As an investor you can make a conscious choice to make your decisions, relying on your own research and instincts. This is great in early stages of your life/career when you can afford to give that time.
However, if you have full time career, you will likely come at a point when you feel the need to take support of another person, an adviser. Someone who can act as your sounding board, can work on your behalf to help you reach your financial goals and most of all, help you avoid the big mistakes.
The question is who should be your investment advisor? The mutual fund distributor, the insurance agent, the bank RM or your uncle?
Let me try and get around this question by looking at the other side. But first, a story from my personal experience.
The story of the Bank Relationship Manager
A few years ago, I was visiting my bank branch (which I do very rarely since I conduct most of my transactions online or on phone banking).
The Relationship Manager (RM), dressed up with a big fake smile, approached me and asked me if I invest in mutual funds (not knowing that I was a financial advisor too).
I said yes.
He quickly brought out two brochures of brand new fund schemes that were launched recently. Now, courtesy my job, I was aware of those schemes and the tactics that were being used to push sales for them. By paying out huge commissions (which are extracted from the money you invest), of course.
I asked him a few basic questions. The responses were more like hmm and err.
I politely declined. Before leaving, I handed over him my card to him just in case he might need some advice in future or be willing to get himself more informed.
If you are seething with anger recalling your own experience with your bank and the RM, then I can perfectly understand what you must have gone through.
I have had a fair share of such experiences.
I have been a pitched credit card loan; personal loans bundled with insurance policies, almost everything by RMs.
Unfortunately, the only job of a Bank RM appears to be only meeting the sales target for various financial products. They have access to your bank account and how much excess funds you hold and are ready to offer to you the next hot opportunity for your money.
I have met several of them who have confessed in private that they would never buy the same product for themselves or family. So much for your trust in the bank.
The more high end the bank, the more tricks it uses to lure you. Even to the point of sending across attractive people to get the sale.
I feel that you too must have been a victim to this rampant mis-selling and taken decisions based on what your RM recommended. Of course, you acted in good faith. But I now hope that you figured out the mistake and make amends for it.
The Bank RM is not you
Let’s understand one thing very clearly. Your bank RM is NOT YOU. They do not share your goal or values.
Your money should take a direction based on your personal values, goals and wishes.
Anyone who approaches you and does not try to understand your perspective and your goals and your life plans can never offer the right advice to you.
You might want to protect your money while your Bank RM’s interest is in getting you another of his high commission paying policy.
Their income depends on your transactions and that’s where the things become a little murky. Issues of conflict of interest arise because they want to sell you what creates their income and not what would be right for you.
Taking the insurance example again, I got several of my clients to ask their agents about Term Insurance. As people who are supposed to keep the best interest of their customers in mind, the advisors drew a complete blank. To my complete dismay, most of them said, they had heard the word for the first time. Truly shocking!
Don’t let anyone fool you
Now, I understand, that when it comes to money, you would want to take advice of someone you know and trust. After all, it is your hard earned money that you are putting at stake here.
But it is important to find out if your trust and familiarity is being used to drive self-goals for the seller or advisor. Basically, your interest is getting compromised.
If it is, it can have serious consequences for your money. One biased, incorrect, selfish piece of advice can set you back by years.
Who should be your investment advisor?
Here are some quick pointers, which can help you.
- Your goals and your requirements should drive the use of your money, not your Bank RM or your uncle or insurance agent for that matter.
- Whenever someone approaches you with an investment idea, ask how will it help you achieve your goals?
- If you do not understand it, do not buy it. Most financial products that will work for you are simple and easy to understand. If it sounds complicated, stay away!
- Any promise of the ‘moon’ or a super rosy picture should act like an alarm with a red signal. Immediately back off.
- The person trying to sell you the product should disclose their interest in the product. What is the commission they will get, just one time or more? What is the service that you can expect from them? Is it just a form that will be filled up and submitted or there will be ongoing service and advice. It is a good thing to compensate a service provider but then it is only fair to expect adequate service.
Ideally, your investment advisor should be willing to be compensated with a fee, to be paid by you. The financial products, s/he recommends should include no commissions paid to anyone.
That is the only way you can make the advice work totally in your interest.
Now, who is your investment advisor?
This note is a part of a free course – Investing 101. Want to subscribe to the full course on email?