You start hearing financial jargons and promises of the moon from him.
Illustration: Uttam Ghosh/Rediff.com
You have found a new adviser and you hope to build a great relationship. Let us call her/him 'Your Financial Adviser' or 'YFA' in short. You are meeting her/him maybe for the fifth time and this is how your conversation goes...
YFA: Your risk tolerance is high.
You: Hey dude, I am myself not sure how I will react to a 35 per cent fall in my portfolio.
YFA: This time it is different.
You: Did I not hear it in 2008 also?
YFA: The midcap out performance is here to stay.
You: So my portfolio should be 90 per cent in midcap and not contain any large cap?
YFA: Derivatives.
You: Pretend as if you did not hear the word.
YFA: I can create a direct equity portfolio that will EASILY out perform HDFC Top 200 and ICICI Pru Discovery over a 15 year period.
You: Would you not earn more as a fund manager? Why should you be a relationship manager and gather funds for others?
YFA: I will use some strategies which are normally used by hedge funds.
You: Completely ignore her/him or run for your life.
YFA: I can EASILY 'future-proof' your portfolio.
You: IMPOSSIBLE!
YFA: I can predict that the interest rates will go DOWN in the near future, but over the next year it might actually go up.
You: Hah, I spotted a liar.
YFA: I have some non-traditional investments that I want you to consider.
You: Gimme a break!
YFA: These are portfolio houses, managers, and strategies that my team and I have carefully selected and hand-picked for YOU.
You: Yawwnnn.
YFA: Seeing your risk profile, I will target smooth equity returns.
You: SCOOT! SCOOT! SCOOT!
YFA: Out-performing the Sensex is easy -- all our fund managers are regularly doing that, AND will continue to do so.
You: Get lost...
This is a major problem with the advisers from the BFSI (banking, financial services and insurance) industry. Most of its players/advisers are there trying to impress the clients who want to invest. THAT is the problem. Face it.
Most clients want a decent REAL RETURN (actual return minus inflation) that will help them achieve their goals.
I have not met any investor who came to 'be impressed' by me. They could not care a damn about me UNLESS they were convinced of the following:
1. I will talk in a language that they can understand (I am in a minority, I know!!)
2. I will keep it simple.
3. I will repeat myself often if they do not understand me or the financial jargons used by me.
4. I convince them that they do not need sexy, un-understandable products which will give them sub-par returns.
5. I convince them honestly that they do not need weekly monitoring and monthly fund switches. Seriously, any monitoring is needed only if we near an event, like, say, the Brexit.
6. I tell them that the best way to meet small goals is from current income. For example if the client can pay her/his child's engineering fees from her/his current income, there is no need to disturb the client's portfolio.
7. That I have led a simple life and continue to lead one. I give them a one sheet 'financial plan' which the client's daughter in class 6 understands as well.
Sadly there is a vested interest in selling complicated, 'capital-protected', 'future-proofed' investments, with 'hedging strategies' and 'smooth equity returns.'
When you hear these words, do either of the following:
1. Ask the adviser to turn around and give a nice kick.
2. Turn around and sprint. Faster than Usain Bolt, if humanly possible. A good 1000 metres.
Either way the relationship would be over.
