Dear All,
Please find below a good article by Dr. Uma Shashikant, as appeared in Economic Times for your reading:
Financial advisors must be professionals or lose their relevance
By Uma Shashikant
One long-standing debate in the financial services business is about Do-it-Yourself (DIY) versus seeking professional help in managing wealth. Does it make sense to be DIY investors? Why should investors use financial advisors?
There are two primary reasons why DIY is a better choice: First, no one cares for your money as much as you do. Second, you cannot abdicate responsibility for your personal wealth. If these preferences are to be aligned with the engagement of a financial advisor, you need to do two things: First, establish that decisions are being made in your interest. Second, clarify how much of the responsibility is specifically being borne by the advisor, and how he can be held accountable.
One long-standing debate in the financial services business is about Do-it-Yourself (DIY) versus seeking professional help in managing wealth. Does it make sense to be DIY investors? Why should investors use financial advisors?
There are two primary reasons why DIY is a better choice: First, no one cares for your money as much as you do. Second, you cannot abdicate responsibility for your personal wealth. If these preferences are to be aligned with the engagement of a financial advisor, you need to do two things: First, establish that decisions are being made in your interest. Second, clarify how much of the responsibility is specifically being borne by the advisor, and how he can be held accountable.
The trust gap that exists between financial advisors and investors today arises from the advisors' inability to establish to the investor that they are taking care of his money, as if it were their own. If this fundamental fiduciary relationship is not established and nurtured, investors will continue to toy with DIY, even though it is inefficient. The typical arguments for not choosing DIY, but engaging an advisor, centre around time, expertise, process, discipline and professionalism.
These are all not insurmountable hurdles. At the same time, DIY is not easy to do. There is a limited amount of time, and investors might find it worthwhile to pursue their chosen professions and other interests, rather than allocate time to managing their finances. Without a deep and sustained interest in money matters, managing wealth may not get the time it needs.
Expertise does not come easy, but for someone with determination, it is not too tough to acquire. Finance is some part math, some part economics and a good dose of plain common sense. Every profession creates its set of jargon and complexity, so it takes some effort to sift through and get one's bearings.
Process and discipline are personal qualities. Not everyone can bring them to bear on managing personal finances. Managing wealth requires a good amount of initial effort to set things up and an on-going review to keep it going. Some investors who have developed a keen interest in finance and manage personal finances as a serious second line of interest, have been able to do a decent job of it. That most cannot or prefer not to be DIY investors, presents an opportunity for professional financial financial advice.
Financial advisors assume that the limitations investors face in managing personal wealth are reason enough to seek expert advice. But they fail to showcase the qualities needed to manage investors' money. Many advisors do not see investment in knowledge, expertise, systems and processes as prerequisites to be in the advisory business.
To provide a viable option to DIY, it is important that investors see financial advisors as professionals.
A professional is one who is willing to state, in unambiguous terms, the services that he would offer. He sets the correct expectation for his services, indicating what he would do and be accountable for. He reports, informs and communicates transparently how his advice has added value. In delivering these services, the professional subjects himself to a code of conduct. Trust can be earned only from behaviour that is transparent, fair, consistent and dependable. The financial services profession, including banks, brokers and independent advisors, has done precious little to establish these credentials.
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