Important words for an IFA to use
Largely there are 3 types of IFAs:
those who know that they do not know
those who know that they do not know and that the client knows that
those who know that they do not know and THINK that their client cannot make that out.
The first category make no pretext of being able to advise etc. They catch clients at the lower end of the hierarchy, fill up the forms, do all the basic work and invest in the most popular schemes.
It is the third category which tries to answer the following questions:
- do you think the Sensex will touch 28000 in 2016?
- where do you think the market will be one month from now?
- do you think gold will out perform equity?
- over 10 years will equities give a better return than debt?
- why did the market go up today?
- how often should I shuffle my portfolio?
- will large cap SURELY give lesser returns than midcap?
- Is Franklin India Bluechip better than Icici Prudential Focused Bluechip?
- Which fund will give the best returns?
- I have a surplus of Rs. 5L should I use it to repay the loan or to invest in equities?
- Will the US enter a recession?
- Will Fed increase / decrease rates now?
- Will RBI increase / decrease rates now?
- Where will crude be one year from now?
- Should I short gold and go long on crude?
- Should I take a LOAN AGAINST PROPERTY and invest that money in shares?
Well the third category of IFA tries to answer these questions. Honestly his best answer to all these questions is “I do not know”.
However he should say it politely and say that the total (relative and absolute returns) for a portfolio depends on:
- amount invested
- asset allocation
- having a calm mind in turbulent times
- having a calm mind in exuberant times
- listening to one adviser
- have reasonable expectation
- have enough liquidity in fixed return instruments to pass through turbulent times
- have enough medical insurance
- do not disturb the compounding force.
AS he is unable to do the later he tries to answer the former questions…..and cuts a sorry figure!!
Shankar
Long ago some one who managed a family office told me that an advisers job is to stop the investors from making BIG mistakes with their money, that is all. Was wonder struck then at the simplicity of the thought, no wonder he is a fund manager of good repute now,
subra
Shankar for about 99% of the world population that is good advise. However, when managing big size single wealth – like say Rs. 50 crores invested in equities / mutual funds it gets a little tricky. Some portion of the money has to take some contrarian calls – like investing in Oil say when oil is $ 22 to the barrel. However – like Rahul Dravid -if you can keep risk out of a portfolio AND the client has the ability to remain calm and the adviser has the ability to keep calm, life is easy. Market does its job. My job is to keep the investor amused when the market is creating wealth for him. I have never ever lost a client due to non performance of portfolio 🙂 fair enough I guess. But these are guys who understand that I am doing nothing. It is the market which is doing – I just do the paper work well 🙂