You are a doctor and you need an advisor. How will you go about searching for one?

You are a doctor and you have an advisor – or somebody you believe is an advisor. How do you know that he is helping you? IFA – Independent Financial Advisers – are expected to be Independent an adviser should help you be greedy when others are fearful, and fearful when others are greedy. Is it really possible? Can IFA really help you in this quest?

I think not. Many IFA sadly think of themselves as quasi fund managers and think they can create alpha for the customer by taking directional calls! We know this is not possible, but does not stop an IFA from trying. Most advisers think that they HAVE TO DO SOMETHING or the client (you, the doctor) will think that the adviser is not adding any value. So the adviser will take some action to keep YOU engaged. Sounds odd? well many professionals get intimated by the client (patients) thinking process and do some irrational things. Ask yourself, have you done such a thing? I have been pushed by students/ clients but have managed to stay away from panic advise.

Staying calm in a falling market (or rising market) is not easy. For example I have stuck around with good managers even during difficult times. Yes I have wondered whether I should stick around with Franklin India Blue Chip, Hdfc T 100, Hdfc Prudence, Icici Pru Discovery – and found it difficult to stick around during bad times, but over the past 20 years they have not done so badly. At least I am happy with that return. Ditto my investments in Colgate, Nestle, PnG,…even Hindalco and Tata Steel.

If your IFA manages your portfolio – I hear of some of them say – that they do asset allocation from equity to debt and the reverse…to create alpha. I heard one IFA boast that he knows when to stop a SIP and when to put more money into a sip. Scary. However, it is true. A successful doctor can pressurise a young Ifa to do what the doctor wants just by changing the narrative. This is scary.

I have even heard of an IFA who used to promise 18% pa return a few years ago, now I believe he says 16%. I have no clue what gives him that confidence…when the 5 year sip returns are in high single digits!

I do see IFA selling equity in a falling market and buying bond fund in a rising interest rate scenario. This again comes from “action bias”. If I do not do anything the client will not respect me….kind of effect. Just check

“does your Ifa have an action bias or does he have an authority bias”. If he has an authority bias, make sure that you do not suggest anything to his efforts.

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  1. The adviser community appreciates IFAs for the AUM they gather, not for the quality of advice they deliver. Most IFAs therefore think in terms of AUM size and the size of the SIP book. When adviser’s primary focus is on AUM, quality of advice always takes the back seat. 

    Most clients of IFAs are under-served. Only bigger clients and clients who have an interest in personal finance and therefore keep contacting IFAs get IFAs’ time and attention. When IFAs think about the quality of their own advice, they think only about the advice their privileged clients receive. They rarely think about clients whom they did not contact even once in last 3 years. 

    It is difficult to contact all clients even once a year when IFA has over a thousand clients and doesn’t want to stop accepting new business. This is like contacting over 3 different clients every working day. No adviser can handle such a volume of business without compromising on the quality of advice or neglecting a majority of clients.

    The fixed annual fee advisory model solves part of the problem. It removes a major part of the conflict of interest. Adviser must talk with the client at least once a year if he wants to earn the renewal fee. Clients don’t renew if not satisfied with the engagement. But here also the adviser thinks in terms of the number of clients he handles and the revenue he earns. Quality of advice takes the back seat unless the adviser has a strong internal moral compass.

  2. @Swapnil Kendhe, I kind of read your comment that unless you scale (AUM on profit sharing or no of clients on flat fee), an adviser can’t grow his business and survive. Nothing wrong in it. Do you think the having tools (software) will help Advisers serve better without compromising on the moral satisfaction out of the job?

  3. Tools cannot completely replace thinking Krishna and thinking takes time as well as educating clients which is part of a financial planner’s job. There is limit on how many clients a financial planner can handle (with or without tools) because he only only has as much time. Most advisers do not stop or slow down even when volume of business start affecting the quality of their work.

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