Tag: ULIPS

Picture a lazy Saturday morning. You get a call from a soft-spoken representative of one of the well-known private sector banks, telling you how they have customised a neat deal encompassing services, offerings and add-ons just for you.

Surprised? Don’t be! As the number of rich individuals grows in the country, banks are developing services for the well-to-do so that these customers bank with them. Most of these promised goodies will cost you virtually nothing. Banking services for the rich carry names that contains words such as wealth, privilege, preferred, class, priority, league and premier etc., and this itself is a great ego boost for customers. But remember that beneath the super-slick glib, the grandeur and the goodies, there is always a profit motive. While this is not wrong, you will do well to know what’s at stake before you sign up for such services.

A good hook

Broadly speaking, banks generate money from three areas: interest income, capital markets income and fee-based income. With intensifying cost pressures and rising competition, banks are trying to find clients who can generate a good amount of revenue individually. A high-income professional customer, a highly paid salaried customer or a businessman customer can help a bank bring in more income compared to scores of savings account holders who merelyhold small deposits at a bank.

Customers are segmented based on the total relationship value (TRV). This is an aggregate of the value of the savings balance, fixed deposits, investments, etc. Depending on this total value, banks will offer you various levels of service. Common offerings across banks aimed at rich customers are personalised banking services via a dedicated relationship manager (RM), priority servicing, discounts on many products including lockers and demat accounts, relationship pricing and waivers on a variety of products, including loans, and services. The higher the TRV, the bigger is the range of services and products offered – a client relationship manager, a wealth manager/investment counsellor, invitation-only credit cards, access to exclusive events, etc. All these goodies have a direct relationship with the core revenue areas for the bank.

Measured bet

It may be easy for the bank with which you have an existing relationship to know the details of your ‘relationship value’. But for other banks to attract you, your details need to be dug out. Business intelligence teams, with the use of big data, map prospective customers based on your transactions such as credit/debit card payments, shopping pattern, etc.

It’s an attractive proposition for a bank to become primary bank for a rich customer. Once onboarded, there are ways to ensure that such a customer stays with the bank. One way is by offering loans. Even the rich and high-income people need loans, obviously for different purposes than the hoi polloi. Second, is by selling various investments and insurance products which will result in a sticky relationship. Not only do the investments facilitated by the banks provide fee income, once people have a bank account linked with income tax, mutual funds, stocks or insurance, they hardly change the bank. Third, in case of business or self-employed rich customer, offering a current account gives additional float (money) and keeps the transaction volume up. If employee salaries or vendor payments are paid, then cash management services come into play.

Do your homework

From a customer point of view, getting top-quality banking services is a feel-good experience. But it is important to not let down your guard. Customers who are NRIs, those who play a passive role in terms of decision-making and the elderly are often at the receiving end. While your networth could have attracted banks, you need to shield the same by doing your homework and not making wrong money choices.

Fresh graduates or MBAs are recruited to become RMs and are often given sky-high sales targets and may often sell financial products without fully understanding them. Since customers, even the rich ones, lack proper financial knowledge, the chances of mis-selling are high. The YES Bank case where perpetual bonds were sold to HNI customers is a classic example. Your RM must advise keeping your best interests in mind. On your part, spend time to understand the product well and weigh every investment decision carefully.

Be it taxation, investment, financial planning or even succession planning, it is important to choose a professional whose interests are aligned with yours. In an atmosphere of surplus liquidity and low interest rates, banks may no longer be excited with your deposits alone. They may want to lend to get interest income, see you trade or invest regularly to get a sustainable flow of non-interest income. You can also hire a SEBI-registered investment advisor to guide you.