Indians have always acknowledged the role of advice be it from our parents/elders, our school teachers, mentors and even our “gurus’’ who’ve helped shape our personal, professional and spiritual lives as we grow older. Handholding has been a pivotal part of our journey towards being better individuals. Did you notice after the match is over and the medals are won, every athlete – regardless of sport says “Thank You” to his/her coach as a mark of respect and acknowledgement?
However, in the investing world, financial advice is yet to receive its due credit.
Perhaps the fact that we live in a Google age has taught us that information is equivalent to knowledge. Today, a combination of Google searches and YouTube videos will tell you everything from how to invest, to how to cure any disease, to even how to fly a plane. But think about it, when you have anything beyond a common cold, do you Google the answer and medicate yourself? Unlikely, because most of us know that we are not experts in medicine. In investing, however, we don’t even know what we don’t know.
One of the reasons that financial advice is becoming increasingly important is that investment products are becoming more dynamic and more complex. Twenty years ago, when we were traditional fixed deposit investors, the investment decision revolved around comfort with the bank, the rate of return and the tenor of the investment. Investing in equities – and the mutual fund investment world is not just vanilla debt and equities, but a wide spectrum of opportunities – is far more nuanced. There are products with different cap ranges, asset allocations, credit qualities in fixed income, and there are different tools and methods on how to access these. Systematic investment plans, or SIPs, for instance, which are as popular a term today as mutual funds arguably, are a method by which to invest, but they only became “Sahi Hai” because financial advisers took them to investors and let them experience the benefit over a 5- or 10-year period. The same is true of many of the newer concepts in mutual funds – arbitrage funds, balanced advantage funds, and this will continue to hold as capital markets and investment products evolve.
A second thing to keep in mind is that investing is not about making money, as it is about not making mistakes. Investment decisions, much as we want them to be rational, are coloured by emotions, attitudes, and experiences. We are human and we have many cognitive biases – not booking losses, panicking in fear, and doing what the herd does. We are just as prone to investing in real estate if everyone does it, as we are of downloading a new app if everyone is talking about it. There are inordinate stories about how investors have mistimed the market by investing in equities right in 2007 and then redeeming at the bottom in 2008 or missing out on the opportunity in 2013. Financial advice in some sense, is a calming effect that can help us step back from the excess noise, news and information that colours our judgement on a day to day basis.
Finally, financial advice is very different from financial sales, because investing is not a single transaction, but a life long journey. Our investment journey starts when we are 22 to 24 and have just started working, through when we are saving and building up assets and wealth in our 30s and 40s towards planning for retirement in our sunset years. Every individual has their own journey, and it is a journey that is dynamic, which is why the need for advice is both constant and highly customized. In fact, investing is a very meritocratic activity because two investors can start with very different beginnings, but their journey is what will define their investment outcome. And while we use words like risk profile in this business a lot, there is no one right answer to the right risk profile and no single right way to invest. Just as we have different personalities as consumers, we have different personalities as investors and advice can guide our investments to our financial personality.
My profession takes me to different parts of the country to meet investors, and I frequently get questions from new investors in particular such as “What is the right fund to invest in?” or “How do I know which fund house is safe” or “Should I buy a small cap or a large cap fund”. The question I wish I am asked more often is “How do I obtain good financial advice” because once that is answered, the rest will just follow. They say a good coach can change a game, but a great coach can change a life. Investing is not that different – good advice can impact an investment, great advice can change your life.
Ms. Radhika Gupta is the Chief Executive Officer of Edelweiss Asset Management Limited and the views expressed above are her own.
