Why is it so hard to find a fiduciary financial advisor?

27-year old Deepsh asks why is it so hard to find a financial advisor who is a fiduciary financial advisor! His email form this edition of reader story

Published: January 29, 2020 at 1:43 pm

Last Updated on January 29, 2020 at 1:43 pm

In this edition of reader story, a letter from a reader is reproduced below to highlight a practical problem faced by all investors, especially those with the age and net worth profile of Deepesh. He wrote this email with the subject line: “It seems easier to Find Nemo (and Dory) then it is to Find a Financial Fiduciary!” I was impressed a 27-year old knew what a fiduciary meant! So let us start with the definition of a fiduciary and see what Deepesh has to say.

A fiduciary is someone who has the best interests of his/her client at all times. The financial services industry, including our dear beloved regulator, SEBI has a rather narrow view of what “best interests”. They believe it is sufficient if a fiduciary discloses to the client all conflicts of interest and commissions involved in the financial advice.

Since most clients do not understand the way commissions are handed out and how these can impact over the long term,  commission disclosure cannot make an advisor a fiduciary. The right definition of a fiduciary is the absence of commissions and conflicts of interest.

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This means, no commissions of any kind, no partnerships with other service providers of any kind and no percentage aum fee (that is a flat fee). We will refer to such an advisor as a pure fiduciary. I am delighted that Deepesh understands this at 27. Now over to the letter.  His net worth details have been removed from the email on request.

Dear Prof. Pattu, I write to you today, both in awe of the work you and your Fee-Only (advice-only) friends are doing and in disappointment in the sheer lack of such a service’s widespread availability (a situation that could only be worsened with the recent SEBI developments ). Hence the concerning subject line.

Hi, my name is Deepesh. I’m a 27-year-old product designer and educator looking for a financial doctor to set my finances in order, without prescribing drugs and tests that I don’t need. I guess you can sense that I’ve been burnt the wrong way.
I first stumbled upon your videos (on YouTube) and then your elaborate articles (on freefincal) about 3-4 months ago. As a newly earning member of the family, I had just inherited the responsibility of handling my own finances from my dad, and I was convinced that neither of us had the basic sensibilities of doing so on our own, at least for now. Why do I think so?
First, my dad had forwarded a CAS showcasing a portfolio of 27 regular MFs (direct plans be damned in my dad’s view), 14 stocks (with a couple of unmonitored liquidated and shut companies) and 7+ insurance plans (‘+’ because he keeps revealing a new insurance whose premium I must now also take care of). Second, it was a clear case of ‘buy-it-forget-it’ and ‘spread-your-eggs-in-many-baskets’ approach that clearly distributors and product sellers were more than happy convincing my dad into.
Clearly, it meant I seek out ways in which this madness be brought to a manageable order. And like all things we do as Indians, it meant I tried fixing the leaking tap in 100 ways before I finally called for a plumber. There’s a fine line between jugaad and DIY, a line that’s a blur to me, oftentimes.
But in a major first, here there were, not 1, but 2 plumbers who confessed their fees were too high for the worth of my tap and that they thought of it as their responsibility to offer me my money’s worth.
I speak of Avinash Luthria and Swapnil Kendhe, both of whose work I first came across on your platform. They were both doctors I knew who would only advise me to do what was needed before I even wrote to them. Yet, in their response to my query, they both managed to surprise me with an integrity I doubt even most doctors possess these days.
In mentioning that their fees were too high for my net worth and my income, they had showcased the dire need of this service being encouraged to be offered as a profession, and not a business—a major oversight on the regulatory body’s part, whose proposed plan will only make it difficult for a such a service to be accessible to all. I wish such a voice could be considered by the deciding body at SEBI (yes, I’ve already done my bit in amplifying Avinash’s and your concerns over to them).
Unfortunately, the turn of events brings me back to square one. Not only does the size of the portfolio overwhelm me, but the screw-ups in trying to fix it without the knowledge to use the right tools also scares me into utter inaction. Of course, re-readings of your articles on ‘reviewing existing mutual funds’, ‘trimming a portfolio’ and ‘minimal portfolio ideas for young investor’ have brought more and more clarity, but they haven’t made it possible to spot layoff and keeper funds, especially as the reason behind their existence hasn’t been established or clarified to me while handing over the responsibility. This also makes it difficult to attach goals to these pre-existing holdings.
As much as I respect my dad wanting to take care of these things, I’m clear that simply continuing to pay for ongoing SIPs and premiums is not going to magically fix this cluttered ship. And while worrying about this money-I-never-made sounds stupid, it serves to see that it is now mine to take care of and I wish to safeguard the well-intention with which it was created, by putting it through the scans of risk management and not reward accumulation.
I am reaching out to you, not in expectation of financial advice (which I know you don’t offer) but as a new student of financial planning seeking out a mentor in being able to do this right, right from the beginning, without undermining their service/knowledge’s worth (like it turned out to be in case of Avinash and Swapnil). Any guidance towards setting this inheritance in order, before kickstarting my own investment journey, would be appreciated. It would form the foundation of my attempt at eventually being a DIY investor.
Thanking you in anticipation,
Yours sincerely, Deepesh
Deepesh has been suitably advised on whom to approach. This email highlights the importance of encouraging pure fiduciary SEBI registered investment advisors (RIA). If there are enough of them, young earners like Deepesh can easily find a suitable RIA to work with.
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About The Author

Pattabiraman editor freefincalDr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.
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