Safe and Wise Advisory Limited (SWAL) is well established financial planning & risk advisory firm of the country with nation-wide presence. SWAL…

Safe and Wise Advisory Limited (SWAL) is well established financial planning & risk advisory firm of the country with nation-wide presence. SWAL is engaged in selling third party products be it financial products or insurance products (life assurance only). Financial advisory business of SWAL is doing well and contributing to the half of gross revenue of group and two-third of overall group's bottom line, but insurance brokerage business is not performing as per expectation. 'Independent and impartial advice' to client is unique selling point of SWAL. SWAL was established by Mr. Ravi Verma around two decade ago (when life-assurance business goes private), at then it was one division business i.e. assurance brokerage business. Mr. Ravi Verma is dynamic leader and presently leading the company as CEO, apart from being major shareholder of the company. SWAL is widely acknowledged in market for two distinct features, first being presence wide across the nation, in form of 'sub-agency offices' equipped with professionally trained sale staff headed by financial planner or advisor, where customer can take advise and discuss opinion prior to investing/ buying any insurance or financial product. SWAL has 'sub-agency offices' in 580 cities, towns and blocks. Locations are semi-commercial in nature but prominent. SWAL has practice to sign 30-year lease, when so ever taking and 'sub-agency office' on lease in order to reduce the lease cost and bring stability. Secondly, SWAL sold product of all third parties, hence provide a range of products to its client to choose from. In 2010, SWAL signed a 15 year's agency agreement with all 23 life insurance companies recognised then. SWAL's tagline is also depicting the same ‘we are ethically committed to understand and deliver your needs’. SWAL believes in organic growth and listed on stock market 3 years back to float additional capital to fund more ‘sub-agency offices'. 22 out of these 23 life assurance companies are private and registered themselves with regulatory between the year 2000-2009 for a period of 25 years. Considering the default by few insurance firms and increasing customer complaints, regulator of insurance business in country tighten the registration criteria and harden the norms. Typically each of ‘sub-agency office' comprises three regular and one contractual employee. One being financial planner/ advisor, 2 sales and relationship officer and contractual worker in role of support staff and vested with miscellaneous clerical responsibilities. The on-roll number of employees engaged in assurance brokerage business has been increased to 1,564 from 720 five year ago (up-till 3 year ago number was 845 but since expansion of 'sub-agency' office division it is around 1,500). Market trend is changing, since the SWAL commence the business. Each of such insurance company, now has their own network of branch offices to sale their insurance product directly; that too at more prominent locations. SWAL counter this step by highlighting its 'independence and impartial advice' practice, although SWAL managed to retain the revenue at same level, but this result in low profitability of 'sub-agency office' business. Now these insurance companies are not authorising any new agent. Safe and Wise Advisory Limited (SWAL), a service-oriented company, sought to expand its market reach. To achieve this, SWAL established a dedicated 'E-platform' division, 'Policy at Your Click,' staffed by 50 professionals. Giganet is a service provider offering broadband and voice call services. SWAL intends to obtain broadband connectivity from Giganet to support the operational needs of its E-platform. For data security reasons, SWAL also wants to retain the right to procure the modem from any vendor of its choice at any time. So, SWAL has entered into an agreement (Annexure1) with Giganet for Broadband Services and for Modem procurement on 15th June 2024. SWAL Ltd. requires a robust data management software to store, manage, and secure its valuable data against unauthorized access and malware threats. In pursuit of a reliable solution, SWAL engaged with DBMS Ltd., a renowned and experienced leader in data security solutions. After extensive negotiations spanning over a month, both parties have reached an agreement under which DBMS Ltd. shall provide SWAL with a license to use its proprietary data management software ("Software"). DBMS Ltd. is the sole owner and developer of the Software and agrees to grant SWAL a license under the terms and conditions set forth in Annexure 2. SWAL's 'E-platform' enables the seamless online sale of life insurance policies, strategically compensating for losses incurred by its sub-agency network. The insurance company has introduced multiple life insurance plans, all of which are available for purchase through SWAL's E-platform. Acting as an intermediary, SWAL facilitates the sale of these policies and earns a commission from the insurance company on each policy sold through its platform. This commission-based model ensures a sustainable revenue stream for SWAL while streamlining the insurance purchasing process for customers. The insurance company offers a range of life insurance plans, each with distinct premium structures and allocations for investment or savings components. Below is a detailed description of these plans:- Investment-Linked Policy – This policy requires an annual premium payment