It amuses me no end when financial advisors say, “do not do-it-yourself (DIY), find an advisor”. Simply because if I choose to delegate my money management to an advisor then I will have to find one first. Repeat, I will have to find one first! Meaning it requires DIY skills to search for an advisor. It requires DIY to know what to look for and how to choose an advisor.
Now how do I go about choosing an advisor?
The first step is to understand What is Conflict of Interest? Be it your fav blogger, journalist, paper or TV channel,anyone and every may have a conflict and it always better to be careful. So the obvious thing to do is to not seek advice from mutual fund distributors and relationship managers.
Before the advent of the SEBI investment advisor regulations, they said: ‘look for a CFP degree. It is the
gold platinum standard in financial planning’.
Soon every Tom Dick and Harry became a CFP and when advisor regulations came in, SEBI at first did not even recognise the CFP as a qualification!
After some panic and an appeal, the CFP was deemed as eligible.
So now, one has to choose a SEBI Registered Investment advisor (RIA)?
But how do you go about choosing an RIA? Some are registered as individuals, some as body corporate, some as LLC.
Well, one should always choose individuals because the others would have an arm that distributes products.
Even among individual registrants I cannot say for sure if there some kind of distribution involved or not. So how does one find out for sure?
Right at the outset of the engagement, one should say “I will invest only in direct mutual fund plans and not choose any other product in which you or anyone related to you in any way will receive any commissions”.
If their facial expression changes (or if they hesitate over the phone) , say goodbye.
Okay, now you have found a few guys who are ready to review a portfolio of direct mutual funds, there is the matter of fee!
A few years back, individuals with the same qualifications charged you anywhere from 5K to 50K for a financial plan. For some, in addition, there was a % of the AUM fee and in addition the commission from regular mutual funds!!
The situation has not changed much today. If you choose to pay a fee which is a percentage of your AUM, then it is as good as choosing regular plans.
So one should find a guy who charges a flat fee and can manage a direct fund portfolio (this is now quite easy to do – thank you SEBI).
Considering how hard finding an advisor, I often wonder if it is easier to manage money and invest on our own!!
Even after all this, you are still taking a chance. And by the way, there is no guarantee of success!
Does asking for user feedback and extrapolating their good or bad experience to decide on a product or service qualify as DIY?!
phew! Time to say out loud the title of the post: Let’s Face It: Everyone Needs Do-it-Yourself Skills
That is just too much work! Which is why I stuck my neck out and made a list of fee-only financial planners (note not all of them charge a flat fee here). Choosing from such a short list is still difficult!
Robo advisory refers to asset allocation and product suggestions made by an algorithm based on user inputs (which are a bit too sketchy).
However, consider this. Robos are a third choice. – go-between.One need not choose extremes – pure DIY or pure professionally managed
One need not choose extremes – pure DIY or pure professionally managed anymore.
Those who find it difficult to get started with DIY investing or hard to choose a ‘trustworthy’ advisor, can get started with a robo advisory portal and then choose to DIY or find an advisor later.
But then again, there are too many robos out there! Each following a different algorithm! So back to square one – which one should I choose!
Knowing when to stop analysing and when to take a chance with with investments or an advisor is probably the most valuable DIY skill!