my advice, gave me many referrals and thus I have been able to grow over the years. When you meet a client with a reference, he is also willing to take your advice and act accordingly.

WF: You seem to be a very equity focused person - do most of your clients have equity oriented portfolios, based on your advice?

Sadashiv: See actually I handle probably only 40% of my clients portfolios. Despite advising them about the benefits of equity investing for years, they still continue to have some of their money in fixed deposits, in PPF and things like that. Many times, they do this without telling me, because they know I won't approve of it. But I never say anything to them - often, when I am writing out their cheques for mutual fund investments, I see on the counterfoils details of fixed deposit cheques issued. I don't tell them anything - I understand them. They continue to be comfortable with those investments. That's fine. My job is to get more and more of their money into wealth creating mutual funds, while recognizing that not all of it is going to go there. Fixed deposits are not an inflation hedge - so my job is to give them more and more of inflation protection.

WF: If you are intermediating on only 40% of your clients' portfolios, why not offer them the other products too and capture 100% of their wallet? Why stick only to mutual funds?

Sadashiv: First, mutual funds have a variety of products that cater to almost all requirements. Today, FMPs can actually make FDs redundant !

Secondly, you have to understand an investor's psychology. He will always go to 5 people before choosing one person. And even if you are the best, he will always like to have one more person. People like diversification - even in advisors! People also will not put all their money into only mutual funds - they will want diversification. So, what I do is I tell them to invest in other products like insurance and fixed deposits through others and do their mutual funds through me. They all know my views on deposits - I keep telling them that if you invest in FDs, your life will become like a deposit. Stuck at one place, with no growth. Life ka deposit ho jayega!

So long as they do all their mutual fund investments through me and other products through others, I am happy, my customers are happy.

WF: You have been successfully getting many of your clients to invest in MIPs rather than fixed deposits. How do you manage this, especially when the last one year's returns in MIPs have been very poor?

Sadashiv: Yes, one year MIP returns is close to 0%. The biggest mistake that I think advisors make is to sell MIPs with a dividend payout option. That is where all the disappointments come in for investors - when they see fluctuating dividends and sometimes no dividends.

Yes, last 1 year returns have been bad, but I am convinced that with interest rates high and equity markets low, this is a perfect time for investors to go for MIPs. You will be able to get good returns plus tax efficiency, which an FD cannot match.

I have been advising MIPs as a better alternative over FDs for many years now. Since 2003, the historical returns on MIPs have been 10-11%. There are some good and some bad years, but the long term average is above 10%. I have been doing SWPs for my clients, where we withdraw around 8% p.a. on a monthly basis. As they delivered more than 8%, the capital also grew. After 3 years, I increased the SWP to 9%, as the corpus had also increased over time. Clients were so happy that the SWP was increased - they understood the power of this instrument. They are happily increasing their allocations to MIPs.

Yes, investors who came in for the first time into MIPs 1 year ago are upset, they are angry. But, that is where your role as an advisor comes in. The way in which you explain things to them, the way in which you give them confidence to stay invested, the way you give them the confidence to invest more because you think that is best for him - that is what makes the difference.

Investors buy you, they don't buy products, they don't buy this MIP, they don't buy that Equity scheme, they buy you, and they buy what you say. I always believe my clients buy me, not my products.

WF: One of the amazing facets of your business is that you serve over 1500 clients - single handedly. You have no other sales / advisory person in your team. How do you manage this seemingly impossible task?

Sadashiv: Yes, I am the only advisor in my firm. I have people for transaction execution - but for advice, its only me. I manage somehow - I am out meeting clients from morning upto night 12 o'clock. Day time I meet them in their offices - in offices I can meet even 10 clients at the same time. Evenings I meet them at home, with their families. My average is to login 40 transactions per day. Some days it is more, some days even as low as 20. But on average, I login 40 transactions per day.

WF: On a more personal note, Sadashiv, you suffered a fairly serious accident in 2007. How did it happen and how did that impact your outlook on business?

Sadashiv: I was a bike fan (even now I am one). I used to have 4 bikes including an imported Honda CDR 4 cylinder engine bike which could easily go upto a speed of 250 kms per hour. The accident happened on my normal bike at Bandra - a young biker hit me from the back. It was very bad - I had multiple fractures all over. My face was fractured, jaw was fractured, my leg was in three pieces, hip dislocation and knee dislocation.

