02-648-2018-1
SAROH INVESTMENT ADVISORY
It was Fall of 2018 when Abbas Raza, CEO of Saroh Investment Advisory was reviewing some files for the
annual meeting with his team on investment planning. He had been contemplating on what advice each of the
team members should receive, as they had unique challenges and the advice and solutions had to be customized.
It was not a matter of dishing out standard advice, which had unfortunately become part of the advisory
landscape in Pakistan. The clients had to be advised with a deeper understanding of their financial security, risk
appetite, investment horizon and personal preferences.
Raza had established SAROH Investment Advisory in January, 2017, with the stated goal of providing
customized and comprehensive investment advisory services. In Pakistan, till now investment advisory was a
limited business focused primarily on three categories only: the first and the oldest was the real estate broker,
who advised clients on the viability of real-estate deals; the stockbroker came under the second category and
advised clients about potential investments in stocks and bonds, and the third and latest category comprised
financial institutions and insurance companies which focused on fund management catering to various
investment needs of clients.
Investment advisory services, a rarity in Pakistan, were focused on needs of individual investors, and advising
them on a choice of investing using various available products. The clients were usually high net-worth
individuals who sought advice on how to build a portfolio of assets to cater for their long term plans. However,
services focusing on middle and upper-middle income groups were almost non-existent. Financially savvy
people usually helped their friends and family with such advice.
Raza’s motivation for starting the investment advisory service was based on feedback from his family and
friends, who had been complaining that all financial institutions were purely pushing their products, without
any regard for individual needs. This situation was typically caused because the financial institutions had
incentivized their teams to sell investment products with the sole objective of increasing customer numbers,
often without detailed financial planning tailored to client needs. Low financial literacy in the country and
bombardment of advertisements resulted in people with spare funds sometimes succumbing to persistent sales
agents. Raza felt the need for an investment advisory service with a vision which s concentrated primarily on
the needs of the clients and helping them find appropriate financial products.
New clients usually came to Raza having heard of his services from someone they knew. As a rule, all new
clients spent their first session defining their financial objectives. In Raza’s view, this was the most important
meeting and a unique idea which he provided. In the first meeting he wouldn’t discuss any products, but try to
understand what kind of financial goals the customer was thinking about. Raza would also discuss the capacity
and timings of future investments the clients could make and any constraints or obligations on such investments.
Once the financial needs and future cash flow constraints were identified, Raza and his team would try to devise
the most appropriate investment scheme for his clients. They would usually have more than one option for the
clients to consider and finalize. Sometimes, the clients would request Raza to manage the funds for them in
exchange for a small fee.
This case was written by Dr Omair Haroon and Dr Syed Aun Raza Rizvi at the Lahore University of Management Sciences to serve as basis
for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. This material may not be
quoted, photocopied or reproduced in any form without the prior written consent of the Lahore University of Management Sciences.
© 2018 Suleman Dawood School of Business, Lahore University of Management Sciences
Saroh Investment Advisory
02-648-2018-1
The clients would usually look at a wide range of investments, namely: stocks, bonds, modarba (Islamic equity
funds) certificates, National Savings Schemes, mutual funds, real estate investments, etc. This list would
gradually be narrowed down to suit the needs and inclinations of the clients. In the coming week, Raza had three
meetings scheduled with clients he had already met once, and had jotted notes on their needs and financial
objectives. He began reviewing his notes to come up with sound solutions for his clients.
The Syed Family
Mr. Syed had recently called Raza and talked about how one of his neighbors was making good money investing
in Pakistan Stock Exchange. He was wondering if this could be a good avenue of investment for accumulating
his children’s education fund. Raza then met Mr. and Mrs. Syed, both government employees, whose major
concern was to provide quality education to their 3 kids, aged seven, five and two. With the rising trend of private
sector education systems, the couple was concerned about the immense costs attached with quality. Raza and
Mr. and Mrs. Syed concluded that they should consider private schools for A-levels before they choose a suitable
private university. Generally they expected their kids to start A-levels at the age of 16, followed by four years
of university for an undergraduate degree. After doing a survey of schools in their vicinity, and calculating an
annual increase of around 5% in fees, they estimated that A-levels expenses for their two older kids would be
PKR 500,000 per year, and 4 years of university would cost PKR 1,000,000 per year; whereas for the youngest
child, the costs would be 10% higher.
