Alignment first, rest later …

Why Alignment of Interest Sits Right at the Top

While engaging a wealth manager, there are many aspects one must consider. However, the one which sits right at the top is alignment (of interest).

The fundamental expectation from your wealth manager is that they take care of your interests, isn't it? Now for that to happen, it is absolutely critical for you to ensure that only you are taking care of their interest. In other words, they derive their earnings only from you (and like you, from other clients of theirs), and no one else.

This alone ensures that your wealth manager keeps your interest at the centre of every conversation, every evaluation, every decision.

This alone ensures that your wealth manager is well & truly on your side of the table and represents you with the rest of the world - be it the investment industry, other wealth management firms, brokers, distributors, lawyers, tax counsels, trustee companies, insurance industry, cross-border experts, not-for profits, etc.

The Hiring Analogy: Who Takes Care of Whose Interest?

Engaging a wealth manager is similar to a hiring decision. At the core of any hirings you do, is that you pay salary to the person. For the employee you hire (or the wealth manager you engage) to be trustworthy, alignment of interest is a necessary condition. Any mis-alignment or conflict of interest, should be a cause of concern for you.

Straight-Forward Conflicts vs. Subtle Structural Conflicts

A straight-forward conflict is where the wealth manager is earning commissions on the products & solutions you buy based on their recommendations. Here, naturally your antennas will always be up. This is why discerning investors are moving to fee-based arrangements.

What is not so straight-forward is where you have a fee-based arrangement with a firm which has multiple sources of revenue: besides the fee they earn from you, they also earn fee from their in-house investment products, in-house platform, in-house solutions, OR they are on the commission model with other clients. On the face of it, such arrangements seem ok. However, if you go deeper, fissures would start to appear. When the firm you have engaged has multiple sources of revenue, it will impact the quality and wholesomeness of the advice flowing to you.

Is 100% Alignment Truly Possible?

Is 100% alignment possible? Yes, but only if the firm you have engaged derives 100% of its revenue from the fees it earns from its clients. At Serenity, we see the impact of this alignment play out in every interaction with our clients, and in every advice we give.

It is not that we are special or have come from a different planet. It is ‘about the structure' of our firm. And it is 'about the choice' we have made - that we will remain a 100% single-source-revenue firm. The option of earning from other sources is always open. However, the sheer joy & the intellectual stimulation we derive by giving wholesome, unadulterated advice makes this choice an obvious one.

Three Real-World Examples of 100% Alignment in Action

Sharing just 3 examples, from the very recent past, of the difference it makes to have an advisor who is 100% aligned with you.

Selecting a corporate trustee - a family wanted to appoint a corporate Trustee. We scanned all the trustee companies in the market, debated their pros and cons and shortlisted two. Had we been working for a firm which had an in-house trustee company, you would not have come to know of the options. Unless you specifically ask. Incidentally, one of the two firms we shortlisted, runs a full-fledged & very large wealth management business. But that has never been a deterrent for us.

Selecting a GIFT City outbound fund - a family was given a suggestion to invest into a fund which allows them access to multiple global ETFs. The structure was tax-efficient. However, the problem was with the experience of the person managing the fund. No prior track record. This suggestion was made by their existing wealth manager, with whom they have a fee-based arrangement. This firm also owns the fund structure.

At Serenity, we keep a track of all possible options in GIFT. On last count, there were 23 options available. Every option is evaluated on merit and depending on requirement, risk preferences, a shortlist is suggested. Why should you not know all that is on offer?

Selecting a medical policy which provides a comprehensive global cover – a family needed a global medical cover. The insurance provider we zeroed upon initially gave a premium quote which appeared high. When we enquired, we realised that they had included the brokerage that would be paid to us. We reminded them that we are a fee-only firm and they were supposed to give a quote without brokerage. Before sending the revised quote, they again re-confirmed with us: ‘Are you guys sure?’ The element of surprise at their end, and the satisfaction of saying ‘Yes! We are very sure’, lies at the heart of ‘Alignment first, rest later.’