Advisor’s fate is tied to only the client
In the 4 years I have been an Independent Advisor, I have seen many instances where the fate of the industry has been linked to the cost structure. Any adverse step by the regulatory can have deep impact on the existence of the advisor community, but one cannot conduct any profession with a ‘doomsday’ belief.
We Indian’s habitually have been trained not to pay for advice and therefore most of the Advisors find it best to have the brokerages from the product manufacturers. This may lead to some conflict of interest but over a long-term period, the investor remains with an advisor for his value add and the true intentions cannot hide themselves for too long.
My personal belief is that this profession can only be taken up by serious professionals, if there is at least 0.75% – 1.00% earnings on the money being advised (ideally some portion should be linked to reasonable return delivery). Even a real estate advisor earns much more for a one time transaction, so think what should be the earnings of an advisor who is responsible for creating a strategy, implementing it, managing the regulatory nuances, reporting taxation of investments, monitoring the strategy, advising what not to do and biggest of them all, managing client sentiments. Also the fact is more often than not, the financial advisor is giving advice on other asset classes, which are followed by the investors.
Once the client acknowledges the value add by the advisor, then it’s immaterial whether the product manufacturer pays the amount or the client himself.
I fully believe that the acknowledgement of the value add has to come from the client. He needs to evaluate his experience with the advisor, not only in terms of returns but also in terms of the factors like communication, empathy, education and integrity. Just remember the times when the markets were not good or an event happened and think how your advisor reacted or helped you not to overreact. Think how many times your advisor has asked you not to invest, even while you have had the cheque ready and foremost, look at your portfolio returns over long-term periods. The only caution here is the fact that portfolio returns are to be read with the risk profile, portfolio objective and the expected returns.
Every advisor is the reflection of the behavior of his clients and if they start understanding and acknowledging the value of the advisor, then life at both end are simplified and the advisor can take better calls on the portfolio. A defensive approach is not bad, but then the real benefit is only when your advisor thinks rationally and acts prudently by undertaking actions beneficial to the portfolio.
No regulatory can define the way you value your advisor. It’s only you, who can either term his presence as useful or as useless. A useless relationship would never find legs to move too far and a mutually beneficial relationship won’t be affected by the noise around. A regulatory is best at keeping checks and balances in place, but if it starts influencing behavior, then its purpose is self-defeating.
In this entire equation, Investor is the most important link but both the advisor and the investor, jointly need to work towards the TRUST. One who has to live the trust (advisor) and the other who has to be considerate to acknowledge the work (the investor), both have to play their parts equally well and with Integrity. Cost will never be the deciding factor for the future of this industry, the relationship will be judged by the stakeholders i.e. the Investor and the Advisor.
An advisors existence is due to the Investor and therefore the advisor is expected to act with complete integrity at all times. He cannot exist without the clients and therefore one song he must remember is “Mera toh jo bhi kadam hai, woh teri raah mein hai”. The literal meaning of the song is ‘all my actions are towards your benefit’. There is an old saying “Integrity is doing the right thing, even when no body is noticing”.
So the common link that ties this industry is the relationship between the Investor and the Advisor, rest can adjust itself.