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If there is one phrase or term that riles up most of the financial services industry (perhaps any industry) it is, conflict of interest. The reason for this is quite simple. It is difficult for a person with a conflict of interest to understand what it means!
What is conflict of interest?
It is a situation where a person has vested interests. Such a situation is avoidable since the vested interest may influence the professionals decision-making.
Why would I want to hire such a professional and find out if the ‘may’ becomes a certainty?
There is no such thing as potential conflict of interest.
Potential conflict of interest = conflict of interest.
If my aim is to seek professional advice, I would like to hire someone who works only for me. This means eliminating people who get commissions from product manufacturers.
When they have another source of income, there is every chance that their decision-making is conflicted. I have no interest to find out if it is indeed conflicted when my money is involved. Chances are, I might never find out.
I am sure not everyone in such communities is ‘evil’ (that is statistically impossible), but what do I care? I have no intention to play with my money and find out.
I choose to avoid entire sections of the financial services. These include
1) Financial planners who distribute products either by themselves or via relatives. Many here are ignored SEBI regulations and have not got themselves registered as investmenr advisers.
2) Product distributors who offer financial planning services. Some of whom hide behind SEBIs ‘incidental advice’ clause and do not get registered as investmenr advisers.
3) Online financial plan creation portals which suggest commission-based products.
I don’t want to go and find out how many in these communities are ethical and how many are not. What do I care? I am not an analyst. I am an investor, and the only thing I care about is my fiscal well being. Even if I wanted to find out, there is no way that I could.
Naturally members from the above communities are unhappy with me and have used fiesty adjectives to describe my stand and me. I remain unruffled and see this as good advertisement for freefincal!
Like I said, it is my money and I no intention to play with it. I would prefer to either
- trust myself to learn and invest in a disciplined manner. I dont need to know everything about financial planning to get started. Just the basics will suffice
- or seek advice from a fee-only planner (if I am capable of trusting someone with my money that is). It is hard to find out if a person is a fee-only planner or not. So the simple mantra: Pay for financial advice but insist on direct mutual fund plans.
You will never find mention of these issues in the print and visual media because it is indifferent. Most of the ‘financial experts’ who write or speak in the media are product distributors.
I am fairly confident that as investors, most of you feel the same way as I do.
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About the Author
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. 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
About freefincal & its content policy Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on developments in mutual funds, stocks, investing, retirement and personal finance. We do so without conflict of interest and bias. We operate in a non-profit manner. All revenue is used only for expenses and for the future growth of the site. Follow us on Google News Freefincal serves more than one million readers a year (2.5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified from credible and knowledgeable sources before publication. Freefincal does not publish any kind of paid articles, promotions or PR, satire or opinions without data. All opinions presented will only be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
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You have hammered the nail on the head. Thank you guru Ji,
Thank you. Please dont call me that. We learn from and off each other all the time.
That’s completely true, Sir.
But I think this is the toughest path one can follow by becoming his/her own financial adviser, as it require huge dedication, time and effort to understand about money & investment. Most people prefer to spend money to save their money to make their life easy and tension free. So that they can enjoy more by spending more money 🙂
Not really. One hour a week is all that is needed for DIY. This is only for the first few months. After that, even that is not reqd.
A strong voice indeed Mr. Pattu, where even SEBI is mild in Regulations for its right spirit.
I think positively for the agents/distributors whom I consider as my younger colleagues, for they have to support their families and adjust with the system. Not all have the guts and spirit to pioneer in the right direction. But I want to suggest these younger colleagues to start moving slowly towards financial advisory devoid of conflict of interest, by slowly improving their expertise in this direction by attaining related qualifications, serving the existing clients rightly and listening to their conscience. Conflict of interest can never be justified.
I agree with you. Thanks Sukhvinderji
My comments are not relevant to the points raised in your post.
I wonder whether you can please let me know how the following two
parameters mentioned in all debt mutual funds analysis can help the investor
to make his investment decision:-
1.Modified Duration-Years
2.Average Maturity-Years
I shal be deeply grateful if you can enlightmen me? It will also help other investors
who invest in debt mutual funds which are now being talked about a lot as RBI may cut the
interest rates>
Sir,
Please see the following posts on this subject
http://freefincal.com/how-to-select-debt-mutual-funds-suitable-for-your-financial-goals/
and
http://freefincal.com/debt-mutual-funds-risk-vs-reward/
Thanks a lot.Went thro both the links.My doubts have been clarified perfectly.
You dont seem to like Gilt Funds much though right now they are top among all debt funds, so far as returns are concerned.Why please?
Suppose i have invested in a long term gilt fund in Jan 2015 whose current one year return is about 20% and whose modified maturity is about 6 Years.My investment horizon is say 3 years and am satisfird with a CAGR of 10% return.
Do you think this is achievable?
The investment is all in Sovereign bonds and the ytm is 7.75%.The credit risk is almost Zero.
Do you think I should quit the fund or continue.? i monitor my investments regularly once a month.
Sir, You can afford to invest in gilt funds but you will need to monitor the bond market movements and anticipation of interest rate changes. You can afford to stay invested in gilt funds as long as the rates continue to fall but I think you should pull once you believe rate have become constant or are going to increase again. So in addition to your investments, you must monitor rate movements as well.
Thanks.Can you please suggest any link which display the rate movements?
You can monitor the long-term bond yields here
https://www.ccilindia.com/OMYTM.aspx
Pattu,is there something about Personal Finance which you DONOT know!!!! From where you acquired such deep knowledge. May God Bless you and keep you alive and bright so that you are always there to solve some body else,s problem.
Thank you for your blessings sir. There are many things that I need to learn.
PS: I referred to younger agents/distributors who have the time and energy to change their course willingly, not to my seniors.
Sir, Investing on RD for more than 6 Years Can you please throw some light on Recurring Deposit TDS which was introduced on this budget.
You will anyway have to pay tax on the gains as per slab. So this budget changes nothing.
Dear Pattu, you have inspired many DIY investors such as myself. As you are already doing, please keep ignoring those suggesting otherwise, and I am sure many more will benefit from your blog/aifw posts in years to come without you knowing/ realizing. Great job !!!!
Thank you.
Very true.
Whenever I confront financial people (by force) in commercial banks – they approach whoever has higher bank balance! – I see qualified CFPs/advisors literally pushing their bank’s fin products down my throat, even after I tell them I do DIY and manage my own finances, and have knowledge of all products. This means it is ingested in the culture.
I think clean-up must be done from regulation level; else wont work.
The problem is so deep rooted that it is impossible to remove.