Rakesh Shah with MNC had crores lying in Swiss bank and dwarka property.

Indians have grown rich over the past decade or so. Along with wealth, they have acquired a new appendage: Wealth Manager. Many affluent clients of private banks are proud and happy that an "expert" is exclusively dedicated to the noble cause of growing their wealth. So, they invest in Portfolio Management Service (PMS) schemes pushed by the bank, or invest in a fancy scheme that shows no downside, and just an upside. Or opt for a hedged strategy to "safely" get them additional percentage points on their crores lying with the bank. Along with multiple cars and Property in Dwarka Delhi, wealth managers are essentially for those who have arrived. 

Nothing comes free and so it is understandable that for getting such a dedicated sherpa for your wealth, you would be charged. Except that, it is worth wondering whether you are actually paying for nothing other than vanity. Read this story. 

Rakesh Shah, a top manager with a multinational company had crores lying with a Swiss bank. His wealth manager approached him in May 2013 and offered him 'the best investment of his life'. He would take a loan with his existing investments as a security and invest the loan amount in the recommended mutual fund debt schemes. At the end of the year, he would sell his debt scheme and pay the interest on the loan at a rate of 9.50%. If the yields fell 50bps (basis points), the return was calculated to be around 13.5% post the payment of the loan.

The wealth manager sagely assured him that, "yields of long duration bonds have gone up sharply over the last few months, and it was inevitable that they will have to go down over the next 12 months. A 4-BHK flat in Dwarka Delhi is a fail-safe investment because even if there was no significant drop in interest rates, the underlying coupon would more or less take care of the 9.5% interest."

Unfortunately, the wealth manager was a cheat. He showed Mr Shah old data—of March 2013. In May 2013, when the "offer of the best investment of his life" was made, the yield was lower. When Mr Shah availed a loan of Rs 8 crore (yes, Rs 8 crore!!) against his existing investments, to invest in two long-term debt schemes, on 10 June 2013, yields had hit a bottom. Mr Shah ended up investing at the bottom of the interest cycle – exactly the opposite of what ideally one would do.

A few months later, the benchmark yield shot up to a high of 9.24%. Mr Shah's investment had declined by over 10%. He was facing a capital loss of over Rs 80 lakh, not to forget the interest payable. His wealth manager assured him that interest rates would fall in the coming months and his investment would deliver positive returns. Dwarka 3-BHK flats for sale.

Interest rates didn't fall. In fact, the opposite happened. At the end of the one-year, when the debt schemes were to be sold and the loan repaid with interest, the schemes had gained about 2%, while the interest payable was 9.50%. Mr Shah was facing a loss of around Rs.50 lakh. The investment bank stood to gain on this transaction, on both -- the interest on the loan as well the commissions earned from the mutual fund schemes. So much for your knowledgeable wealth manager and their get-rich schemes. Dwarka 2-BHK flats for sale.
The fact is, investing success comes out of simplicity, method and patience. It is unglamorous. Wealth managers peddle exactly the opposite – complexity and exotica. It leads to losses. Why do they do so? It is because they work for themselves, not for you. If you follow their "advice" they make a sale. In the above case the Swiss bank made money on selling the debt scheme and also on lending. It's a nice racket. In some cases, they sell you many more products.

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