of 1,00,000. A portion of 60,000 is explicitly allocated towards investment or savings, which is clearly communicated to the policyholder at the time of service supply. The remaining amount covers risk protection and other associated costs. Single Premium Annuity - This plan involves a one-time premium payment of 5,00,000. Unlike investment-linked policies, this plan does not have a separate investment or savings component. The entire premium is utilized to provide annuity benefits, ensuring a steady stream of income for the policyholder. Regular Life Insurance - Under this policy, the policyholder pays an annual premium of 80,000. However, there is no explicit allocation for investment or savings, meaning the distribution of funds between risk coverage and any potential savings component is not clearly defined. Pure Risk-Cover Policy - This policy is designed solely for risk coverage, with an annual premium of 50,000. The entire premium is dedicated to providing financial protection against life risks, without any portion being allocated for investment or savings. These plans cater to different financial and coverage needs, offering flexibility based on the policyholder's preferences and risk appetite. JS & Associates are at a crossroads regarding their audit approach for SWAL for the financial year ending March 31st, 2025. Historically, they have identified management override of controls and revenue recognition as significant risks. However, their audits in the past 2 financial years yielded clean reports with no issues detected in these areas. This absence of recent red flags presents a dilemma. On one hand, maintaining a conservative approach suggests continuing to assess these areas as significant risks. This ensures a thorough examination and mitigates the chance of missing potential issues that could arise due to unforeseen circumstances or changes within SWAL. On the other hand, consistently clean reports raise the question of continued significance. JS & Associates might consider performing a more focused assessment or reducing the emphasis on these risks while still acknowledging their potential impact. This could streamline the audit process without compromising effectiveness. As part of a risk-based audit approach, JS & Associates focus on areas with a higher likelihood of material misstatement. Supported by revenue figures given below (in ‘000 Crores), analysts reach to conclusion that growth in the assurance brokerage business is slowing down both for SWAL and industry overall– Market Size/Year 2024-25 2023-24 2022-23 2021-22 2020-21 SWAL's assurance brokerage business 326 320 312 298 280 Total market size of life assurance 2,240 2,198 2,122 2,004 1,960 Revenue earned by each division of assurance brokerage business (in term of age of the client), is shown in table below for F.Y. 2024-25- Division/Age 20-30 30-40 40-50 50-60 60+ Total 'Sub-agency office' division 2 25 38 164 51 280 'E-platform' division 8 28 8 2 0 46 Total Business of SWAL 326 Since the profitability of ‘sub-agency office' division is declining, hence the strategic review committee of board of directors are concerned about the company's declining profitability due to poor performance of ‘sub-agency office' division and suggest that the ‘sub-agency office' division should be sold off and that SWAL shall re-position its assurance business as an online solution. Extract from financial statement for agency office division only (figures in '000 Crores) – Particulars/Year 2024-25 2023-24 2022-23 Revenue 280 272 250 Profit before interest and tax 18 16 31 Shareholder's' Equity 156 150 150 8% Long term debt 78 64 50 Current Liabilities 455 437 395 Current Assets 605 565 540 Applicable tax rate is 22%. The nature of cost incurred by ‘sub-agency office' division is more or less balanced between the variable and fixed. Fixed costs are largely committed in nature. But the CEO does not agree to the suggestion made by strategic planning committee, because CEO is of belief that SWAL's USP or original business model is ‘sub-agency offices' through which they ensure 'independence and impartial advice' to their clients. On 20/04/2025 – a board meeting of directors was held to discuss on continuance or sale of the 'Sub-Agency Office' division and few other matters, the minutes of which are given in Annexure 3. Annexure 1 AGREEMENT FOR BROADBAND SERVICES AND MODEM PROCUREMENT This Agreement is made and entered into on this 15th day of June, 2024, by and between: First party i.e. Safe and Wise Advisory Limited (SWAL), a company duly incorporated and having its registered office at New Delhi, hereinafter referred to as "SWAL"; and Second party i.e. Giganet Ltd., a company duly incorporated and having its registered office at Chandigarh, hereinafter referred to as "Giganet." Terms of Agreement shall be as follows: 1) Scope of Services Giganet shall provide broadband and voice call services to SWAL in accordance with the selected service plan for a period agreed as per terms. Additionally, SWAL also reserves the right to opt for any single plan individually, i.e. voice call or broadband services at any time. Giganet offers various plans, including broadband services, voice call services, and a combination of both to its customers. 2) Modem Procurement Giganet shall provide the Modem device to SWAL. But also, SWAL reserves the right to procure the modem independently from any vendor, and this Agreement shall not impose any restriction in this regard. 