“Why does your investment portfolio run into 10 pages? Any specific reason?”
“Well, nothing specific. One advisor told me to invest in a few funds and I complied. Then subsequently another advisor came along and told me about better funds and I invested in them too. Of course, my Bank RM keeps advising me about various new investment options. I invested in some of them as well. You see I need to have a relationship with them.”
“No wonder your portfolio is a mess.”
If you are a High Networth Individual or an HNI, you are literally spoilt for choice. You are made to feel that you deserve something special because of your monetary status and cash flow.
Money managers, advisors, agents and distributors flock to you to offer you that special treatment that you deserve.
Here are the problems that I have come across while talking to and working with HNIs:
- They are very busy with their careers and have little or no time for the investments.
- They don’t have time to read up blogs or magazines and make sense of various investment options.
- They rely heavily on their advisors for their investment needs. They even hire multiple advisors to maintain a diversity, cross check on information and take second opinion.
- They have advisors flocking to them like bees to honey. At least some are able to sell them an investment. It doesn’t matter if it is a ULIP, a fancy investment fund, a PMS, AIFs, SmallCase, Derivatives, etc.
- Most HNIs are also at the mercy of the bank RM, who has access to all their account information.
- HNIs would say they are risk averse but then they would have sectoral funds in their portfolio. A services fund, a banking fund, a logistics fund, you name it.
- Since the wealth is large, they will have dozens of investments in their portfolio. There are mutual funds which are not unique in their investing style nor bring any diversification benefit (except for one more fund manager). There are ULIPs which are touted as tax free switching options – active management, you see.
- Anything new has a special place in an HNI portfolio. The most NFO entries are visible there. They are clear targets for anything that is new.
- They start SIPs in 13 funds under the pretext of “since the amount I want to invest is large, I need more funds, right?.”
- An HNI Golfs on weekends, rubs shoulders with the high and mighty and comes ‘tipped’ with “privy” info on the next big fall in the stock markets, Brexit, Grexit, FIIs, interest rate, the RBI governor – oh yeah!. As soon as they return, they call their advisor to tell about the tips they have come to know and ask “Should we exit stocks/mutual funds? Profit booking?” (You actually need the Lighthouse!)
- Goal planning seems archaic to them. “Let’s just grow the investments” is the only goal they believe in.
- Mutual funds are boring. “Do you advice on stocks? What else can I do apart from MFs? Let me know about the past performance of your recommendations and your fees?“
- They love PMSing. “Grow my portfolio enough and I am willing to share my profits with you.” PMS stands for Portfolio Management Service.
- Real Estate is a permanent favourite of HNIs. Some have inherited and others still keep pouring money into illiquidity. Real Estate appears to be safe to them.
- Some HNIs don’t even know where the investments are and what is the current value. Not that they don’t want to know but they just can’t keep track.
Does that sound like you?
Well, dear HNI, you can actually have a much simpler life.
Here is what you can do.
- Before you invest your money, invest time in goal based planning.
- Recruit an investment advisor after a through investigation – preferably, one who charges you a fee than one who gets a commission from sales of investment products. The latter is known as a distributor.
- Use your bank only for banking needs, not investment needs. Your Bank RM is rarely your friend when it comes to investments. They have targets to meet and commissions to earn.
- Don’t buy into products / investments just because they are offered to you. Don’t fall for novelty. If you don’t understand a product, don’t buy it. Always allow yourself some sleep, before you invest in anything.
- Taxation hurts you. Don’t go for the overkill in Bank FDs. Do not shy away from Tax free bonds and Debt mutual funds.
- Don’t be afraid to pay the right fees – %age or absolute. Good advice is worth the price.
Here’s a tip: Real investment management is boring. But honestly, if you can put yourself through a game of Golf, working your investment problems shouldn’t be a big deal.
I am sure you were not given your money on a platter. So don’t give it away like that either.