Investors can’t distinguish between right and wrong advice.
Most advisors today are a new breed of planners in India, who have typically been around for 5-10 years. So, it is interesting to know the people who are advising and influencing investment decisions.
One kind of advice which has been prevalent and continues to thrive is free advice. Well, the first advising influence starts at home. Generally, parents, uncles, aunts, brothers, in-laws etc…are ready to shower advice no sooner that someone from the family takes up a job.
In fact, parental influence on investment decisions is a matter of routine and habit in families. Though parental influence can be considered favorably, there are other dangerous influencers who can play spoilsport.
To name a few, we have colleagues who play a key role at work places and who have a greater influence in decision making. Either they themselves advise or get their friends or family members to advise their colleagues. Well, it is good when a capable or genuine planner or advisor is being referred.
Generally, it so happens that one colleague influences others in his team to invest where he has invested. If they are lucky the investment may yield positive results. On the contrary, if the investment goes wrong, the colleague who influenced breathes a sigh of relief and comforts himself that he is not the only one who has burnt his fingers.
Another important segment of investors are women. They are shining in all fields and are competing with men in all spheres of life. However, when it comes to younger women who are employed and earning handsome salaries, there seems to a block in making investment decisions. In most cases they are advised not to invest by their parents. There are many instances where the woman is interested to save for herself but their parents stop them from investing by giving excuses. This is especially true where the children have migrated to bigger cities for employment after graduating. The control still lies back home, therefore hampering the investment decisions.
Another, major influencer of recent times is the banker. Whether the account holder needs it or not, the bankers literally pounces on the account holder to sign up for some product or the other. In a recent incident, a nominee approached the bank to collect fixed deposit proceeds after his father’s death. He was forced to sign up for a life insurance and a mutual fund SIP. Until it was done the FD proceeds were not released. This is a classic case of high-handed advising. With bankers doing brokers job, what else can one expect?
Instead of insurance companies providing protection to their customers they are busy offering ULIPs and bankers are busy being insurance agents and mutual fund advisors instead of concentrating on their core business. So, ultimately the average investor has lost the power of judgment to decide as to who is the right advisor for him.
Unfortunately, Indians are been brought up a diet of free advice. So paying a fee for quality advice is alien what with everyone out there giving free advice. This makes it very difficult to distinguish between a genuine unbiased advisor and an advisor with a selfish motive.
So, in my personal experience of being in the industry for over one and half decades, when it comes to advising, nearly 80% of investment decisions in India are arrived at through advise from near and dear, bankers, insurance agents and other advisors.
Approximately 15-18 % advice comes from media which is also influencing the decision making of investors. Here, people do self-research and take decisions based on their own understanding of the investments vehicles. Many a time they do take informed decisions. Even if a decision goes wrong they have the talent and ability to rectify or take corrective steps or have the ability to take calculated risks. But, the number of those who can do so is miniscule.
And now the few who are willing to seek professional help may account for may be 3% to 5%. With the efforts of the professional bodies this number has a great scope for improving.
So, literally there lies a very huge task ahead of all the stakeholders in the advisory business in educating the masses on the need and importance of seeking advice from qualified professionals. Though efforts are made by regulators and professional advisors there is still a huge gap.
The views expressed in this article are solely of the author and do not necessarily reflect the views of Cafemutual.