Why is the Advisory practice far more risky today?

Simply because of the media noise. Also there are too many players with poor knowledge but far better marketing skills. This means that if there is an adviser who removes the sheen from the advice there is likely to be no respect for the person.

Let us say somebody wants to invest Rs. 50L – in one shot, and this person has an existing portfolio of Rs. 5L in equity mutual funds. He / she is well educated, well connected, and a reasonably high profile professional in some other field. Let us see how the dialog goes. She goes to a one IFA who is a straight forward adviser with no frills, no bells and whistles, and he suggests 2-3 schemes as a liquid fund for stp to equities – covering large cap, mid cap and one cap agnostic value fund. The investor is happy / reasonably convinced.

Enter a bank / nld / …etc. The sales pitch goes like this:

  • international conditions are very volatile, so you should be careful about your investing
  • we do think that you should invest in about 17 funds, and we will monitor the performance for You (remember Buffett’s dialog?)
  • we will send you a consolidated statement to you on a monthly basis (honestly what will she do with that?)
  • our team will monitor the world economic situation, the domestic situation for you (really?)
  • our team keeps evaluating which fund is doing better and will suggest changes (churning will not go away, right?)
  • we will meet with you every month or if you wish, every quarter
  • we will send you a comparative performance report on a monthly / Quarterly basis
  • we will assign you a Relationship Manager who can pull out your statement for your taxation needs (really?)
  • We will do your kyc (hey that is already done, but the client does not know that it is a one time activity)
  • we normally charge Rs. 15,000 as a joining fee, but will waive it for you (by the way how many times have you got paid?)

having said all this it is easy to impress the client. Now how does the client know how much of this is useful and how much is froth? Well not enough clients.

Also when a person comes to an expert with a very huge problem (how to invest Rs. 50L) he/she wants a very detailed process. It has to be made complex. Yes talking about China, dollar-rupee rate, Raghuram Rajan, large cap, mid cap, mumbo-jumbo is all nice to impress the client AND HAS ITS PLACE. If you bring in all your experience and simplify it, it looks like a wasted effort. Liken it to a 55 year old gynaec talking to a 24 year old to be first time mother. Can she tell her “I have delivered upwards of 10,000 babies so do not be excited, it is just a routine”. She can, but she should not. She has to make the patient comfortable by drawing on her experience. Once she is comfortable she can slowly tell her she is fine, the kid is developing well, etc. etc. Is there a necessity to hasten the process? No. It takes 9 months for the delivery to happen, so hey, relax.

What the adviser can say is “Sir/Madam your Rs. 5 million in my portfolio of Rs. 2000 million will receive far more attention than in a bank/ NLD who has a Rs. 2,000,000 million aum. I am much better prepared for asset allocation discussions than the trainee RM who is likely to be handling your portfolio. Changes in portfolio composition can be handled by me much better than the 3rd rm who took over your portfolio in Jan 2016. I am regulated by the same regulator as the bank, and perhaps far more stringently. If you call me, I will pick up the phone, not an IVRS which tells you that it is Friday evening 6pm and we can talk at 10am on Monday. I request you to please talk to me about all your fears, and it is my job to allay them It is my job to simplify and explain things in a manner that YOU can understand. My job is to help you grow YOUR wealth. I work for you and YOU are paying me for my effort. I do not work for a bank which is here to build its aum. I am not a part of the NLD which is here to grow the “business”. I have been in the profession for the past 20 years, and will bring all the experience to your benefit. If I hear about a corrupt fund house, I will have no conflict of interest in telling you about that. That will involve a dramatic change in your portfolio – not a committee to review ‘client requirements’ that will report in 5 weeks. I hope you see value in the advice. Fiduciary of course, I promise to put your interest ahead of mine. That is a personal promise.


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