Dec 9, 2014

This piece brings out the merits of having as your Financial Advisor a professional who possesses multiple capabilities – both in terms of skill/knowledge and in terms of multiple asset classes – and gives end-to-end integrated advice. Such an Advisor or Wealth Manager (and I use the term rather loosely, without reference to the recent Investment Advisor regulations) should have the skill / knowledge to advise you on the following:

• Financial Planning: this is more relevant for Investors who are still building towards the key goals in their lives. Mr. Farhan Khan, a young working professional client of ours (name changed) is now building towards his following Life Goals – first home, marriage, car, child education, child marriage, retirement. He has got separate portfolios developed through us for each of his Life Goals – separate Systematic Investment Plans have been set out from today towards each one. This also covers the right amount of Term Plan protection that he needs, at different stages of life (reducing in later years).
• Advantages of Asset Allocation: I keep on repeatedly referring in all possible platforms to the “Brinson, Hood, Beebower Study” in the USA which showed that 75-90% of portfolio returns are determined by the asset classes you choose and by the %age allocation among them. The remaining 10-25% returns are determined by the exact products one chooses under each asset class, and on the timing of the investments. Mr. Raju Shrivastav (name changed), a client of ours with an exports business maintains 35% of his investments into Real Estate, 25% into equity, and rest 40% in debt. However, within debt, he has 10% each in Bank FDs, Tax-free bonds, Corporate FDs and High-yield debt. He ensures that the above mix is re-stored every year, once a year, after the mix gets changed because of different asset classes appreciating at different rates. 
• Impact of macro-economic and political factors on different asset classes: In another article in Mint, I had pointed on the importance of understanding as to how will the global geo-political, global economic and national politico-economic factors impact the returns from your various investments. Your Advisor needs to have a Research Team backing her, to be able to extract discerning and relevant points for your portfolio, out of the information glut on these topics available through multiple sources.

In addition to the above skills or knowledge, your Wealth Manager should also have the capability to advise on ALL asset classes and on which particular scheme or product to invest in across the following asset classes and product classes. Not only that, she should be able to help you with end-to-end execution for investing in these products too :

• Equities (Direct stocks, Mutual Funds, Portfolio Management Services)
• Debt (Bonds, Mutual Funds, Corporate Fixed Deposits, Bank FDs)
• Real Estate (Real estate broking for stand-alone investments, Real estate Financing through high-yield debt, Real estate financing through RE funds taking direct exposure in owning real estate)
• Gold (Gold bullion, Gold ETFs)
• Other alternative assets (Private Equity Funds, Standalone PE/VC investments, Hedge Fund).

While the merits of having a multi-skill Wealth Manager are obviously apparent, there a few solid reasons on why a multi-product Wealth Manager is good for your financial health.

• If your “Advisor” is an agent of a company selling one product, say Mutual Funds or Stocks or Insurance, then guess what product is she going to sell you at the end of the Advice? We have seen numerous examples of even aware investors finally succumbing to the pressure of buying products from their Advisors, who coincidentally sell only that one product.
• A multi-asset class Wealth Manager will (should) recommend products as per your ideal asset allocation, and this will (should) ensure the correct advice as per your financial profile
• Further, within each asset class and product category, your Wealth Manager should be having multiple product options from different product providers. Else, you may end up subscribing to only proprietary products of that wealth management company
• Finally, your Advisor should help you with execution also, so that there is more discipline in follow-ups and the Plan doesn’t merely remain on paper.

So, what should you do ? Ask your Financial Advisor to carry out a comprehensive Financial Planning exercise, if you are in the Goal-providing mode. Ask for YOUR Ideal Asset Allocation for the wealth-building component of your portfolio (hint – this should be deeper than just being called “Conservative, Moderate or Aggressive”). Ask if she can recommend something on each of the different asset classes. Ask for multiple product choices under each asset class. Check if all the recommended products are not proprietary. Be inquisitive – ask lots of questions unabashedly, almost like the character, Rancho that Amir Khan played in the film, Three Idiots!  If you find answers from your Advisor to any of the above questions lacking in depth, run fast, and in the opposite direction. Remember the adage, A fool and his money are soon parted! Call the bluff; you have worked very hard to make your money. You and your family deserve to have the best!