A syllabus for financial literacy and conflict of interest

Published: February 1, 2016 at 11:19 am

Last Updated on

Assuming that we all agree that proper money management is vital to our financial well-being, a syllabus for financial literacy might help in evaluating not only our fiscal health, but also that of our friends, relatives and contacts (if they want such help!).

Such a syllabus is surprisingly short when we have nothing to gain by stating it!

A syllabus for financial literacy

1. Recognise the importance of inflation over the long-term.

2. Recognise the need for protection all through our life.That is,

  • life insurance (until we work for a living)
  • health insurance (all our life)
  • accident insurance (at least untile we work)

3. Recognise the importance of estate planning of which writing a will is crucial.

4. Understand SEBI regulations and Recognise conflict of interest in the financial services industry (optional topic – applicable only for those who require professional advice)

That is it!

Once the importance of inflation and insurance is recognised, it is up to the individual to choose the ways and means of going about it.

S/he need not choose equity. They could beat inflation and get life insurance with a money back or endowment policy.

We are surrounded by too much propaganda instigated by product manufacturers and sellers about the importance of equity penetration in India.

As an investor or blogger, I could not care less about the equity penetration in India.

As a blogger, I could not care less about equity penetration in India.

We will have to recognise that equity investing, gold investing and fixed income investing are choices. If that is what people want, then that is what they want.

Our job as equity investors and as those who recognise the importance of inflation is only to highlight the pros and cons of equity investing.

A syllabus for conflict of interest

  • what’s in it for those who talk about financial literacy, inflation and equity investing.

That is it!

When a product manufacturer or distributor talks about increasing equity penetration in India, noble as intentions are, it is conflict of interest.

When a financial planner talks about the importance of a financial plan, it is conflict of interest.

SEBI has mandated that distributors cannot provide investment advice, but at the same time wants to increase equity penetration in India. That is, it wants to eat the cake and have it too.

If equity penetration should increase in India, then it requires awareness and education about investment risk.

In my opinion, this has to be provided by an independent third-party agency commissioned by SEBI with funds from AMCs.

To me, the present model in which AMCs conduct ‘investor awareness programmes’ with a small piece of the expense ratio represents conflict of interest. What awareness would a product manufacturer provide?!

The financial services which makes fancy statements about ‘financial literacy’ at the drop of a hat, is plagued with rampant non-compliance with SEBI advisory rules.

As investors why should we trust those who do not bother to follow rules? Why should we become their clients?

It is so much easier to DIY!

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About the Author Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com
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