Posted tagged ‘advisor’

Mis-selling or Mis-buying?

May 13, 2008

When the guy/ girl selling “financial planning solutions” comes to your house and you happily part with the cheque is it her fault for asking or your fault for giving?

This is a question I would like to ask all people who complain “I have been mis-sold to”. It is ridiculous that suddenly a retired petroleum engineer and his spouse (a home maker) have suddenly understood endowment, unit linked plans, mutual funds, real estate PMS, equity PMS, hidden charges, surrender charges, upfront load, bid-ask spread, and have then bought the product. Most of the people who sell do not know some of these terms, so the buyer knowing these terms is surely out of question.

So why do people buy?

Ego. Their ego does not allow them to admit that they do not understand the product, the suitability of the products, the structuring, etc. Also they convince themselves if a nice big organisation is selling it and the product is “approved” by SEBI/ IRDA (btw sebi does not approve any product) it must be a good product.

The other reason is “If I can decide to buy a Rs. 1 crore house, a Rs. 20 Lakh car etc. WITHOUT any advisor, why should I need an advisor for Rs. 50k a month SIP in a unit linked plan?” kind of attitude.

The third reason is they do not know whom to ask.

So God bless the uneducated (hurts?) buyer. Let him not crib about mis-selling. It is all about mis-buying.

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Do you need an investment advisor, at all?

February 16, 2008

Or Why you do not need an investment consultant !

If you need bypass surgery, you should find the most qualified surgeon available. If you’re getting sued, you should hire the best defense lawyer in town.These 2 are fairly obvious and I do not think you can do your own root canal surgery, brain surgery or heart surgery. Come to think of it, it is so inconvenient, is it not!Likewise, some people argue that if you’re planning to live well in retirement, you should hire the most expensive financial advisor you can find.

To me this causes a twitch!

I do sessions on financial planning and these sessions are reasonably well attended. Mostly at the end of the session the participants are unable to decide whether they can do their own financial planning or they need an outsider.And while people ask me questions on everything from momentum investing, auditor integrity, mutual fund loads, broker integrity, insider buying, etc. one question uppermost on people’s mind is

Can I do my own financial planning?

And

Can I do my own investing?

If you’re an investor who is seeking long-term capital gains, it’s crazy to pay a lot of money for a high-priced financial advisor who gives you an economic outlook and short-term market forecast with all sorts of commission-based solutions attached. To the best of my knowledge there are only a few (so few you cannot spot them) pure financial planners.Nor do investors generally need a “personal investment plan” based on their individual circumstances…

There’s Only One Objective for Long-Term Investors

A growth portfolio is designed to keep you from outliving your money. It should give satisfactory returns for a 25-year-old just beginning an investment plan, as well as a 55-year-old who may live three decades or more.

To quote Sir John Templeton, “For all long-term investors, there is only one objective – maximum total return after taxes.”

Of course, some advisors take generic advice and selling it as customized plans. For that reason, whenever I hear an investment advisor tell a client that he is drawing up a long-term growth portfolio based on that client’s “unique profile,” I’m invariably reminded of the Head of HR who tells his audience, “Never forget that you’re special… just like everyone else.

But, as is fondly said, “It’s 97% of investment advisors that give the other 3% of us a bad name.”

In the Indian context the commission structure is too badly designed – it is a design fault rather than a sales fault. But there is no body who really wishes to complain. After all in a bull run the manufacturer (called Mutual funds, Life insurance companies, PMS providers) need sales guys who go and get them money from the “client” for these guys to manage.So if it is a 70% upfront commission in a unit linked plan or the 6% asset management charges or the 2.4% amc in a debt fund, well there is no one to protest!

So you may need a financial planner (whose functions are so comprehensive) that I shudder to think why would somebody want to be a financial planner on a just fee basis.

Frankly if you wish to create wealth in the long term put your money in the cheapest index fund, buy the cheapest term life insurance, and go fishing.

Leave your mobile, TV, broker…in the city and play with nature. You will return fresher and richer.