Confused about investing right? Take a cue from how you pick your child's career By Uma Shashikant

Dear All,

Please find below a very good article of Mrs. Uma Sashikanth as appeared in Economic Times for your reading:

Confused about investing right? Take a cue from how you pick your child's career 

By Uma Shashikant

Children elicit better behaviour from their parents. I have seen carefree spendthrifts turn into diligent savers after the arrival of a child. In the modern times of hyper-involved parenting and indulgence, nothing but the best will do when it comes to children. Social scientists say that when parents believe their child will have a better life than themselves, the society changes for the better. As a finance professional, however, I see parents living in the archaic old world when it comes to money, even while they dream the big dreams for their children. This needs correction. 

Simple earners, including domestic help and drivers, send their children to Englishmedium schools. They spend on additional coaching for the children and enroll them in summer classes. However, when I check with parents across the income spectrum about how they are saving for their children, I find that they invest in recurring deposits with banks or post offices, or have saving certificates or the PPF. While none of the children are going to government schools, the money is saved with the government. Parents have the energy, resources and aptitude to check the pass percentages of schools, quality of teachers, type of peer group, distance from home, timings, fees and other variables with great ease. However, they believe that checking the past performance of an equity fund, its fund managers, its peers, costs and terms might be a complex task. It is not clear to me how the two are different. 

The usual refrain is that a precious goal, such as the future of a child, cannot be subjected to the risk of equity markets. Many parents say they are fine with settling for low returns since the risk is also low. The same parents, however, are very clear that without the additional coaching, the child is not likely to score the desired marks in the board exams. They are willing to join the few lakhs that write the IIT entrance exams, even if the probability that the child will make it is too low. 

The approach is aggressive when it comes to pushing the child to do more, but the saving that is supposed to fund this dream education sleeps and snores in the low-yielding recurring deposit accounts. Just as the child needs that additional push, the savings also need the extra kick to get bigger. If engineering or medical degrees are chosen for a better income when the child becomes an adult, why should the money be admitted to a low-return, poorly performing basic degree course? The math is actually quite simple. If a parent desires a good professional education for the child, as most do these days, the money needed to get there is not small. 

The cost of education is moving up sharply, thanks to the growing demand and limited supply. If Rs 50,000 is saved every year and is invested to earn an 8% return, it will convert to a corpus of about Rs 23 lakh in 20 years. The same money deployed aggressively to earn 16% will not produce twice that number, but 2.5 times bigger corpus of Rs 58 lakh. This is the power of compounding of money over a long period of time. 

Read more at:
http://economictimes.indiatimes.com/articleshow/45078931.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Whom can IFAs pass on their business to?

Dear All,

Please find below a good article as appeared in Cafemutual for your reading:

 Whom can IFAs pass on their business to? 

A whitepaper titled ‘Passing The Torch – How To Plan For a Successful Succession’ published by Raymond James gives interesting insights on whom advisors can pass on their practice to.

If you’re in a position to select a successor, the task of selecting the right individual is a significant challenge, both professionally and personally. Depending on your situation, this could be your opportunity to watch a child come into his or her own in this profes­sion, or it may be a reward for a longtime employee who invested years in helping build the practice. But even if it involves passing ownership to a willing buyer with whom there isn’t a long-term relationship, this decision is the lynchpin of your succession plan.

You might decide to 

• Transfer or sell ownership to a family member

• Transfer or sell ownership to a trusted colleague

• Merge a practice with a new partner

• Sell to an external buyer

These four approaches are by no means the only choices available to you, but most advisors find one or more of these strategies suit their circumstances. In making a decision on a succession strategy, it is important that you carefully weigh the benefits and drawbacks of each alternative.

Family Member

Benefits

• Beyond building a business continuity plan, you’re creating a family legacy.
• Clients often favor the family succession approach because of the continuity and business legacy associated with this approach.
• Clients get to know the family member successor well in advance of the ownership transition, and consequently, relationship retention is among the highest of all succession methods.

Drawbacks

• If handled improperly, having one family member become the business successor may cause friction with others. 

• It may be difficult to keep business and emotion separate, and consequently, poor decisions might be made out of sympathy or a sense of obligation.

