In a classroom, the power of simplicity and clarity is valued above all else by students. Unfortunately, many academics unknowingly abandon these virtues as they latch on to jargon, secondary details and an obsession to ‘cover’ a syllabus.
In the field of finance, Dr. Uma Shashikant is one such ‘good’ teacher. Although, I have barely interacted with her, I have interacted with several people in financial services, all of whom are unanimous in their praise of her.
As an example, here is her response to the idea of building a diversified equity portfolio with sector funds
As long as we agree that we may not be able to predict what might do well in the future, we will diversify. And when we do that, our focus will be on the portfolio return and more importantly, risk. some component will always be outperforming, while some other would under perform, but overall we will do fine. To give up the notion that we can select future winners and to buffer for a possible downside, is the starting point to portfolio construction.
In a couple of sentences she has conveyed the essence of goal-based investing and how one should worry only about ones portfolio and not chase after individual performers!
If you have just started investing in stocks or mutual funds, I strongly suggest you read the above again and again and again ...
Yoga instructor Vanda Scaravelli said,
“The art of teaching is clarity and the art of learning is to listen.”
So without further ado, let us listen ….
1. Why did you start the Centre for Investment Education and Learning? Tell us something about CIELs beginnings.
CIEL was started so we could enable practising professionals in the investment industry to learn what they may have missed at college or school. Management development programmes generate significant revenues for b-schools, but do not receive the attention and respect they should from its faculty. We believe that teaching practising professionals requires taking concepts out of the textbook and contextualising them to help someone solve a real life problem. We find this challenging and fun. Our clients find our trainings useful and relevant.
Since 2007 when we began, we have been working with banks, mutual funds, brokering firms and insurance companies to create learning modules for their employees, partners, and distributors. These training programs range from simple 3-hour classrooms, to intensive 100-hour certification programmes designed to global standards. We have trained more than 25,000 people across more than 200 locations in India since we began.
2. What are the challenges you face as a trainer? What ideas are most difficult to get across?
Theoretical underpinnings amaze and enthuse a pure learner of finance, but a practising professionals are not as enamoured. Unless you can show them how it works in practice, and until they have had the opportunity to apply the idea, they will remain obstinate learners looking for simplifications. The challenge is to begin with a simple premise that is easy to understand, and then build real situations into it, push oneself as a trainer to interpret the conceptual foundations to their bare bones, and be patient until the learners see what you like them to see.
The compromises in doing this are daunting to a pure theorist, since the line between simple and simplistic is razor-thin and your class is likely to seek or derive the latter more often than not. Working with them to anchor their understanding to sound fundamental principles over time, is the joy and the challenge of teaching working professionals. This calls for being respectful, not patronising; compassionate not condescending. I do not know if my training has made a difference to my class; but my class has made so much of difference to me, as a person and professional and for that I will always remain grateful.
3. Can you please share some satisfying experiences as a teacher? Ones, in your opinion, have made a difference to the community.
Each class holds learnings for both the teacher and the taught. When you walk in thinking that the shape of the yield curve is going to lead them to see opportunities in the most actively traded bonds you have chosen for your examples, the class will look back at you unable to get the connection you are trying to demonstrate. You have to always be ready to pull out something else to be able to take them along. So there are always multiple lesson plans when you walk in, and you do not know which one will work. Each classroom is a joy and each one is a satisfying experience, as learners are always gracious with their teachers. Making a difference to the community is a dream, and I think it will be some more years before I can begin to ask that question. When I hang up my boots as a teacher, perhaps my class may like to mark me on that question.
4. While it is true that many investors do not wish to pay for advice, I think there is a genuine demand for paid advisory. However, finding a competent planner or distributor is not easy. Somehow, investors are unwilling to trust the planner/distributor.
a) Don’t you think the huge difference in financial planning fees, the eclectic backgrounds and ‘side businesses’ of financial planners make it quite difficult for an investor to select a planner?
b) What do you think should be done to encourage investors to get professional help?
There is a lot of work to be done to create and nurture financial advisory as a necessary and useful profession. It is not just about minimum qualification, professional standards, code of conduct or incentives. It is about large scale advocacy for responsible management of personal finance. It needs the coming together of policy makers, regulators, industry leaders and practising professionals to build and nurture this profession. It will happen, but I see it as a long haul. Considering the damage already caused and the trust deficit created in the minds of investors, the task has only gotten tougher. I think investors will seek and pay for professional advice eventually but I do not see it happening on a large scale yet.
