The moment someone’s portfolio crosses a few crores of rupees, the phone calls change. The humble agent or relationship manager now becomes (a better-sounding) wealth manager or private banker.
Sadly, that is not where this ends. In fact, it is the start. Specially curated and availableexclusively- to-a-select-few exotic products start appearing in regular conversations — structured products, complex-sounding portfolio management services (PMS) and alternate investment fund (AIF) strategies, pre-initial public offering (IPO) deals, private credit funds, and insurance wrappers with fancy riders suddenly find their way into the discussion.
The underlying message is subtle but powerful, and something anyone would want to hear: you are special, you deserve more. And simple products are too ordinary for you now. These status games are the reason why otherwise sensible people begin to slip and start falling for products they did not need.
Complexity as a status symbol
In our financial world, complexity is often associated with sophistication. And this sophistication then becomes a status symbol. Many high net-worth individuals (HNIs) often get into complicated investment products because they think they’re getting something special. Something that is good to talk about. And being invested in something your neighbour can’t access in itself starts to feel like validation of the wealth itself. Whether that something actually improves investment outcomes or not becomes secondary.
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If you qualify as rich, then you would not want to hear this: being rich does not automatically make you a better investor. It just means that you get sold to differently. And it makes you more vulnerable and a better target! The so-called special access that comes often just opens doors to complex, higher-fee, products that you don’t really need.
Incentive problem
It is easier to blame individuals but the problem is deeper rooted and systemic. These wealth managers (and those in similar roles) are just doing their jobs and they have monthly targets to hit.
The exotic products, that are often pitched selectively to HNIs and those with big portfolios, often have significantly higher fee/ expenses which benefits the institution. So, a client with Rs.10-20 crore is far more valuable for income generation than one with a smaller portfolio of a few lakhs. If a complex product can be sold to a rich client (to earn more income for the institution) via exclusivity pitch and storytelling, then why won’t they do it? After all, the business of business is business. (Do read the story about a private bank’s complex AT1 bonds that were sold by their private wealth team to individual HNI investors, many of them senior citizens, without adequately disclosing the risk).
The system is often designed to sell what brings the most commission, not what suits the client. And often, higher commissions are used to sell the comparatively worst and unsuitable products. But clients don’t see through this when so-called advice arrives wrapped in a trusted private-banking relationship opening doors to exclusive products.
None of this means that all complex or exclusive products are inherently bad by default. Some may be a good fit for a specific investor type, a specific goal, or for a specific time horizon. Many of the rich people are wise and sophisticated enough to know exactly what they’re buying. The real issue is the incentive quietly sitting behind the recommendation and the notion that lets ‘exclusive-access’ masquerade freely as ‘suitable advice’.
What actually works
In my own experience, I see this play out again and again. Affluent clients walk in with portfolios that have quietly piled up 8-10 different products over the years. A few intelligentsounding PMS schemes here, a couple of AIFs there, some structured notes, a handful of unit-linked insurance plans (ULIPs) nobody remembers buying, and a pile of high-cost funds sitting on the top.
And almost every time after rationalising and cleaning up such portfolios, clients realise the same thing: a simpler, lower-cost core made up of unglamorous and basic instruments would have done the job much better. Less stress, better tax efficiency, and often better risk-adjusted long-term returns too.
Having a large portfolio is a privilege. It brings security as well as the optionality to take calculated risks. However, having more money does not generally switch off the behavioural biases that affect everyone. If anything, it amplifies them.
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Moreover, owning a large portfolio often increases exposure to misselling rather than protect against it, because affluent investors often bring both the assets and the ego that makes ‘exclusive and sophisticated’ products so appealing to them.
Looking sophisticated and being successful are not always the same thing, So avoid complexity and stop chasing exclusivity for the sake of it. More often than not, it leads to investor getting into unnecessary products that never suited them in the first place.
The Author is Founder, Stableinvestor
