Let me start by saying that I do not know of any investor with serious money (upwards of US $ 1 Million) who works on DIY basis. Just none. And the number of people I know in this set should be in excess of 100. That is not insignificant. I am not saying that they do not exist, but I have not yet met them.

With a 9 year bull run enough people think that they can manage their own portfolios, beat the market, and achieve their financial goals. I do know that there is a huge gap between what people say and what they achieve. Yesterday I was talking to an IAS officer about his portfolio – and he realized some of his mistakes chasing returns. Sometimes it is necessary to talk about risk and sometimes about return expectations. Research can suggest a lot of things that a retail investor should do, but not all investors can invest rationally. In the real world, an investor’s financial situation, attitude towards risk taking, and beliefs about the future direction of financial markets are always changing. The same investor who invested rationally at the age of 30, may turn irrational at the age of 40. Sudden shifts in their job, health, or children behavior – are all factors can tempt them to make poorly timed investment decisions that are based solely on emotions, not logic. One wrong or bad move can wipe out years of hard work.

People who have never managed other people’s money have no business saying “I can do it, so can you”. Sure, it is tempting, but not everybody should attempt DIY. I know of some DIY advocates who have consistently under performed the market, but hey beating the market is not what they set out to do. They set out to do something else. So if your goal is to beat the market or just meet your financial requirements see if you can do it yourself!

So when I asked a few HNI what their investor does for them…there was some nice learning:

  1. Trust and Communication: People with a ‘don’t trust anybody’ kind of a mental frame cannot seek help. However when a person is financially successful he/ she understands how an adviser can communicate well to avoid the behavior gap. I don’t see how an app can ever control this behavior gap. I have been able to talk to clients and cool them down. I have been able to keep people in equities far beyond what ‘theory’ says they should be in equities. I have been able to make clients more oriented towards happiness and relaxation than worry about the extra 1% return in a scheme. I have been able to talk to big investors about being in funds / schemes with lesser standard deviation. I have moved money from mutual fund to fixed deposit when the client’s tax structure changed. No, an app cannot do that. That is clear.
  2. Ability to separate the grain from the chaff and the ability to see the news items in context of his goals. It is but natural to watch television or read some shit in the pink papers and get excited. It is necessary to keep calm and realize that everybody who writes does not have experience, knowledge, training or education in finance, human behavior, law….and yes personal finance is now the world’s most expensive hobby.
  3. Having an automated or well thought of process and not just some ad hoc guess work!

well…there are more…

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  1. Sir, IMHO, advisers should remains what their name suggests – advisers – take payment, give advice. Then I will ruminate on the advice and come to a conclusion myself as to what action – I – should take. Why the hell should I handover the responsibility of my money to the “adviser”, and then I have to chase him/her around to figure out why he/she did something with _my_ money. Last week my bank sent me a “portfolio adviser” and I entertained him to see what he has to offer. He wanted me to put my whole money in some ULIP where I have to pay for 5-6 years and I would apparently get back a hefty lump-sum at the end of 15 years. He could not get me to explain how his plan was better than my current combination of equity and debt mutual funds. Besides he will not offer me direct plans in his ULIP. When I did the math on some of the returns he showed for some sample real portfolio, the returns were not matching my returns. I asked him what is it that he is offering me “extra” for his advice – safety, returns – over and above what I am doing now and he was confused. He did not pursue me further as he felt I was not worth his time.

  2. I do not know of any investor with serious money (upwards of US $ 1 Million) who works with advisor. Surprisingly did not meet any. Not met even one guy irrespective of networth working with fee based independent fin adviser. Almost all of them has pseudo advisers in the name of agents, brokers, RMs and so on.

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