5. Moneylife magazine hit the nail on the head by describing SEBIs advisors regulations as utopian. Can you tell us why such a regulation came into place? There seems to be a huge disconnect between the regulator and regulated!
This is a common problem when regulation does not have robust research that backs its work. There is very little investment on securities research in the country, that a regulator looking for independent studies, research, data or findings is likely to find nothing reliable, robust and trustworthy. Take the RBI, for instance. There is an army of economists who will provide frameworks for analysing monetary policy, critique the regulator using sound arguments and data, provide alternatives based on research and data, draw global comparisons and provide alternative perspectives.
Sebi does not have this luxury. Its advisory boards may provide limited perspective, not thorough analysis. Its consultative process that seeks public opinion may receive responses from vested interests. Sebi, in its own interest, should invest in independent research; fund the analysis of the vast amounts of data it collects from market participants; encourage think tanks and independent bodies; and ensure that it cultivates the environment that enables the best minds to work on and question its policies.
I also think Delhi with its organised framework for creating think-tanks to accommodate retired bureaucrats, has enabled an unintended outcome of well funded research organisations, while Mumbai remains the tactical, transactional hub of business. Security market research does not enamour Delhi’s research organisations so much; Pune which held promise at one time has not risen up to the challenge. Sebi therefore operates without the support of a thriving research and analytical-critical environment can provide to help it view market practices in context, and use data to verify its alternatives. Sadly, its regulations including the one on investment advice reflect this gap.
6. Utopian as they may be, don’t you think they are far from watertight? ‘Fee-based’ advisors are free to shift their distribution arm to a relative/friend. So the conflict of interest is not eliminated.
I have written about this in my columns. When regulations disrupt what is already an established market, there has to be clarity on how we expect the future to pan out, and there should be a buy-in on the merits of the proposed alternative. Sebi’s stance on investment advice assumes that anyone taking a commission from the producer does not work in the interest of the investor; and anyone taking a fee works in the interest of the investor. The regulation tries to make some concessions while applying this rigid definition, which not only confuse the market participants, but also fails to resolve the real issue of what happens to the income on the corpus an advisor has created over a period of time, through fair means? No advisor will give up the trail on a corpus built with a lot of hard work in the past, to wear the new garb of an advisor and earn next to nothing from a market that mostly remains unwilling to pay.
7. In their present form, do these regulations help investors in any way?!
8. Do you think it is a smart idea for a young person to get into independent financial advisory? What would you advice someone with such aspirations? Can a young person disillusioned with commission-based selling, give it up and start fee-only advisory?
The money is still in the commissions, not advisory fee. It is a good business to be in – it is useful, it helps people with their money, and it enables a large number of people to focus on earning money than spend their energies figuring out how to invest the saving. However, consider the case of the young investor trying to build a business. He does not have the perspective or experience to go to an HNI. The low hanging fruits are anyway taken by existing advisors and distributors. So he has to begin with distribution, with small ticket investors, and build his business from there. We know that these investors are not willing payers of fees. I wonder why commission based selling needs to be painted with a black brush. In a market where selling agents are being appointed to mobilise donations and paid a double digit commission, I wonder why a 2% commission to a mutual fund distributor is singled out as evil. We need this narrative to be changed.
9. There are not enough resources for DIY investors who seek to go beyond the simplistic ‘power of compounding’ propaganda. Obviously one cannot expect such resources from financial planners/distributors. It is disappointing that the AMCs are not really interested in this even though it makes perfectly good business sense to educate investors about volatility and other advanced aspects of investing. The media (all forms) are only interested in viewership and do not seem to be genuinely in education investors. Can you, via CIEL, contribute in this regard? Surely, this will make a big difference among low net-worth investors eager to learn and implement.
Investor education and awareness is an important and useful task to do. To be able to reach a large number of people and engage with them meaningfully, large budgets are needed. I have been fortunate to be invited by publications to write a regular column and use the reach of these publications to enable investor education. CIEL is developing an independent educational portal called “MoneyKraft” and we hope to make it a reliable and independent source of education and information for investors. It is our dream to make MoneyKraft the “go-to” place for investors to learn and empower themselves in personal finance matters.
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