Trusted colleague

Benefits

• By passing ownership to a younger advisor you’ve groomed for succession, you can ensure that your practice’s culture and standard of service won’t falter.
• Much like passing to a family member, this option helps to ensure the comfort and confidence of your clients and the retention of those relationships.

Drawbacks 

• In some situations, a younger associate may encounter challenges funding the buyout.
• If a suitable candidate isn't already working in the practice, it can take significant time to identify and successfully retain one.

External Partner

Benefits

• For a solo advisor with no desire to seek out and affiliate a junior partner as the future owner of the practice, another independent advisor in the same geographic area may agree to enter into a working (versus legal) partnership despite maintain­ing separate practices with the expectation that each working partner will be the ownership successor for the other advisor without consolidating the practices prior to the ownership transfer.
• You can establish a revocable trial agreement to test out the relationship before there is any formal agreement for the transfer of ownership.
• Neither advisor incurs any operating expenses nor makes changes in his or her practice with this type of plan.

Drawbacks

• Finding the right working partner may prove difficult if not impossible in some geographic areas.
• Partners may disagree and find themselves making certain concessions about the value of their practices.

External Buyer

Benefits

• Generally requires a relatively short transition period for the selling advisor.
• Due to the transactional nature of these arrangements, this option may take less of an emotional toll on a selling advisor.

Drawback

• While due diligence is an important part of any succession or acquisition, it is especially complex when selling to a party affiliated with a different broker/dealer due to client privacy regulations. Less than complete disclosure about all client relationships may also result in a lower price.
• With this type of sale, you may not be able to secure continued employment for your staff with the purchasing advisor, and it is less likely that all of your clients will be retained by the purchaser.
• This option often requires more expert legal and tax advice on the various implications and proposed terms of the purchase.

Also read: How advisors can plan their own succession   

Raymond James is a diversified financial services holding company with subsidiaries engaged primarily in investment and financial planning, in addition to investment banking and asset management.

http://www.cafemutual.com/News/Whom-can-IFAs-pass-on-their-business-to?-~240~Cli~BusinessDevelopment~62

regards

World is changing, are you? Vinayak Sapre

Dear All,

Please find below a very good article as appeared in Cafemutual by Mr. Vinayak Sapre on how IFA has to adapt the behavioural changes of his clients:

World is changing, are you?

Vinayak Sapre Always remember that clients don’t issue addendum before making changes to their behavioral patterns. ‘Attitude subject to change in the blink of an eye’, I read this quote in one of the whatsapp profiles and thought how true this is in our daily life. We don’t realize it even though for an advisor it is very important to be aware of the changing attitudes and behavior of clients. Most advisors have this habit of ignoring change and continuing with their routine without realizing that the world around them (read clients) is changing. People live in present and think of the past, which restricts them to move forward. They believe that things will remain the way they are and therefore when the world around them (read AMCs, regulator) changes they feel it is unfair. A situation which I believe is very dangerous for advisory business is when people react to changes in the market (read stock market, fixed income market) which is not in their control and their reaction doesn’t have any impact on the market. Rather, they should be reacting and responding when there are changes happening in a client’s life - financial and emotional. One such area which requires immediate attention and action is technology. Technology not only reduces costs but also brings in a lot of convenience. It starts with something as basic as using MS office and having a website with login ids for clients to track their portfolio. If people start communicating with clients over email and send portfolios or give login facility it reduces lot of man-hours. But getting out of the comfort zone is a tough task for many advisors. Communicating over email has other benefits as well. The conversation is documented and in the era of strict regulations, it also protects advisors. Let me cite a personal example of how the attitude of people is changing even in small towns. My sister bought few sarees online for her daughter’s marriage. Well, she doesn’t stay in UK or the US, not even in Mumbai. She stays in Varanasi, a place which is famous itself for sarees. I asked her the reason for buying online and she said that she wanted a particular variety which was not available in Varanasi. She ordered it online since it was convenient and also because it could be replaced, if she didn’t like it.   It gives a strong message that if the advisor is not geared up for changes in client needs and attitudes, it is going to be a tough journey ahead. Always remember that clients don’t issue addendum before making changes to their behavioral patterns. It’s high time we realize that the business needs to grow beyond market, because ‘the purpose of our business is to create a customer who creates customers’. Lastly, I will use the following quote which I read recently ‘You will never change your life until you change something you do daily. The secret of your success is found in your daily routine’.  Vinayak Sapre runs Insights, an advisor coaching firm.

idea convert in to business

Greetings bhavesh,

There are a lot of great entrepreneurs out there, but one of my favorites is Thomas Edison. I think I’m such a fan because, like me, he failed so much more than he succeeded. Of course, he learned how to turn those failures into golden lessons.

