IFA – Independent Financial Advisor is a person who is very difficult to define. You see some of them in small towns who will struggle to fill a form and who may not know too much about debt and equity. On the other hand in some of the metro cities you will find some of them travelling in Mercedes/BMW who have an army of staff for doing the routine work. Some of them would NOT know the processes that fund houses follow because their 12-member staff team would be taking care of that.
However, having told you that the ‘average’ IFA is an undefined / undefined-able animal, let me tell you that they can be classified into three main types:
- Those who know that they do not know
- Those who know that they do not know and that the client knows that
- Those who know that they do not know, but they think that their client cannot make that out.
The first category make no pretext of being able to advise etc. They catch clients at the lower end of the hierarchy, fill up the forms, do all the basic work and invest in the most popular schemes.
It is the third category which tries to answer the following questions:
- Do you think the Sensex will touch 28000 in 2016?
- Where do you think the market will be one month from now?
- Do you think gold will out-perform equity?
- Over the next 10 years will equities give a better return than debt?
- Why did (or did not) the market go up today?
- How often should I shuffle my portfolio?
- Will large cap SURELY give lesser returns than midcap?
- Is Franklin India Bluechip better than ICICI Prudential Focused Bluechip?
- Which fund will give the best returns?
- I have a surplus of Rs. 5L should I use it to repay the loan or to invest in equities?
- Will the US enter a recession?
- Will the Fed increase / decrease rates now?
- Will RBI increase / decrease rates now?
- Where will crude be one year from now?
- Should I short gold and go long on crude?
- Should I take a loan against property and invest that money in shares?
Well, the third category of IFA tries to answer these questions. Honestly, his best answer to all these questions is “I do not know”.
However, he should say it politely and say that the total (relative and absolute returns) for a portfolio depends on:
- amount invested
- asset allocation
- having a calm mind in turbulent times
- having a calm mind in exuberant times
- listening to one adviser
- have reasonable expectations
- have enough liquidity in fixed return instruments to pass through turbulent times
- have enough medical insurance
- not disturbing the compounding force.
As he is unable to do the latter he tries to answer the former questions…..and cuts a sorry figure!
The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.
The author blogs on www.subramoney.com
