Your IFA – Independent Financial Adviser – has to be really INDEPENDENT – check out if it is so. If you are say 55 years of age and a successful doctor (or lawyer, or CA or….) and go to a 28 year old IFA, is he really able to stand up to you? I know many Ifa who will not be able to stand up to a successful client, they will just echo what the client says. Your IFA should help you be greedy when others are fearful and be fearful when others are greedy. Check out whether it is so. Is your IFA holding your hand or is he pulling you in the direction which YOU want to go?

The typical IFA is today worried by the number of articles that appear saying “portfolio should be reviewed on a regular basis”. The IFA actually may not want to take any action on the basis of the review, but he is afraid that he has to do something. This “action bias” forces him to remove some money from one equity fund and put it in another equity fund or debt fund. Sometimes he makes you MORE fearful and sometimes he makes you MORE greedy. Which means he is  pulling you in the direction that you have chosen. This is Confirmation bias and Action bias acting in tandem.

If you wish to test your IFA try telling him something EXACTLY opposite of what you believe. Say the large cap index is at an all time high and the Midcap index is at 70% of its previous high. Suggest that you should exit midcap and enter large cap. See what he says and find out why he is saying that. What you do could be different – this is just to see if you intimidate the adviser to the level of buyllying!

Many a times the stampede into mid-cap or the exit from FMP is accentuated by the IFA. Nobody of course takes responsibility for what happened, but they would like to say “look I told you so”. Not trying to blame anybody, just trying to tell you that your IFA may not be as INDEPENDENT as you think they are. And that may be because YOU are very successful and you intimidate the IFA. Be careful.

There is a big problem in listening to the fund management industry. If you look hard you will find that they are far more interested in protecting their Profit and Loss account far far more than increasing client wealth. If the equity markets are down, it takes far more effort to sell equity funds. So what does the fund industry do? It launches a slew of DEBT funds – fmp and its cousins. This means the IFA also loses focus and starts selling DEBT funds EXACTLY when he should be selling equities. I find some big IFA clearly refusing to fall in line with the AMC, and are happy to continue to push equity funds. Assuming of course, that the client has appetite for equity, and needs it in his/her portfolio.

When some people come to me for a review, I see extremely complicated portfolios where the IFA has done “unbalancing” instead of “rebalancing”. Of course clients are to be blamed too – for a Rs. 3 crore portfolio if you have 2 pms schemes, 26 mutual fund schemes, direct equity – AND HOLD YOUR BREATH – have got zero returns in the past 3 years  – indexing would have been far far superior!