When I was a kid, we learned about Thomas Edison in school. When I told my rich dad that we were studying Edison’s life, he asked me if they’d taught me how he became so prolific. “No,” I replied. “We only learned about how he invented the light bulb.” “Well, I'm sorry to contradict your teacher,” rich dad said. “But, Thomas Edison didn’t invent the light bulb.”

Rich dad explained that there were many other people who had invented light bulbs before Edison. The problem was that these light bulbs were not practical. They would die out too soon. Also, these inventors could not explain why a light bulb was commercially valuable.

In short, they had a great idea, but they didn’t have a business. Edison, on the other hand, not only invented a better light bulb, but he also built a business around it. He invented the first useful light bulb and he knew how to show its value.

Anyone can have a great idea, but only a great entrepreneur can make money with that idea. You probably have a great idea or product too. Just about everyone does. But do you know how to make money with it?

If you have the courage to pursue your idea, start with baby steps. Start with research, talking to people and flushing out your idea. Once you have figured out how to make money, THEN the fun begins. But, start with step one.

Thank you for reading. As always, if you find value in these emails, please share them with your friends.

Here's to making life better,

Robert Kiyosaki

Dear All,

Please find below some motivational quotes to earn better for your reading:

Recite These 5 Inspirational Quotes to Earn More Money

Do you ever wish you earned more money? Sometimes you want more money to treat yourself to a new pair of shoes, go on a luxury vacation to a tropical island, or purchase your dream car. Nothing deters your ambition to earn more money than negative self talk. To turn your negativity around, you need to replace self defeating thoughts with positive affirmations and quotes explaining how to earn more money and why you deserve it.

When you start reciting positive quotes, you will start to build the confidence you need to work smarter and ask your boss for a raise. When you approach your boss with confidence, he is more likely to take you seriously and believe in your worth to earn more money.

As you build your confidence and strategize the best way to ask for a raise, make sure you recite these five inspirational quotes to earn more money:

“To become convinced that you can succeed is the first requisite to success.” -Wallace D. Wattles

You must believe in yourself and your ability to accomplish anything you set out to do. When you convince yourself that you can succeed, you set yourself up to get what you want. No matter your circumstances, tell yourself that you deserve to have affluence in your life.

“It is a mistake to look too far ahead. Only one link to the chain of destiny can be handled at a time.” -Sir Winston Churchill

Even though you have the ability to become a multimillionaire, don’t get upset if it doesn’t happen overnight. You need to take baby steps to build your business or demonstrate your competence for a raise. Set an income goal with a deadline and construct a simple plan to achieve it. Now all you have to do is execute it. Just remember to be patient with yourself and take one task at a time.

“An unfulfilled vocation drains the color from a man’s existence.” -Honoré de Balzac

You must be wildly passionate about your work. If not, find another job because life is too short to be miserable. Manifest your hobbies and talents into your job because society values people who care about their work. The more skilled you become, your value and monetary compensation will increase.

“Try to become not a man of success, but rather a man of value.” -Albert Einstein

Success is in the eye of the beholder. Your friends and family are not afraid to tell you what you are good at. Listen to them and use those skills while you work. People will pay you for your work when it adds value to their immediate needs.

“If you try to please everyone, you might as well kiss your ass good bye!” -Michael Port

When you try to please everyone, you’re bound to disappoint someone. Quit trying to please everyone and follow your ideal career path. You will continue to earn more money when you’re a leader in your area of expertise.

While you contemplate these quotes, keep in mind there are two ways to have more money:

1. You can spend less

By spending less, you are able to put money away in your savings. The money you save over the long term can go towards a financial goal. A few ways you can spend less include limiting the amount of Starbucks lattes you buy, using public transportation instead of a car, or decreasing the amount you spend on rent.

