The rich and wealthy surely have a lot of money. However, you would be surprised to see the kind of money they lose. And the worst thing is the looses and the loot go undetected for a long period of time. This is a post meant only for those investors or investor families investing in excess of Rs. 20-30 crores.
When families invest big sums of money, it is normally delegated to one or 2 people who take the ‘top’ responsibility. The others just sign cheques, delivery slips, etc. and do not normally take part in the investing process. This creates problems – especially if the guy handling it is a little bull headed and is dull. I have seen families think that a slightly dumb individual can handle this – after all the others are busy in the day to day business – the ‘main’ business.
Some of these houses have lost a lot of money..and I could think of the following reasons:
- the investment co-ordinator from the family was sheer incompetent
- corrupt adviser – one of them kept telling the family guy “you are capable of much bigger things..lets do business together”
- no audit whatsoever
- the CA for filing returns was never asked to see the returns, etc.
- poor accounting – not even knowing whether all the cheques given to the adviser were used correctly
- it took one house about 6 years to know about being swindled
- sub optimal performance was just accepted
- excessive and complete churning of the equity portfolio and high brokerage – suspecting a kickback for his silence
- poor and pathetic asset allocation
- conflict of interest – the guy doing the admin got a top end luxury car. Obviously ULIP was what his nephew bought!
I can really go on and on.
Now the question is what could be done to prevent such happenings in the future?
- create an investment committee
- have a written policy for every person not just for the house
- take a sign off after conducting a small training
- have an audit on a quarterly basis and let the committee review
- have more than one IFA / adviser / Financial planner
- have a planner to suggest and an IFA to execute
- create a good money sharing between the executor, planner, and get them to pay for the audit, BUT choose the auditor yourself
My learning: People sound confident because they are lazy, not necessarily because they are trusting. The problem is so many people are drawn to a confident adviser they come into contact with. Frauds speak with such an air of certainty that the people who invest with them ASSUME they can deliver on all of their LOFTY ideas.
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