It’s a formidable list.
Their personal experiences of building businesses, working with marquee investors and having access to a network of founders and promoters gives the IIFL Wealth team deep insights on how to do this right.
Some of the buoyancy around start-ups has abated in the past six to nine months, as several high-profile ventures have been called out for their choppy operations, skewed balance sheets and poorly calibrated expansion plans. Many start-ups in segments such as food technology, for example, have seen closures, retractions and de-growth. The IIFL team is not worried about this tempering of sentiments. In fact, they say, the froth settling down will help in making judicious investment decisions. As the book goes to print, the IIFL Seed Ventures Fund is still to make an investment.
Where they have invested smartly is in the team they have built.
People power
Keeping the long-term in mind and embedding it as a culture, especially in a relationship-oriented business such as wealth management, had to come from having the right people on board.
Successful relationship managers are the central point of contact for clients, for executing transactions, providing convenience and being accessible. Above all that, their role in the business goes further: They need to intimately understand their customers’ financial situations and become advisors, not just executors.
In wealth management, in most firms, as in IIFL Wealth, the relationship manager who acquires the client usually serves as their relationship manager as well. This requires the same person to both chase new business and have an equal measure of self-restraint when pitching to the client and setting expectations.
IIFL Wealth has laid out for itself an attitudinal combination for a perfect hire that was tough to match: A hunger for growth combined with the patience for the long haul.
Employee ownership — by way of equity — has been crucial in getting this mix right. It takes care of locking in senior employees for a longer-term, prompting greater patience.
As a consequence, employees with actual ownership of the business have given IIFL Wealth a competitive edge that others in the wealth space can’t offer. It’s a pretty good example of how running a business like it’s yours, under a larger umbrella, and knowing that there is a huge growth potential, a senior banker says.
As a consequence, employees with actual ownership of the business have given IIFL Wealth a competitive edge that others in the wealth space can’t offer. It’s a pretty good example of how to run a business like it’s yours, under a larger umbrella, and knowing that there is a huge growth potential, a senior banker says.
The rewards of the model were there for all to see after the General Atlantic transaction in October 2015 where eighty nine employees had ownership stakes that translated into approximately 1,500 crore came into significant personal wealth.
The company’s equity has since become a more legitimate currency. In the early days, it was really just cruising on a hope, wing and a prayer. Now, people coming in know it’s a place where they can settle in and work hard to create wealth for themselves, the founders say.
It has significantly bolstered IIFL Wealth’s ability to hire. Over the past year, they have brought on board large teams of senior private bankers from Barclays and Standard Chartered. This is helping shore up their reach in cities such as Bengaluru, for example, where they have only recently begun to see the kind of traction they had hoped for.
This stability has also made them stand out from the global wealth firms in India, many of which had seen a steady rate of attrition, including transfers within the organisation. That relationship managers were constantly churned in wealth management units of banks was a criticism that came up often during my interviews with clients.
Clients aren’t happy with having to constantly build new relationships with managers. Even when the transfer of the portfolio proves effective, it’s difficult for a new relationship manager to hit the ground running.
Typically, several verticals of a bank are dependent for business on the same customer. As oft-accepted, sales and relationship managers are moved within these departments, possibly to make sure that one individual doesn’t “own” the client, and that the client always belongs to the bank, not the person servicing them on its behalf.
Sometimes, the relationship managers are the problem, believes Apar Group’s chairman Dr Desai. Several have their eyes on next postings to London, New York and Hong Kong, and that it was never good to feel that his business was a stopgap, short-term objective to that eventual goal, he told me.
A steady pace of attrition was also to blame. It made clients perceive their relationships with their advisors to be temporary and transactional.
Since the firm began, the founders claim, they have lost less than 5 per cent of their senior employees. Attrition at the firm for the top fifty people has been “nearly zero”. The only notable exit has been that of Kaushik Deva, a managing partner, who had joined the firm in 2012 from BNP Paribas but left in early 2015. The large team that he had brought in though from BNP is intact at IIFL Wealth, a testimony to the growth opportunities employees perceive they have at the firm.
Stability across the middle and senior management has enabled a sustained client engagement; as has the fact that some early clients are still managed by the sales relationship managers who brought them into the firm six or seven years ago. Institutional memory and ability have both benefited.
Pravin Bhalerao, IIFLW’s Pune-based managing partner, feels that the tenure of relationships has several advantages. They might be a young company but the three founders and four managing partners, including him, each had more than fifteen years of experience in the field. That makes for several ‘client-decades’ in experience.
Client relationships yield profits for the firm only after a few years. For clients to see the same faces, continually and consistently, Bhalerao believes, helps establish credibility — even more so, when the industry has gone through so many changes. The tenure of the relationship usually indicates consistency of delivery, he says.