2. You can earn more

When you earn more money, you are able to increase your net worth. Earning more can help you build long term financial investments, donate to charitable causes of your choice, and indulge in guilt-free purchases. A few ways to earn more money include asking for a raise at work, building a lucrative business from scratch, and investing wisely.

Keep income goals in line with your values

In either scenario, make sure your financial goals are realistic. If you are going to ask your boss for a raise, remember to write down your contributions to the company and why you deserve a raise. With an increased salary comes more responsibility, so it’s important to remember your values and remind yourself why you want more money in the first place. You deserve to have more money to enjoy high quality experiences and possessions, so don’t forget to recite these five inspirational quotes to earn more money.

Is the ETF wave coming to India?

Dear All,

Please find below a good article as appeared in LiveMint on ETF in India for your reading:

Is the ETF wave coming to India? 

Within the domestic mutual funds, the ETF space has been muted

Exchange-traded funds (ETFs)—a cross breed of open-end and closed-end mutual funds that trade on stock markets, usually linked to an underlying index—continue to be the fastest growing pooled portfolio of assets. Global assets under management (AUM) of ETFs have now crossed $2.5 trillion and are estimated to overtake the hedge fund industry assets in the next 12 months. Much of this growth is now getting fuelled by the Asia-Pacific region where ETFs are growing at a pace of 25-30% annually as compared with 15-20% in the developed markets. 

Indian investors have largely ignored this huge ETF shift that has happened primarily because passive indexing as a strategy in India over longer period of times has underperformed a large part of the active fund managers. Apart from this, the implications of the lower cost of ETFs has not been completely demonstrated on the net returns. Consequently, though the first domestic ETF was launched as far back as in December 2001, by the erstwhile Benchmark Asset Management, the ETF category has not really changed investor preferences into a significant part of domestic investors’ portfolios. 

On the other hand, India-dedicated global ETFs have shown remarkable growth, with AUMs more than doubling in the past 12 months. For instance, Wisdom Tree India Earnings ETF has seen its AUM growing from under $1 billion to over $2.25 billion as of October 2014. Compare this with other non-ETF global funds, such as Aberdeen Global Indian Equity Fund, that have seen a 25-30% rise in their AUMs in a similar period. Indian mutual funds, too, have seen a rise of 60-70% in their equity AUMs. 

With the kind of interest and flows that India-dedicated ETFs are seeing, it is just a matter of time that these become a more significant segment in the Indian markets determining the future course, especially given their inherent nature of swift inflows and outflows. 

The other trend that is shaping up is the emergence of India-dedicated ETFs beyond just equities and in other asset classes such as sovereign debt within the foreign institutional investors’ (FII) limits of $30 billion currently in place. With the Reserve Bank of India avowed to increasing these debt limits, this is another category that is seeing an increase in appetite among global investors for Indian assets. With this trend also developing, not only will the debt markets deepen further, but they may also increase the participation, and maybe volatility, if the debt markets in the coming years. 

The ETF wave that is emerging among global investors for an increasing bite of Indian assets is gaining ground and could grow into becoming the most preferred vehicle for taking exposure to India. 

Within the domestic mutual funds, the ETF space has been muted, save for occasional bursts of activity that happened in bank ETFs or specific ETFs, wherein there were limits on stock exposures taken by foreign institutional investors (FIIs), clearly signifying that these were used more as a quasi-vehicle by investors rather than as a core holding. In addition, there was very minimal participation from domestic investors. 

The first significant change came about with gold ETFs. These introduced domestic investors to ETFs, but it was only when the overlaying gold feeder funds were launched that more interest was created. But the ETF idea did not really blossom even then. 

The bigger change came in with the CPSE (Central Public Sector Enterprises) ETF, which was launched in March 2014. With the initial discount to retail investors offered during the initial offer, and the subsequent rally in the CPSE Index in particular and the market as a whole, retail investors were enthused to evaluate ETFs more closely and invest in them. 

