Do You Want To Pay For Sound Advice?

Posted on February 16, 2011 by Ranjan

CB Bhave spoke to HT and had interesting insights about Indian financial advisors. Read it here. Some excerpts:

Q: ….that investors are not used to paying for advice. Even though 60% of our GDP comes from services, we are averse to paying service tax or service charge. This habit of not paying is more a behavioural aspect of consumers. How do you see this playing out in no-loads?

CBB: This is not an issue that has arisen only in this area. This is a transition we have to make. Initially, when there was talk of privatisation of electricity distribution, many investors who were thinking of investing in power plants or distribution were not clear as to what will people be ready to pay for continuous power without fluctuating voltage.

I have no doubt in my mind that consumers understand what they want. It is for the entity that sells the service to convince the consumer that the charge is worth it. The important point in this transition is that it empowers the investor that he can make a choice now.

Equally, if you as a distributor want the same customer to come to you again, you get into a relationship business rather than a transaction business. When your commission is assured, you are in a transaction business.

How many of you are ready/comfortable in making the transition and start paying for advice and not get swayed by commission based recommendations?

To my mind, the bigger issue is finding the right advisor who is both knowledgeable and professional. It’s not that there are no such advisors. They are everywhere but their business is limited to servicing maximum 1000 (my guestimate) clients. Scaling up is a big challenge.

But what if good, ethical/professional advisors standardize their processes and train a few thousand people to take their methods forward?

I think it’s do-able and also the need of the hour. What about you?

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Which Portfolio Manager to Choose?

Posted on February 11, 2011 by Ranjan

K Ramalingam has a detailed post on Portfolio Management System and how to choose your Portfolio Manager on my website.

While it gives the framework for taking a decision on choosing PMS, it would be a difficult exercise to compare PMS service on their expenses and the kind of returns they generate.

My guestimate is that there would be more than 250 PMS providers in India and finding the list and going to their websites for collating information on expenses and returns would be a daunting exercise.

There are some experiences that have been shared on a previous post on PMS and those are individual experiences. I don’t think it’s a good idea to generalize those experiences.

Another perspective (and this is mine), is that so much information and data doesn’t really help. More important than the returns (which can be seasonal) and expenses (nothing wrong in charging for real professional advice), it is the evaluation of the investment expertise of the PMS provider that is important. You need to be able to trust your PMS provider on the basis of his investing skills.

So if we can come back to the question of which PMS provider to choose, which one would I choose?

My answer is PPFAS. Their Portfolio Management Scheme (Cognito) was started in October 1996 and is a SEBI registered Discretionary Portfolio Management Scheme which provides a service that is best suited to the investor’s own special needs. Client’s expectations and risk perspectives are understood over pre-signing meetings. An ideal balance between equity and fixed income investments is arrived at with mutual consent. Sounds interesting? You can evaluate the mandated disclosures here which gives details of the returns generated and the fee they charge

And Rohit Chauhan, who may not be a SEBI registered PMS provider but he has a really transparent blog where he gives out a lot of ideas. He’s starting a paid subscription service soon and he charges peanuts!

Will you like to share your experiences and recommendations? Thanks.

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How Does Financial Planning Work?

Posted on January 26, 2011 by Ranjan

PV Subramaniam writes about an email from a reader who wants to understand financial planning and how it works. The reader details the service he got and says that he paid Rs 15000 in 2006 apart from what the Financial Planner got as Mutual Fund commissions.

Subra writes, “Equities are good in the long run” if you are planning for the long run keep money in equities. Buy critical illness, medical insurance, and term insurance. Keep money in a Unit linked plan for pension… none of this is a planners advice. this is generic and available on the web…but I have seen bills of 15k, 40k…for such generic advice. that is why i said ‘I have no clue what a FP is supposed to do’.

Subra’s post opens up a debate on how financial planning should work and I posted my opinion there. Here’s what I said,

I am not a CFP, Insurance/MF/PMS advisor but just a personal finance enthusiast. Having said that, I have certain thoughts on financial planning and being a smart money manager.

1. Investments is just one component of financial planning. The other components are about maximizing income and optimizing expenses. So a FP exercise shd start with some kind of cash flow analysis and a review of the current situation.

2. FP is also about two things. a)gaining info/knowledge about financial things and b) being aware of our financial behavior aspects. The behavior is more important in my opinion. So FP is more about improving financial behavior and not just doling out advice.