Mr. and Mrs. Syed knew that with their limited source of income, they would need to initiate a savings plan very
soon. They intended to accumulate enough funds by the time the eldest child started A-levels. Raza began
contemplating whether Mr. and Mrs. Syed should enter into a savings plan for 8 years for all 3 kids together, or
a staggered plan for each child. A staggered plan would involve starting investments and accumulating funds for
each child separately. Such plans can reduce the burden of cash outflows in the early years but would continue
for a longer term until the needs for the youngest kid’s education started. Raza had talked to a bank about their
saving plans and they had offered an interest rate of 8% on savings plans specifically designed for such purposes.
Dr. Fahad Mehmood
Dr. Fahad Mehmood, a 32-year old was working at a leading private university in the country. While he enjoyed
his job, he was concerned about his post-retirement life since his private sector job did not offer housing or
pension benefits. After much contemplation, he had approached Raza, a couple of weeks ago, for guidance on
how to manage his finances. Dr. Fahad had always wished for early retirement in order to be able to spend some
quality time with his family. He had recently inherited a small fortune, and his dream of retiring early seemed
more achievable now. He planned to invest his money in relatively safe assets, so as to be able to have enough
funds for a comfortable retirement. He was intrigued by his some of his friends boasting about fantastic returns
they had recently made by investing in stocks. He was wondering how much of his fortune he should save and
how much could be invested in suitable assets. In this regard, he had informed Raza during their meeting that he
had ideally planned to work till the age of 50. Following retirement, he wanted to build a house in Rawalpindi,
for which he has already made a down payment in Bahria Town worth PKR 5 million for 2 plots of 500 square
yards each. He had to pay another PKR 8 million over the next 5 years in equal installments, and expected the
construction of his house to cost around PKR 30 million at that time. Upon his retirement, he planned to sell 500
square yards of his land for PKR 15 million, and use the proceeds towards funding construction of his house.
Dr. Fahad had recently come across advertisements for increased profit rates offered through Behbood
Certificates.
2
Saroh Investment Advisory
Figure 1:
02-648-2018-1
Increase in the Profit Rates of National Savings Schemes
Source: National Savings, Twitter post, September 5th, 2018, 4:55 p.m., https://twitter.com/savingsgovpk/status/1037308280979300353,
accessed October 2018
With no pensionable job, Dr. Fahad was considering investment in the National Savings Scheme’s Behbood
Saving Certificate for meeting his living expenses after retirement. These certificates paid monthly profits in
perpetuity. Fahad estimated his monthly expense would be around PKR450,000. He was also going to receive
Rs.300,000 per month as his share of profit from a family business. Raza had calculated that using several
investment options for Fahad, the relevant discount rate would be 10%.
Kamran Ali
Kamran Ali, a famous surgeon in Lahore, volunteered quite a bit at charity hospitals in low income
neighbourhoods of the city. However, he had started feeling disillusioned with these charity hospitals, and
wanted to establish a model trust hospital. After discussing the idea with some of his friends from medical
school, he planned to establish his trust hospital project within five years. On the advice of one of his childhood
friends, Kamran approached Raza to discuss financial planning for his dream project. Kamran had appraised
Raza in the previous meeting that he and his friends estimated the hospital would start with a 2 room outdoor
patients' service. This would cost PKR 20 million for construction, and the land would be donated by Kamran.
In addition to that, it would cost PKR 1 million per annum to maintain the outdoor centre. After two years, the
hospital was to be expanded to include a surgical ward, which would cost another PKR50 million for building
and equipment, and an additional PKR 5 million per annum for running expenses. Kamran and his friends had
decided to set up a foundation to support this project for 10 years and wanted to start a fundraising campaign.
Raza opined that these funds should be invested in fixed income generating products which would generate a
9% discount rate.
3