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Investors Need an Advisor, Not a Salesman Advisors who fail to offer a unique value proposition to clients might not be in business in a few years from now. I am sure you must be spending time analyzing investment options. But, have you ever spent time to analyze how good or bad your advisor is? I am sure over 90% of investors would say 'never'. Don't you think an experienced advisor who has an immense urge to learn could provide you with the best possible risk adjusted returns? Here are a few simple ways to judge your advisor: • Does he/she promote only one type of investment i.e. insurance products or Equity Mutual Funds or Fixed Returns options? A good advisor would be able to give you advice on equity mutual funds, debt, insurance, tax planning, etc. If you don't see a mix of different asset classes, it's a red flag. • Whenever he/she provides advice, e.g. on a certain equity fund, ask him/her as to why he/she recommends it and not another comparable scheme. • Try to discuss and debate with him/her on issues other than that related to specific schemes. You could ask about his/her experiences in the field, the domestic & global economic scene, etc. • Ask him/her about some complex investment options like FMPs, Gold ETFs, Arbitrage funds, capital protection funds, etc. Speaking with your advisor on these lines would give you a fair idea as to whether your hard earned money is in safe hands. Going forward, as investors become more aware and start analyzing and comparing return on investments (which is rarely done as of today), incompetent advisors are going to have a tough time holding on to their investors. The salesmen/distributors who don't transform into professional advisors will be ignored/wiped out of the market by the informed Indian investors in the next 5 years. I foresee sweeping changes that would reshape the advisory profession. The changes will be wrenching. The model that emerges 5 to 7 years down the line won’t bear much resemblance to what people have grown up with. The sad part is: a lot of financial advisors are in denial about this. They just don’t want to deal with the change. And why would they? Most advisors today joined the profession when commissions ruled the day; and advisory - well, what advisory? But the day is not too far when you will find that only those who changed for good, survived. Less than 30% of the advisors will survive the new environment. Take a look at what happened in the UK in the past decade to get a picture of what lies ahead. In 1995, there were 3 lakh financial advisors in Great Britain. Today only 44000 have survived the change and are in business. What would an investor look for in an advisor going forward.? 1) Does he/she offer any value apart from the products that he/she sells? The conundrum for advisors is that they are paid for products - not advice. All financial advisors are trained to sell products of one kind or the other. They have nothing else to offer but rebate. For how long will investors ‘buy’ wrong investments and be happy with nominal rebates? Times are changing at a rapid pace. Very soon investors will start seeking education from advisors. Advisors will be questioned for any underperformance of their recommendations. Investors will seek valid reasoning before issuing cheques. Just sending forms across & collecting them back promptly is no value addition, advice is all that matters. 2) Is he really indispensable? What is the advisor doing in addition to what can commonly be had elsewhere? Is he/she really a trustworthy advisor who is fully integrated into the fabric of financials? 3) Is he a genuine Wealth Manager? These days any individual, bank, financial institution term themselves as Wealth Managers, who in-fact may be no different than a mere salesman. Loads of instances / grievances are read in newspapers and on websites about squandering wealth with wrong advice just because the commissions were higher and all this below the sophisticated banner of so-called ‘Wealth Management’ or ‘Portfolio Management Services’. The sorry definition of today’s ‘Wealth Management Services’ is high churn in portfolio, new faces, lack of transparency in costs, pushy managers. India in 2012: • Less than 30% of today’s advisors will survive. • Charge for advice - Advisors will boldly ask their clients, what do they value most about him/her - products or advice - and most will choose the latter. • Investors would be hungry for quality information. • Clients of financial advisors will find it fishy, why they would do this wonderful work and not charge for it. • Those financial advisors with successful practices will become increasingly immune to the forces of competition and commoditization. And that’s not my dream, it’s my foresight. Have you heard that story about the financial advisor who decided to reinvent himself as a wealth manager? He spent Rs. 1,50,000 on a stylish brochure that touted his newfound talents and then showed it off to a top client. After reading the brochure, the client told the advisor: "You don't do any of this stuff." He then closed his account...True Story. |
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