The police put me into Bhaba Hospital - the hospital people didn't give my wife much hope. My wife however called one of my clients - a leading orthopedic surgeon from Hinduja Hospital. He came rushing at 11 pm in the night and began my treatment. For 4 months, I could not even stand and it took me nearly a year to recover. Between my wife, my doctor and my physio, they got me back to standing up and walking in about a year's time. My wife's support is what saw me through all of this - for months, I could not get up and do anything - it was she who was always by my side. She and my doctor have done such a phenomenal job that now, anybody looking at me can never make out that this is the same person who in 2007 had undergone such a life threatening accident. Even now, I have a lot of metal in my legs, I can't bend too much, I am not allowed to ride bikes - but I am as active as ever, meeting my clients and logging in transactions each day.

Once I began recovering, she also understood one thing about me - that I would never be fully normal until I went out and got back to work. She knew how restless I was. So, she gave me a car, a driver, crutches and a helper - and with that, I went back to work, meeting all my clients, getting back into business. All through 2007, I saw on TV the big bull market, the huge volumes of MF business being done - and I was feeling left out. My younger brother helped out some of our clients who needed things to be done - but I was out of action. By the time I went back into the market in 2008, the market started reacting.

Looking back, I think it was just God's wish - I was out of all the madness of 2007, did not sell any of those infra funds to any of my clients at the peak of the bull market. In fact, clients who went ahead and invested in equity funds in 2007 through other distributors came right back to me after 2008, with bad experiences that they never had through me !

WF: Hats off to your positive spirit, Sadashiv ! One of the other comments I have seen you make is that 99% of Indians will not create wealth and only 1% will become rich. Why do you say that and what role do you think advisors can play to change this?

Sadashiv: All the statistics shows that only 2-3% of Indians invest in equity markets. And even among these, many are exiting equities even as the best days for our economy and therefore our markets lie ahead of us. The best era for wealth creation is ahead us, not behind. You look at all economies in the world - we are clearly among the best placed in terms of wealth creation potential over the next 10-20 years. Each country has had its era - Japan in the 1980s, USA in the 1990s - where huge amounts of wealth was created. Our era is going to begin.

And yet, if things continue the way they are now, 99% of Indians will not participate in the wealth creation potential that our economy offers. We all need to work collectively to increase penetration. Regulators must focus on this as their primary objective. Media must stop confusing people and give them the confidence. All of us advisors have a vital role to play - to give our investors confidence to invest in equity markets and help them create wealth. As I have said earlier, many of us advisors lack the confidence ourselves - we need to first change that.

WF: How have you tried to adapt your own business model to the huge amount of regulatory changes ever since Aug 2009 ?

Sadashiv: Upgrading of our skills is what the regulator is asking for - which is normal - and we must continue to do that. This record keeping aspect is an additional burden - many of us are not used to keeping records of each and every bit of advice we have given to hundreds of clients - that is going to be tough. I will now have to start documenting client profiles - I know them very well - its all in my head - but I have to start documenting all of that now.

The i-mentor workshop that you conducted for us was a big help, along with the Wealth Planner software that you have developed. These kind of initiatives help us keep up with regulatory change. Wealth Forum can help is in a big way. We IFAs are all scattered and we are not able to take out the time and effort to make the changes ourselves. Your workshops and software support help us deal with these changes quite effectively.

We have to adapt to change. We cannot fight it.

WF: One key point of the regulator is that the IFAs should to start charging clients. What is your view on charging retail clients - is it practical ?

Sadashiv: I would definitely love to charge. But, with an Indian investor's psychology, it is very, very difficult. Even elite clients will start arguing on charges.

The regulator should understand that at least in the retail world, charging is very difficult. Their focus should be on how to increase penetration, not on how to make distributors charge fees.

WF: Finally Sadashiv, as one of the leaders in the retail space, what would you suggest to your fellow advisors - many of whom are worried about the future of their business models?

Sadashiv: Firstly, you must have conviction that there is a huge potential for this business. More and more retail savers will have to put money into mutual funds - we are just going through one of those down cycles that always happen - but once we are through with this period, markets will go up again and more and more money will come into mutual funds. Many people who do not understand this basic cycle are turning away from this business, which is wrong. You must have a vision, you must have a foresight about where you see this business 5-10 years later. In my own case, I decided back in 1997 to give up all fixed income products and focus on mutual funds because of their superior wealth creation potential. I have never looked back since then. You must have the conviction in your business and be prepared for up and down cycles.

The other point I would like to highlight is that you need to constantly upgrade yourself, your skills and your knowledge. Regulations are making you upgrade - don't fight it, go ahead and upgrade yourself. If you do that, you have a great future ahead of you.