Prashanth Prabhu, Founder of 29k Investment Advisers, chats with Morningstar about his company’s services and how they are trying to differentiate in a market where most advisers offer homogenous services.
Tell us about the genesis of 29k advisory? What does the term ‘29k’ stand for?
The inspiration behind the name 29k is the summit of Mt. Everest at 29,029 feet. Financial success is often associated with the peak, and the similarities don’t end there. There are difficulties associated with scaling the summit while navigating through different stages of the Everest. Attaining wealth and success draws a parallel to this, and we believe it is a team sport, it requires preparation, focus, at times sacrifice, and a coach to guide you through the journey. At 29k, we act as a catalyst by helping our clients attain wealth and success by applying our investment model, “The Prosperity Architecture.”
Most advisers provide homogenous services. How are you trying to differentiate?
Our USP is our investment model, “The Prosperity Architecture.” Instead of giving specific products to our clients, we provide them a blueprint to build multiple streams of passive income. This architecture primarily involves building wealth in the following three stages:
- Foundation: The objective at this stage would be to reach a critical amount of liquidable assets. The main focus being liquidity, we suggest investing in mutual funds and stocks diversified across geographies and currencies.
- Core: At the heart of the Architecture are international assets which provide regular cash flow. UK Property is positioned here to give income in GBP alongside; we work with Investment Banks to create customized investments that produce steady income in USD.
- Performance: This step in the investment model involves leveraged investments like alternative assets, F&O, etc. 90% of the investments are deployed in the Foundation and Core levels, that helps carry out risk management.
Who are your ideal clients? Do you have an AUM filter for prospect selection?
An ideal client for us is an individual with an investable asset of Rs 5 crore or more.
How do you acquire new clients?
The primary source of our new clients is through referrals; the secondary source of our new client’s is through investor seminars.
You also provide property advisory to invest in the UK property market. Tell us more about this business. How can investors benefit from investing outside India? What are the investment avenues in real estate for Indian investors, and what is the minimum ticket size?
Yes, we started investing in the UK property market since 2015. Our primary model is to identify distressed assets and secure the planning permission to add value to the asset and rent it to individual tenants or charity/housing associations. Usually, we achieve between 10% and 25% equity uplift upon completion of redevelopment.
Rental yield in our target areas is between 2x to 3x of India. The primary reason we chose the UK is due to the higher yield and low-interest rates. Refinance options are available between 3% and 5%.
Indian investors can invest through the Liberalised Remittance Scheme (LRS) route, and since India, UK enjoys similar laws and framework, double taxation treaties. It is fairly easy to manage the investment remotely.
The minimum investment will depend if the investor is looking to invest singly or jointly in a syndicate. For a single investor, we look at a minimum investment of GBP1M, and for a syndicated structure, we look at a minimum of GBP100k per investor.
Can you throw some light on the taxation aspects on investing in UK properties for Indian investors?
The marginal tax rates for Indian residents are:
| The total level of UK profits |
Tax rate |
| £0-£10,600 |
nil |
| £10,601 - £42,485 |
20% |
| £42,486 - £100,000 |
40% |
| £100,001 - £121,200 |
60% |
| £121,201 - £150,000 |
40% |
| £150,001+ |
45% |
*data as of Year ending 2017
There is double taxation treaty between India and the UK allowing India Residents to claim tax credits in India for the taxes paid in the UK.
How can advisers tie-up with service providers in the UK if they wish to venture into this business?
There are three ways advisers can access the UK property market.
- UK REIT’s
- Tie-up with UK Developers and Estate agents
- Do it yourself.
I will cover 2 and 3 as this might be of interest in this context.
Developers and Estate Agents:
Developers in the UK offer guaranteed income for a certain number of years provided you buy the property during the development phase. These projects in the UK are found in the Midlands between Manchester and Liverpool. Some in Birmingham, Leeds, Sheffield, etc.
Another way is to work with estate agents to invest in yielding properties, also referred to as “Business in a Box.” The Yield on such opportunities is between 7% and 9% (Pre-Tax and Lettings Fees).
The upside of this mode of investing is that investing can be done remotely without having to visit the UK, provided that the due diligence is carried out on the developer and the estate agent before investing.
The downside is that there is a potential conflict of interest in this model. There is not much discount that can be achieved upfront on the purchase as those margins would go to the developer. The only way to make a return on the investment is via the rental incomes generated from the property. There is a potential currency profit/loss to be factored in. Unlike the past where India real estate has seen a substantial uplift to its capital, the UK property investment growth will remain muted or at best grow by 5% p.a. (Exclude London)
We can find two types of investors venturing for the above, first-time investor or an armchair investor. Chances are larger for things to go wrong as the method described is not hands-on and there are unknown variables for advisers as they are answerable to their clients.
Do it yourself:
Property investing is an intense hand-on activity. The journey starts by identifying a strong WHY to invest knowing that an adviser based in India will have to manage their client’s assets in a different continent remotely.
This path is harder than the one covered earlier; however, it is more rewarding and transparent; the margin of safety is better.
To accomplish this, an adviser needs to build a power team that is broader than the estate agents and developers.
The team should consist of A Solicitor, Banker, Accountant, Mortgage Advisor on the financial side, Architect, Planning Consultant, Project Manager, Contractor on the build side and Lettings agent, Insurance Adviser on the tenant find, management and maintenance side.
It could take a while to put the team in place; however there is greater control and visibility for the adviser and their clients. One can purchase the asset at below market value either through auctions or taking up a project with potential that requires a makeover.
What is your current assets under advisory in mutual funds? How are you planning to grow your MF book from here? Are you exploring robo advisory route to reach out to masses?
Our mutual fund and stock portfolio sit at the base of our investment model (Prosperity Architecture). The assets from the core assets as explained above, create passive income streams that are used to funnel into the foundation assets like mutual funds and stocks. Our focus has remained to grow the assets of the clients in our investment model as a whole which ultimately leads to the growth in the MF and Stocks basket.
Robo advisory would solve only part of the requirement as far as assets like MF and stocks are concerned. Our core strength remains to generate results using sophisticated and out of box solutions which are hard to automate completely.
How big is your team? At a time when the margins are shrinking and there is a shift towards automation, how are you recalibrating your business?
Our team size is 15. We do see our team growing to the size of 50+ over the next 24 months. We are currently looking to double our headcount by March next year.
Margins are shrinking in the mutual fund industry; however advisers do have the option to broaden their expertise and to offer solutions that are result-oriented to improve their revenues.
It is not possible to earn active fees for providing passive investing ideas. It is very difficult to justify the value to the client. Example it is difficult to get a seven-figure advisory fee for investing in MF alone. However, that doesn’t mean that the adviser has to limit his earnings. The key is to figure out what would it take for the client to write a seven or an eight-figure cheque to the firm. And almost certainly it is results. Results are easy to sell.
What is your success mantra?
Think outside the box, take risks, no compromise on integrity & values, remain ambitious, build a high-performance team.