3) Term and Termination The term of this Agreement shall be for a period of three (3) years from the effective date. Upon expiration, the Agreement may be renewed by mutual consent of both parties under terms and conditions agreed upon at the time of renewal. 4) Pricing The modem shall be sold at a one-time cost of 10,000. The combined broadband and voice call service plan shall be provided at an annual pricing of 50,000. 5) Miscellaneous Any amendments or modifications to this Agreement shall be made in writing and duly signed by both parties.Any dispute arising out of or in connection with this Agreement shall be resolved amicably between the parties. If not resolved, it shall be subject to arbitration under the applicable laws. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. Signed for and on behalf of Safe and Wise Advisory Limited (SWAL) Signed for and on behalf of Giganet Ltd. Ravi Verma Mahesh Makhija (CEO, Safe and Wise Advisory Limited) (Managing Director, Giganet Ltd.) Annexure 2 SOFTWARE LICENSE AGREEMENT This Software License Agreement ("Agreement") is made and entered into on this 20th day of June, 2024, by and between: First party i.e. Safe and Wise Advisory Limited (SWAL), a company duly incorporated and having its registered office at New Delhi, hereinafter referred to as "SWAL"; and Second party i.e. DBMS Ltd., a company duly incorporated and having its registered office at Bangalore, hereinafter referred to as "DBMS." WHEREAS: DBMS Ltd. is the owner and developer of a data management software ("Software"). DBMS Ltd. agrees to grant SWAL a license to use the Software under the terms and conditions set forth herein. SWAL intends to utilize the Software for its business operations while maintaining operational stability. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the Parties agree as follows: a) Grant of License DBMS Ltd. hereby grants SWAL a non-exclusive, non-transferable license to use its Data Management Software for their internal business operations. b) Updates and Upgrades DBMS Ltd. shall provide updates and upgrades to the Software on a when-and-if-available basis. SWAL shall have sole discretion in determining whether to install such updates or upgrades. c) Software Integrity DBMS Ltd. shall not engage in any activity that alters the functionality of the Software without SWAL's prior written consent. d) Term of contract The term of this Agreement shall be for a period of two (2) years from the effective date. e) Consideration SWAL shall pay DBMS Ltd. an annual fee of 4,00,000 (inclusive of all taxes, surcharges and cess) for the licensed use of the Software. f) Miscellaneous Any modifications or amendments to this Agreement must be made in writing and signed by both parties.Any disputes arising out of or related to this Agreement shall be resolved amicably between the parties. If unresolved, the matter shall be subject to arbitration as per applicable laws. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. Signed for and on behalf of SWA Ltd. Signed for and on behalf of DBMS Ltd. Ravi Verma Jay Soni (CEO, Safe and Wise Advisory Limited) (Managing Director, DBMS Ltd.) Annexure 3 SWAL (Safe and Wise Advisory Limited, Reg Address. New Delhi) Extract of Minutes of the 89th Meeting of the Board held on April 20,2025 at New Delhi Item: To discuss the sale or continuance of sub agency division, managerial remuneration and several other matters. Decision on the 'Sub-Agency Office' Division The Board deliberated on the continuance or sale of the 'Sub-Agency Office' division. After discussions, it was decided that further evaluation of strategic options would be conducted before making a final decision. Clarification on Maximum Remuneration The Company Secretary, Mr. Amit Binoi, was asked about the maximum permissible remuneration for all Directors and the Manager in a financial year. He provided the necessary clarification, confirming that the company follows an annual remuneration structure while ensuring compliance with statutory limits. The Board noted that the company has Mrs. Jalpa Sen as the Whole-time Director (WTD) and recently appointed Mr. Keyur Valia as the Managing Director (MD). It was emphasized that remuneration must adhere to the prescribed statutory limits for the MD, WTD, and Manager collectively. During the scrutiny of accounts for the financial year 2024-25, it was observed that Mrs. Jalpa Sen, heading the Sub-Agency Office division, had inadvertently drawn remuneration exceeding the statutory limit in the previous financial year due to an oversight. The Board directed corrective action to be taken to ensure future compliance. Risk Assessment of loan given to – Savya Ltd. A resolution was passed approving a 10-year amortizing loan of 100 crore to Savya Ltd., from surplus funds. The Board reviewed the financial implications, considering: Probability of Default (PoD): Estimated at 0.5% over the next 12 months at initial recognition. Loss Given Default (LGD): Assessed at 25% of the balance outstanding. Credit Risk Assessment: Changes in the 12-month PoD were considered a reasonable approximation for evaluating the lifetime PoD and determining any significant increase in credit risk. Economic Outlook: Relevant economic factors and credit risk expectations were taken into account. The Board directed that ongoing monitoring of credit risk and financial exposure should be conducted to ensure effective risk management. Conclusion: There being no further business, the meeting concluded with a vote of thanks to the Chair. Signed: Ravi Verma (Chairperson and CEO) Signed: Amit Binoi (Company Secretary) 25/04/2025