It also means that getting the right people on board, and having them stay with the firm, is critical for success.
The relentless hunt for talent
Vinay Ahuja joined as a managing partner at IIFL Wealth in early 2014 after several years as a senior private banker heading Morgan Stanley’s business in south India, mainly Chennai and Bengaluru.
Over the past eight years, if there is one region that has stumped the IIFL Wealth, it has been the south. Their growth there has come only in the last two years. Much of this had to do with the inability to build a good team in these geographies. Largely driven by independent financial advisors, finding a good team in these cities was proving to be a tough battle. It’s why Karan had been chasing Ahuja to join the company since mid-2008.
Over the nearly five and a half years before he eventually joined, Ahuja and Karan met countless times for lunch in Chennai, where Ahuja lives. Despite Karan’s insistent hard sell, Ahuja seriously began even considering the offer only in mid-2012 after the company’s name started cropping up in conversations with his clients in Bengaluru. Those who had worked with the new company had good things to say about them and Ahuja said it was becoming difficult “not to be impressed” by what IIFLW had managed to do in such a short time and so convincingly.
Till then, he had been sure they had caught a strong gust of beginners’ luck but would eventually buckle under. By 2013, five years after IIFL Wealth had started, the “fluke-win” theory no longer seemed to add up, Ahuja says.
Ahuja wasn’t the only one who proved difficult to convince when it came to hiring. In the first few years of operation, the founders said it took them nearly twenty to thirty man-hours each to convince nearly everyone who joined.
Often, convincing them wasn’t enough. Private banking is a small industry in India, with very few experienced people carrying a book of existing client relationships. Competition for good r
elationship managers was intense, especially since there were so many wealth management ventures starting up around the same time. Even after offer letters had been accepted, making sure people joined would prove to be a struggle because every resignation kick-started a competitive hiring frenzy.
This isn’t unusual for most new ventures. Without the comfort and arsenal of a big brand name or a certified growth trajectory, attracting talent to a new company is often an uphill task. Yatin remembers how it often felt like they were being interviewed and grilled by the people they wanted to hire. They were forced to bring their best client pitching skills to employee acquisitions!
The biggest perk on offer, the founders say, especially to middle management and senior employees, were stock options and an opportunity to create wealth. Few others could offer this. Large banks obviously couldn’t go down that path and few of the domestic companies had adopted the shared ownership model.
Still, in the first few years, given the uncertainty and flux in the industry, the IIFL Wealth team admits to being quite kanjoos (stingy) about spending the 22-crore ($3.3 million) capital that the parent company had put in for its 76 per cent stake.
They couldn’t afford to continually entice large groups of senior private bankers to join — they were just too expensive. Instead, they decided to hire bright, young management graduates from good business schools with a sharp nose for business sense and an entrepreneurial spirit.
Hiring young people gave the company an added advantage of tapping into a generation of professionals — mostly in their mid 20s — who hadn’t seen a recession or slowdown. Their memories weren’t scarred by downturns and they didn’t play on the back foot.
With senior people, it was critical to get the fit right. Karan made a habit of meeting prospective employees countless times.
For example, Papneja, who worked in, Societe Generale at the time, met Karan nearly ten times from January to September 2009, talking for hours about his ideas on investment vehicles and products. Armed with a repertoire of doubts and questions, Papneja spotted the entrepreneurial opportunity, within the first few meetings. Yet, during these marathon sessions, Papneja said Karan never ‘popped the question’ till around June, when he was leaving off for the US on a holiday — and had more or less given up on IIFL Wealth. He eventually joined IIFL Wealth in September 2009. ‘Karan wouldn’t agree’, Papneja laughs, ‘but I would have joined sooner if he had made up his mind faster.’
In hindsight, the entrepreneurial yardstick developed into a filter of sorts. There was so much chaos in the first couple of years, what with their business model being tweaked from a fee-based to an advisory-based one, to a combination of distribution commissions and fees, that it was only those who enjoyed working in that frantic and fluid atmosphere were likely to join. Most people who came on board in the early years also had to hit the ground running because any hiring needed to keep plugging gaps as they emerged.
From 2013 onwards, hiring became easier, as the company’s reputation got built. In fact, the General Atlantic transaction’s biggest benefit — besides a cash inflow to bolster the ability to lend to clients at better rates — has been the ease in hiring.
Within a few weeks of the transaction, the ability to convince other people of the value of the company had gone up ten fold, Karan tells me. A big reason people joined IIFL Wealth was that the company created wealth for its employees. While offering stock options to new hires, the question of the company’s valuation would always come up. ‘Everybody would make their own calculations; some believed the company was worth 2,500 crore ($375 million), while others put the figure at 3,000 crore ($450 million),’ he says.