3. I shared a “Schedule of advice” with Subra which can be shared with the reader

I am sharing some points of the SOA here

Financial Planning is the process of managing your money with a view on achieving your financial goals. In consideration of the mutual benefits to be derived from this financial planning exercise, it is understood and agreed as follows:

1. Services of Advisor. Advisor shall prepare a financial plan to assist Client in defining his/her personal financial goals and objectives, and to supply analysis and recommendations as to the actions and strategies necessary to attain these goals and objectives. Specific financial planning issues to be addressed by Advisor are indicated below by Client’s initials.
• Risk profile analysis _____
• Insurance analysis _____
• Investment management _____
• Cash flow analysis _____
• Income tax planning _____
• Retirement planning _____
• Estate planning/Home Loans _____
• Other: _____

By limiting Advisor’s analysis to the specific areas indicated above, Client understands that information regarding specific issues not revealed to Advisor may have a direct impact on Client’s overall financial picture and well-being.

Advisor will meet or communicate with Client as frequently as determined mutually by the adviser and Client.

2. Confidentiality. All information and advice furnished by either party to the other, including their agents and employees, shall be treated as confidential and not disclosed to third parties except as agreed upon in writing or required by law.

3. Responsibilities of Client.
Client recognizes that the value and usefulness of the financial planning services described herein will be dependent upon information that he/she provides and upon his/her active participation in the formulation of financial planning objectives and in the implementation of plans to attain those objectives. Client will complete one or more detailed questionnaires provided by Advisor.

Client also agrees to discuss needs and goals and projected future needs candidly with Advisor and to keep Advisor informed of changes in Client’s financial circumstances, needs, and goals. Client acknowledges that Advisor cannot adequately perform his services on Client’s behalf unless Client performs such responsibilities on his/her part and that Advisor’s analysis and recommendations are based on the information provided by Client.

Implementation of any portion of the financial plan is entirely at Client’s discretion. Client understands that the responsibility for financial decisions is his/hers and that he/she is under no obligation to follow, either wholly or partially, any recommendations or suggestions provided by Advisor.

4. Compensation can be clearly mentioned under two heads.
a. Financial Planning and
b. Implementation of Recommendations

I welcome your thoughts on how a financial planning should work. Thanks

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Disrupting The Financial Advisory Ecosystem in India

Posted on December 23, 2010 by Ranjan

Gaurav Mishra, has an insightful post on How is the social web disrupting the Agency ecosystem.Change is in the wind in the Indian financial advisors ecosystem too and there are a lot of lessons to be learnt from Gaurav’s post.

I have always made a point about having an offline component in this line of business and I feel validated by Gaurav’s post.Excerpts:

New types of integrated agencies have the opportunity to disrupt the agency ecosystem if they create six new capabilities:

Role #1. Share insights on which social heartbeats resonate with the brand values
Role #2. Help the brand build long-term relationships with influencers
Role #3. Host brand communities that organize and energize evangelists
Role #4. Create compelling branded content platforms
Role #5. Create compelling online-offline experiences
Role #6. Measure the strength of the brand’s relationship with influencers

I believe that agencies will need to focus on one of three areas: insights, integration and implementation.

Consumer behavior in India and China (and even Japan) is shifting in distinctly different ways, compared to mature markets in North America and Europe, and some of the models that worked or will work there, won’t really work here.

To begin with, internet penetration in India is less than 5% In addition, consumers in India and China are still driven by individual-focused, achievement-oriented values.

However, young, educated, urban consumers in India and China are becoming increasingly sophisticated, both in terms of social web adoption and value systems, and brands that design platforms and programs for them will benefit from an early adopter advantage.

I have come to believe that the ideal approach for India and China is an integrated influencer marketing approach that answers three important questions:

1. How to organize and energize brand evangelists to achieve business objectives?
2. How to create influencer platforms and programs that work both online and offline?
3. How to build strong relationships with influencers by integrating online communities and offline events?

I have highlighted above the most important question that Gaurav asks and which is relevant to the financial advisory ecosystem. The question is, I repeat, How to create influencer platforms and programs that work both online and offline?

As Founder, RupeeManager, I am in the business of organizing information on personal finance and facilitating people to achieve their financial goals. I will do this through my blog/website, financial planning workshops and software for financial planning and tracking money related things.

We are building interactive learning sites with infographics, videos, games and compelling content so that this subject of personal finance becomes interesting.

Does this sound interesting? Or insane?

As always, I request your thoughts.

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Providing Financial Solutions & Sharing Knowledge

Posted on November 2, 2010 by Ranjan

October 2010 was a month when I made a transition from a giant Organization to a Startup. I am also metamorphosizing from just sharing my knowledge on personal finance to providing financial solutions.

