Adviser’s fault, but which adviser?

I know a few HNI investors. One thing common to all HNI investors is that they do not like to be classified as a “HNI”. This is good for the adviser too, because no 2 HNIs are alike.

Some HNIs are well assured of themselves, satisfied with how their life is going and understand their finances. If you thought this is how all HNIs are – you are mistaken. HNIs are after all human and have all the problems of a typical human being.

Let me narrate the story of a one (former?) HNI investor. Am not saying this is typical, but he is one.

He deals with 4-5 banks, watches 3 business channels, handles technology for his organization, “reads” 2-3 business papers, reads 2-3 ‘investment’ magazines.

Now is the trick question. How many advisers do you think he has?

To my mind it is about 15 advisors. He hears them all, listens to none. His portfolio is a pot pouri of mutual funds, real estate pms, direct equity, structured products, rbi bonds, real estate, et al. Also very typical of a bull run he has committed himself to a real estate deal which requires regular payment of Rs. 2L a month for the next 3 years! He called me to ask from where to fund this real estate deal. I am one of those unfortunate ‘advisers’ he has. If I ask him for the full picture, he snorts “I know what is happening in my life”. So I have to run a delicate balance – he is my friend’s brother-in-law to boot. So I played it by the ear – and asked him what he is planning to do.

The answer was exactly as expected. Since he has already committed Rs. 9 lakhs to the real estate deal, he has to pay further (total committed price is Rs. 18 lakhs more.

Well this HNI with all his direct equities down in the dumps has been partially downsized. He has been given a 6-month notice pay (damn lucky!) and he is looking for a job.

The other choice was to take a 35% cut in salary – he is still undecided on what to do. He is very ANGRY that the portfolios are down. He had committed to a 3 bhk in South India – and he found out that in the last 18 months prices have FALLEN by about 5% – which means his exit is TOUGH.

His investment in his house in Mumbai was not really too much to talk about and he needs a bigger house. Wife is not earning, one kid is in college in India and one kid is studying abroad.

HNI or former HNI? Of course the adviser to be blamed – but hey which adviser?

What all he did wrong:

– Never ever LEVERAGE to invest
– the Real Estate PMS in instalments is a leverage of sorts. If you do not pay the amount in full, the money paid is LOST. In a SIP if you do not pay the instalments you do not lose what you have paid.
– Life style should be within a replaceable salary. If you have jumped from a salary of Rs. 25 L to Rs. 40 L – learn to live on Rs. 25L and use the 15L to build a cushion, repay loans, etc. Using that to leverage further is suicidal.
– Not only did he leverage his PMS, he also leveraged to buy a RE in south India.
– had kept a few million with an ILLEGAL money lender – luckily got back half his money.

Suicide is voluntary. Going from being well paid and rich to a life of penury is also optional. This guy chose it.

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8 Responses to “Adviser’s fault, but which adviser?”

  1. Nilesh KAMERKAR on February 26th, 2014 at 9:25 am

    The adviser who has earned fees / brokerage commission faces all the flak . . . while the other advisers who collected subscriptions and advertisement revenue( magazines & electronic media) go scot-free.

  2. HNI himself to be blamed…we can’t blindly rely on any financial advisor. We need to keep our eyes open!

  3. Good luck to him.
    What a mess.

  4. It reminds me of the Panchtantra story of half-knowledge of monkey,king and sword. How monkey killed the king (Foolish Friend)
    Why blame the adviser? Aren’t fool and money soon parted!
    Good reading.

  5. Sometime back had written an article Mis-Selling or Mis-Buying: It’s My Money, My Responsibility
    We need to stop blaming parents,birth,market,regulator ,adviser and start taking responsibility.

  6. Seems he never had a single real advisor to whom he paid fees and took his/her advice and just dealt with ‘product pushers’ disguised as ‘advisors’..

    I come across so many HNIs who think they are smarter because they save on fees or even get rebates/passback but end up being penny wise and pound foolish.

  7. Once in a while, when things are going good for you, you feel like a real life hero. You feel invincible.

    And then if you are lucky , you happen to read something like this. And you are back to being sane !

    Thanks !

  8. Mr P. V. Subramanyam,

    I love the illustrations you give – makes sense for laymen like me ( With no financial knowledge) Have been reading a few of your articles and was wondering if I could get some help ( Seek advise / seek your kind services )in financial Planning and other finance related matters – Please get back to me if possible on my mail address.

    Thanks!

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