Home > Education > Would you pay an investment advisor?

Would you pay an investment advisor?

Tuesday, October 13, 2009 Leave a comment Go to comments

I was recently talking to a private banker and he was cribbing a lot about abolishment of entry loads for MF investments.

I was actually happy to hear about his pain. These commission based structures in the financial services industry have reduce the who idea of investment advisory to that of mere “selling”. Earlier as a distributor, you could pocket 2 lakhs of commission of a 1 crore investment. Now the same client is asking- why do I pay you 2 lakhs for just 1 hour of meeting? What is the value you are offering?

Private bankers/MF distributors have no answers to such questions. Many of them don’t even understand the markets and are just keen on selling products where they can make  maximum commissions. Many don’t even understand risk and return equations and are pure snake oil salesmen in the guise of financial advisors. So they themselves don’t know their value in the ecosystem.

Also, we need a change in the investor attitude. Investors just focus on making money without fully understanding the risks. And sometimes our attitude is that of “penny wise and pound foolish”. I recently had a client query who said that my products are too expensive for him. I just asked him to check his brokerage account and calculate the brokerage he had paid for the month. I also asked him to calculate his portfolio under performance for the month (with respect to benchmark). He did some numbers and found out that he had actually paid 10 times my fee as brokerage only and if we add his under performance/losses the number became 20 times the fee!

So we fail to see the big and long term picture when we invest. Infact, I have tried to save my clients  a lot of money by shifting their brokerages and help them negotiate better commission on their trades. The value of my services lie in generating good investment ideas but I  try add more value by reducing the cost of transaction for my clients.

I feel that investment management  industry  is soon going to undergo a major change as customers demand value.I believe that in future the clients will only pay for “value added”. At the same clients the clients needs to be aware of the value addition done by any investment advisor.

I am eagerly waiting for the day when insurance commissions” shall be abolished in India. These advisors have sold insurance products as investment vehicles which is so inappropriate. Again it has been driven by “commissions” rather than client’s interests.

Therefore, always ask the right questions before you buy your next financial product. Understand the risks involved.

What are your opinions about this issue?

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Categories: Education
  1. Gurdeep
    Thursday, October 15, 2009 at 2:16 am

    Sage,

    I need your help in building my portfolio, how do the charges and other things work with you or is there a number to contact you? Even in this sweet market I am seeing loses 😦

    Thanks,
    Guru
    puppetsingh@gmail.com

    • Thursday, October 15, 2009 at 9:39 am

      I have sent the details to you. I’d be glad to offer my services.

  2. Raman
    Wednesday, October 14, 2009 at 10:26 am

    I would happily pay investment bankers from the profits i earn due to their recommendations. So (for mutual funds) i would happily pay 2% of whatever profits i earn in a 1 year period 🙂

    now THIS seems fair.

    • Wednesday, October 14, 2009 at 10:34 am

      They won’t be able to survive on a 2% profit sharing. A hedge fund model like 2-20 seems to be fair. 2% annual management fee and 20% of profits.
      MFs used to charge entry fee as well as annual expense fee! Most of the investors are not aware of annual expense fee on MF investments which can range from 2-3%.

  3. Amit
    Tuesday, October 13, 2009 at 2:56 pm

    Sage,
    UR correct in your analysis & views. But to a layman even if a distributor says that he is a advisor & charges fees, he would not even be aware of it until he sees his losses.
    So for a layman to know a correct advisor is an challenge.
    If you can educate HOW to know a good advisor, it would be really apreciated.. else the world is full of people wanting to make a quick Buck 😉

    Regards.

    • Tuesday, October 13, 2009 at 3:14 pm

      Let me come up with a post on this.

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