Paisa.com, a fresh way to track, compare and analyze the financial markets and products in India, has been built by a very passionate team of hackers and product designers who believe that the best products share the DNA of simplicity, aesthetics and function. I am excited to join them as the Community Evangelist.

I also passed the certification exams that allows me to be a certified mutual fund and insurance advisor.

I strongly believe that generic advice is useless and it depends on the individual situation, risk appetite to arrive at the best fit solution. I also know that just more knowledge and information doesn’t really help. You also need the right approach and take concrete action instead of debating on the pros and cons of various products.

The exciting news is that the Regulators in India are cracking the whip and are affecting the business distribution models of the Insurers and the AMCs. And Glenn Williams, CEO, Bharti Axa Life Insurance, says (Mint Column),

The new regime necessitates the distributor to better understand the customer requirements, undertake a sound financial needs-analysis and recommend the appropriate product offering to the customer that would thereby result in a long-term mutually beneficial relationship. Adopting a customer-centric sales approach will affect the distributor’s absolute earnings positively and also result in higher persistency, the importance of which can never be understated.

That’s encouraging for folks like me who want to provide the right financial solutions and not recommend products based on the commission factor alone.

I am in the process of documenting a “Schedule of Advice” that includes the process of providing solutions, confidentiality clause, disclosures and the compensation expected.

Do you have any suggestions/expectations? Or better still, would you be interested in a new age Financial Advisor? Awaiting your comments, emails (ranjan@ranjanvarma.com) and your call (+91-9867755615)

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Updates on Walking the Talk

Posted on September 30, 2010 by Ranjan

In my efforts to walk the talk, I cleared the NISM online test for Mutual Fund Advisors last week. I am also planning to take the IRDA test next month and enroll for CFP from FPSB shortly.

I believed that I don’t need a certification to be able to do financial planning. But let me admit that there’s a bit of arrogance in that belief and there will be important learnings when I study the course.

And even though, you can’t teach an old dog new tricks, learnings never stops and can continue to the last day of my life.

While I take steps on walking the talk, here are some updates from my website. Do let me know your feedback.

Awaiting your thoughts here and on email.

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Providing Investment Advice Services

Posted on August 3, 2010 by Ranjan

I received a mail from Namrata Mehta asking about my investment advice services. To be more specific, here’s an edited version of the mail:

My husband and I work in the IT industry in bangalore and are looking at investing around 3 lacs per annum. We have been looking for a good financial advisor but didn’t find someone we could trust. I liked what I saw on your blog and I am glad that your advice and services are for people in India.

I saw that among the courses listed on personalfinance201.com, you also have finacial advice listed under your professional/paid services. Can you please send me the details on how we can avail this and of course, the fees to avail this service?

My answer:I still have a day job and am not providing any financial advice/planning services as yet. (Question to self: When will you have the guts to go into personal finance business fulltime?)

See, financial advice is easy. Just invest 10k, 10K & 5K every month through a SIP in three MF scheme that I recommend and it takes care of your Rs 3 lacs investment per annum. I don’t know whether I should charge for that! Though I shouldn’t be saying no, no?

But financial planning is slightly complicated. Any person who can help you set financial goals and setup a financial plan will have to understand your situation and protect you from either dreaming too big (getting greedy) or from being too conservative (being fearful). It’s almost the job of a Counsellor.

To my mind, managing your money is also about maximizing your income and optimizing your expenses apart from the investing part.

Additional comments: So as a financial counsellor, I would also explore the possibilities of maximizing your income. Check How to maximize your income. I would be keen on doing a thorough Financial Health Check on a spreadsheet that I have developed.

I would also set up metrics so that you can measure what you earn and what you spend. Once we start measuring, we find ways of improving upon the findings. I’m sure, RupeeManager will help.

I also talked about asking the right questions in my last post. (Link). A financial counsellor would be able to ask the right questions too. To help you arrive at the right answers yourself. I’m a strong believer of DIY! Ultimately, you are responsible for your well being, no?

Conclusions:To my mind, the financial advice service has two main components.

One, the transactions part, where you advice your client about specific investment products. Two, the counselling part, where you understand the client personal situation and customize your recommendations.

It seems like an utopian concept as I write this post. But having travelled for 20 years in financial services industry, making a lot of mistakes and now mending a lot of financial decisions, I feel confident of providing that service.

Infact, that’s the idea behind the workshops, where I can guide people in a group. For individual attention, I may have to charge much more.

My question to you: Do you think such services are available in India? Or is it possible to provide such services? And would you be interested in just the investment (transaction) advice or want a complete financial planning package?

Comments and email are most welcome. Thanks.

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