There is absolutely no doubt about who makes the most money in any business – the people who provide the service. The Forbes List has more wealth managers than wealth manager clients.

Now if you are a bank with glass doors and leather upholstery, and you recruit people with a top degree and 8 digit starting salaries..you honestly cannot sell index funds and term insurance. The math just does not add up. So you have to do something else. You launch an etf – but you have to call it a regular fund so that people don’t compare it to an etf at 2 paise management charges.

Most asset management companies are in a race to the bottom in profits, but highest in assets.

Last week I got approached by a wealth management kid wanting to sell me an AIF. I see no reason to buy an AIF but I did meet the kid anyway.  If you stop and think about it, the investment strategies that are marketed today could make anyone’s head spin; Value, Deep Value, Relative Value, Growth, Core Growth, Aggressive Growth, Growth at a Reasonable Price, Alpha Overlays, Quantitative, Momentum, Leveraged funds,  Long-short Pms, leveraged etf, multi factor etf, etc – they’re all complicated terms that when used can make the dumbest investor sound very smart indeed. I was offered REITs too. In most such products the charges are about 7% payable upfront. No kidding. So it has a 7 year lock-in – I am sure there is a claw-back which the sales person was refusing to mention. Oops. I have no sympathy for the HNI who fall for such traps. Worse? they are present not only in Mumbai but in other cities too. I am wondering whether AMFI should come with a “mutual fund pakad ke rako” – the HNI is being encouraged to move from MF to AIF, and many jokers (ok, HNI jokers) are biting.

Get to the basics – investing is laying down some money today so that it gives you more money at a later date. If it is equities, we normally say it is for 8-10 years at the minimum. We suggest getting in systematically, and getting out too in a planned manner. For old fashioned investors it is the summary of the future value of free cashflows that the business is going to generate. However if you are a small shareholder it is the future values of dividends, not even earning!

Remember what Buffett says about the first investment tip that was written? We are talking about Aesop’s tales – ” a bird in hand is worth two in the bush”. True we pay for certainty. However today most investors are willing to pay for 2 in the bush because the fund salesman tells you:

  • there are more birds in the bush
  • interest rates will NEVER go up
  • you can get all the birds – we will get it for you Sir!

there is nothing to stop the HNI from asking the salesman…how do you know all this, but he does not. So for a nice flat fee of upfront 7%…you get his lovely sales deal.

Only one venture capitalist friend admitted that the MUTUAL FUNDS in which he has invested has outperformed the companies in which he has invested – except one. In this company they were FORCED to take full control and run and manage the business!!

I guess it is not easy managing other people’s money for a fee or for profit.

I love the fact that I am not doing that. I am just pointing to the managers who claim that they can outperform. My friend who is a FM says “it is a guarantee that I will underperform…you know the rules under which I am forced to work”.

Phew!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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