Another important development was that banks and financial institutions have participated significantly in the CPSE ETF as a core holding in their portfolios. This is evident from the fact that most of these institutions have held on to the ETF even after a significant rally in the ensuing months. 

With the success, and also learnings, of the CPSE ETF, the government has now called bids for the launch of SUUTI (Specified Undertaking of Unit Trust of India) ETF, which has seen much more interest from Indian MFs, to take it to investor’s. This is in spite of the rigorous conditions in the bid document of having a minimum marketing budget, outside of upfront commissions, from the fund house to promote the ETF. 

If we have another successful domestic ETF launch in the form of the SUUTI ETF, it could completely change the domestic appetite of ETFs, although some may argue that this will happen more among institutions. Given these two macro trends—global India-dedicated ETFs gaining significant share and the domestic appetite for ETFs on the verge of change— these funds may be on the verge of taking off here. Manoj Nagpal is chief executive officer, Outlook Asia Capital

Read more at: http://www.livemint.com/Money/jSD53pMM8Q6g6Pje98dMrN/Is-the-ETF-wave-coming-to-India.html?utm_source=copy

Dear All,

Please find below a good article as appeared in Morning Star for your reading:

How your personality affects your investment choices?

If you invest regularly you've probably made investment mistakes. Maybe you sold a winning stock too early or held on to a losing stock too long. Mistakes are common in investing and here at Morningstar we are constantly trying to help you avoid them. However, there are mistakes that seem to haunt all of us, the ones where you went against your adviser or followed your gut to no avail.

Robert Durand, professor of finance at Curtin University in Australia, attributes these decisions to personality traits.

Durand and two colleagues concluded in a Journal of Behavioral Finance article that personality traits are associated with a wide range of investment decisions and outcomes. The research for that article and Durand’s ongoing research is based on the 5-factor model of personality traits (Big Five), which is the leading paradigm in personality research. It's an efficient model because it dismisses hundreds of personality traits in favour of the “Big Five".

1) Extraversion

Extraverts are social, enthusiastic, talkative and assertive. In general, they tend to take on more risk in order to fulfill their need for excitement.

Advantage: They tend to have a higher risk tolerance, which can mean potentially higher returns.

Disadvantage: They may take on too much risk and lose money.

2) Agreeableness

Those high in agreeableness are trusting, altruistic and optimistic. They need to get along with other individuals.

Advantage: They are cooperative when working with advisers on their portfolio.

Disadvantage: They do not like to offend others and may be hesitant to raise any red flags that they see.

3) Conscientiousness

Conscientiousness persons are thorough, careful and diligent. They have the ability to delay immediate gratification in favour of long-term goals.

Advantage: Long-term investors can be patient and restrain themselves from impulsive risk-taking.

Disadvantage: They are too risk-averse.

4) Neuroticism

Neurotic individuals are emotionally unstable. They are prone to psychological distress including depression, anxiety and anger.

Advantage: They are drawn to risk because of its emotional appeal, and similar to the extravert advantage, higher risk tolerance can potentially equal higher returns.

Disadvantage:They are impulsive; therefore, they are prone to making emotional financial decisions.

5) Openness to experience/intellect

Individuals high in openness to experience/intellect are imaginative, curious and open to new ideas. They actively seek new experiences. This trait is highly correlated to intelligence.

There is no advantage or disadvantage listed because openness to experience/intellect is the least studied of all the traits.

The relation to investing

Durand says personality traits are remarkably stable once you reach the age of 30. Therefore, if you determine your personality traits early on in your investing career and understand how they'll affect your decision-making then you should be able to avoid some mistakes. He also makes note of the fact that two of the factors, neuroticism and extraversion, seem to play a larger role compared to the other traits.

Investors scoring high in neuroticism are attracted to risk, but they seem to find it disturbing. They want to do something about it, but seem incapable of doing so; they will sell risky stocks only to buy others. Regardless, neuroticism is associated with heightened emotion.

Higher extraversion scores are associated with higher returns, even after adjusting for risk. Durand says, “Extraverts are attracted to higher risk, but they manage it better, getting higher returns for higher risk, which should be the case according to standard finance theory.”

http://www.morningstar.in/posts/28048/how-your-personality-affects-your-investment-choices.aspx