With the GA validation, equity has become a more legitimate currency to trade on and has given them the ability to better structure compensation for new hires. Within months of the transaction, IIFLW was able to hire a large team of nearly ten private bankers for the south, especially Bengaluru. The company still only nets 8 per cent of its revenue from there, as opposed to its largest competitor, who Karan reckons, possibly net 20 per cent of its revenue from the city.
Yet, even with an added advantage for bringing talent on board, the founders say, people remain the greatest inherent risk of a business such as theirs. Losing people for any reason, be it due to compensation expectations, morale or integrity is more likely to upset its growth than even regulatory changes or macro events.
As the organisation has grown, no longer does the senior management control all relationships. The relationship managers helm the company’s most valuable asset: Client relationships. A disruption in that could prove difficult to manage.
With growth, the human resource challenges have changed as well. No longer is acquisition for talent their primary concern. With over 220 people in sales, they are already the largest wealth management firm in the country.
Big shifts have taken place in the last year or so. In a largely sales-driven enterprise, the hierarchy has been flat. The four managing partners — Vinay Ahuja, Pravin Bhalerao, Anirudha Taparia and Himanshu Bhagat — and the two co-founders report to Karan, the CEO. All other relationship managers and senior private bankers reported to these six. Some of their most successful private bankers manage 5,000 crore ($750 million) in assets each. To structure their progression within the company is a challenge. How does one do that without creating too many hierarchies? The group of senior private bankers they have added pose a similar challenge.
The increase in the number of managing partners also demanded a delicate balancing act. The founding team, especially Yatin and Amit, had to get used to the expansion of the management team where everybody had an equal vote. In turn, more recent additions to the senior team had to learn to appreciate the equity structure the founders had devised, as well as the emotional bond that the early employees continue to enjoy with the founders.
In a fast-growing company — especially one where people are the centre of the business — calibrating these personal dynamics is critical. In the case of IIFLW, the fine balancing act had to stem from the top. Multiple co-founding teams have the unenviable task of constantly aligning and adjusting management styles to the tempo of the business.
Management literature is teeming with case studies of founder dynamics wreaking havoc on high-potential businesses. How founders work together can make-or-break a venture. Karan, Yatin and Amit realise that: When asked how they have managed to do this, they say it evolved organically. They might make light of the challenges — at least, to someone on the outside — but how they have managed to make it work offers an interesting look of how entrepreneurs must grow to become business builders.
Founders Code
The division of labour within the co-founding team works somewhat like this: As the CEO, Karan heads the company’s strategic direction. He’s logical, analytical, conservative in his risk appetite and driven by data: His ability for rapid calculations and quick computations has impressed both clients and employees. It explains his love for poker: A game most enthusiasts enjoy for its scope of statistical probability and varied permutations.
He is the architect behind the company’s platform, the one who best understands how different verticals interact with each other, much like how a coder will know a programme he has built. His conservative, calculated risk-taking has defined the company’s DNA as well. Not even forty years old as this book goes to print, Karan somehow seems much older. His natural style is that of a workhorse, not a show horse: He’s dressed unremarkably and isn’t easily given to hyperbolic terms such as mission and vision that, over years of covering entrepreneurs, has become par for the course for business journalists.
There is little of the bluster and bravado of being a successful entrepreneur, somebody who has built a company with a valuation of more than 5,000 crore. He seems almost stoic, when having to talk about the company — especially when it’s not a client.
When he sells to a client, his team members say he’s “school-master-ish”, doing
calculations, drawing out models and lowering his tone and pitch of voice to prompt answers from the clients, much like how a teacher would do with their students.
Over the four years that I have tracked the company, it’s undergone big changes. In early 2012, when I first met them, it was still a spunky challenger that others in the industry believed would “blow up” soon enough, although they managed assets upwards of 20,000 crore ($3 billion) by then. In 2016, the company is comfortably entrenched as one of the largest wealth management firms in the country; even their harshest critics acknowledge that their steady rise is noteworthy.
Nothing in Karan’s temperament or attitude seems to have fed off this trajectory though. He seems almost dismissive of media attention, isn’t interested in crafting an image and doesn’t seem to enjoy being at industry forums or entrepreneurship events unless these are places where potential clients might be present. At a time when the celebration around start-ups and successful businesses has reached an almost feverish, shrill pitch, he seems immune to that glamour.
Yatin comes closest to the image one might have of an affluent private banker working and socialising with the city’s most successful and wealthiest people. Fashionably attired, flamboyant and ambitious, he’s the firm’s enthusiasm benchmark, easily given to excitement while talking about either the company’s achievements or its potential for growth.
In a sense, Karan and Yatin are studies in contrast. While the former brings an academic subtlety to his pitches, Yatin is an aggressive sales person, leaving no one in doubt about his intention of getting new business or converting a client.
The Wealth Wallahs Page 19
