Or Why you do not need an investment consultant or an Investment Advisor !

If you need bypass surgery, you should find the most qualified surgeon available.This need not be the most expensive surgeon. Some surgeons are better at PR so they command a higher price. Some surgeons are good but in smaller hospitals. You need to do some research to find them, that is all.

If you’re getting sued, you should hire the best defense lawyer in town. A cheap lawyer can be very expensive, so be careful.

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! Imagine lying on the bed with an overhead mirror and cutting yourself up – cannot be easy even for a surgeon. LOL.

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! In the stomach.

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. However if you do not want to spend your Sundays poring over a lot of paper work, it may be convenient to get a person to handle the paper work at least.

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 he forgot to say expenses, let me add it. So it should read “For all long-term investors, there is only one objective – maximum total return after expenses and taxes.” Let me add there are many shares in my portfolio – like Tata Motors, L&T, Cummins, Coromandel Fertilisers, Tata Power, Hdfc, MRF, Unilever, P&G,  – which have outperformed many mutual funds in which I have invested. These funds are not duds – Franklin India BlueChip, Hdfc Top 200. So I am not against direct investing either.

However I have had the luck of having a great investment advisor – and the skill to listen to him.

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.”

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 – unless he / she can charge Rs.25k a month – and this fee coming out of the ‘upfront commission’ if any.

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. However in India there are index funds which charge 1.5% p.a. vs. 0.15% in the USA!

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

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  1. Dr Mohammed Ali Khan

    “Every profession brings something of value to the layman.. a dentist, for example performs a job which no layman can do.. Except for the finance profession.. I really don’t know what value they bring to the layman which he cannot aquire himself ” – Warren Buffet

    “Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.” – Warren Buffet

    Another excellent article by the “Oracle of Omaha”

  2. Violently disagree with WB on this point. Like Benjamin Franklin said the “Most important enemy of the investor is the investor himself”. A good adviser can put numeric value to the goals and set the path. A portfolio manager can do a decent job of portfolio construction. The customer has to know how to use an adviser. I have interacted with many brilliant portfolio creators. My own stock market performance (helped by a guy who likes anonymity) is a 3-4% out performance over a 30 year period. A combination is needed – good adviser, good stock picker and a client who listens. Not that such guys are easy to find. My stock picker stopped +ing clients about 11 years back :). WB does not need a planner, but how many investors know that WB is not a fund manager?

  3. Dr Mohammed Ali Khan

    WB is rarely wrong.. Or did we misunderstand him ? Did he really mean the average wall street broker who recommend frequent trading and the portfolio-churning fund manager?
    I got this quote as a standalone in some website which listed all the WB quotes.. I could not get the reference regarding the context in which he uttered this quote..

  4. Pingback: Ranjan Varma » SubraMoney: Commoditising “Ideal Portfolio” is Wrong

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