1. If I (the client) am quite knowledgeable about personal finance & investing, then does it make sense for me to engage with you?
- I focus on knowledgeable clients
- A significant majority of my clients were quite knowledgeable about personal finance & investing, even before they contacted me e.g. some of them are fund managers. This is also why I deliberately do not have any team members
- Hence, if you are more knowledgeable about personal finance & investing, then engaging with me makes more sense. And if you are less knowledgeable about personal finance & investing, then engaging with me makes less sense
- The suggestions above deal with the initial engagement. They do not deal with the more subjective question of whether you will gain from renewing the engagement
- Finally, most people know significantly less about personal finance & investing than they think they know. Almost a 100% of people believe the myth that equity is safe in the long term. Since that is a complex topic that all laymen will struggle with, this is a simpler example. 99+% of people in India imagine that on the averae, Active Mutual Funds outperform the index / Passive Index Funds. This is incorrect and it is a symptom of financial illiteracy / semi-literacy.
2. Are there objective factors that indicate that you as an adviser may be more competent than I (the client) am?
- I have been as an investor for 16 years including a decade as a Partner and one of the five members of the founding team at a top 5-10 independent Indian Private Equity & Venture Capital fund
- Further, I have a two-year full-time (i.e. the flagship course) MBA in Finance from Indian Institute of Management Bangalore (IIMB) and I have been a practitioner / student of finance and investing for more than three decades. This provides me with an advantage in understanding theoretical aspects of finance e.g. why it is a myth that equity is safe in the long-term or why smart-beta is just smart-marketing
- Finally, all my working hours are focused on financial planning and investing. So, I can focus on aspects that my clients don't focus on e.g. mitigating 'sequence of return risk' during retirement
3. Are there really only 12 established Hourly-Fee / Fixed-Fee Financial Planners in India?
- This short list is the only authoritative list of established Hourly-Fee / Fixed-Fee Financial Planners in India, including myself. For legacy reasons from 2014, this list uses the over simplified term 'Fee-Only' but this list means 'Hourly-Fee / Fixed-Fee' (Note: I have deliberately mentioned a number that is one less than the number in that list since any RIA who recommends purchasing specific equity shares does not meet my definition of 'Hourly-Fee / Fixed-Fee Financial Planner')
- This is an almost exhaustive list of Hourly-Fee / Fixed-Fee Financial Planners in India including established and approximately a dozen newer Fixed-Fee Financial Planners
- If an RIA is not listed on either of these two lists, it is most likely because they are not an Hourly-Fee / Fixed-Fee Financial Planner. For example, these two lists exclude RIAs whose fees are a percentage of the client's assets under management. Further there are many nuances about fees that a layman may not understand but these lists filter for
4. Is it possible for us to have a productive engagement without ever meeting face-to-face?
- Almost all established Hourly-Fee / Fixed-Fee Financial Planners in India conduct their work almost entirely over calls and email i.e. it is an approach that has worked for thousands of clients of these established Hourly-Fee / Fixed-Fee Financial Planners
- The About page mentions that I am the 'The only Hourly-Fee / Fixed-Fee RIA in India with prior (buy-side) investment work-experience' and the 'The only Hourly-Fee / Fixed-Fee RIA in India with a two-year, full-time (i.e. flagship course) MBA from a top-3 (/ top-4) IIM'
- The description mentioned above is very important for only around 0.1% of potential clients of Hourly-Fee / Fixed-Fee Financial Planners. If you are in this sub-set, then other aspects may be less important
- Finally, the top-3 Hourly-Fee / Fixed-Fee Financial Planners in India do not meet their clients. So if this does not work for you, then you will not be able to engage with any of the top-3 Hourly-Fee / Fixed-Fee Financial Planners in India
5. But most experts say that active mutual funds are better than index funds. How can all of them be wrong?
- These are a few excerpts from my article in Mint on this topic
- Free online MF databases do not show data for many active MFs that performed poorly and, hence, got merged into better performing active MFs of the same fund house. Hence, any analysis on such data is useless. The S&P Indices Versus Active funds (SPIVA) India report is the only one that uses correct statistics. It shows that the average active MF does not beat the index. Further, publicly available research from S&P shows that knowing which schemes outperformed during the previous five years will not help you select schemes that will outperform during the coming five years. Accordingly, no investment adviser can help you select active MFs that will outperform the index in the future.
- Let’s understand why almost no one recommends index funds. Fund houses make significant profits on active MFs. And fund houses lose money on the Nifty 50 index fund (Direct Plan) which has fees of 0.1% per annum. Hence, any rational fund house would push the highly profitable active MFs and not push the loss-making Nifty 50 index funds. Further, the distributor commission of around 0.1% per annum on the Nifty 50 index fund (regular plan) is one-tenth of the 1% commission on many active funds (regular plans). Hence, any rational distributor will recommend active MFs and not index funds. Finally, only a trivially small number of all other commentators about funds understand the SPIVA India report. This is primarily because it requires a deep understanding of statistics to correctly understand the SPIVA India report which is prepared over three months. Also, as Upton Sinclair said, “It is difficult to get a man to understand something, when his salary depends on his not understanding it."
- This is a more detailed article in Business Standard which will download as a PDF file
- This is another article which explains the data in detail
- In summary, every single competent RIA prefers to recommend only Passive Index Funds
- This is an excerpt from a post that I wrote on LinkedIn in 2021:
- It is now 3+ years since I started writing in Business Standard, Mint, The Ken etc that the S&P India report proves that the average Active MF does not beat the index. Hence it is irrational to use Active MFs. After reading my articles, a small number of India’s best RIAs have started recommending only Passive Index Funds. Adding up the clients of these RIAs and a small minority of other readers of the articles, I estimate that more than 1,000 people in India have switched to investing primarily via Passive Index Funds.
6. What if I am not convinced that index funds make more sense than active mutual funds?
- This is an excerpt from my article in Mint on this topic
- Active MF mangers are often quoted saying that index funds (which charge 0.1% per annum) are for investors who are new to MFs while active MFs (which charge 1-2% per annum) are for sophisticated investors. This is intended to feed your ego if you use active MFs and deflate your ego if you use index funds. It also aims to hide the reality which is exactly the opposite. It is the investors new to MFs who select high-fee active MFs, while sophisticated investors use low-cost index funds.
- Some of my clients are completely convinced about index funds while others are largely convinced about index funds (but are not completely convinced about it)
- If you are currently completely convinced that you only want to invest in active mutual funds, then it does not make sense to even do an introductory call with me
- If you are currently equally convinced by index funds and active mutual funds, then you could read the articles mentioned in the previous FAQ and subsequently do an introductory call
- By the time you have to make a final decision whether to formally enter into an engagement (i.e. not now), it makes sense to enter into a formal engagement only if you are largely convinced about index funds (it is ok if you are not completely convinced about index funds)
7. Why do fees vary so much between Financial Planners?
- This concept is applicable to Hourly-Fee Financial Planners and Fixed-Fee Financial Planners but for simplicity, the table below deals only with Hourly-Fee Financial Planners (because the significant flaws and opaqueness in the Fixed-Fee Financial Planning model completely distorts the fees)
- The variation in total fees is due to the variation in hourly fees multiplied by the variation in the number of hours of effort that the RIA puts in. This is illustrated in the table below in the context of a new client engaging with an Hourly-Fee Financial Planer (the number of hours of effort is lower for a client that is renewing the engagement)
- The variation in the hourly fee is because for two RIAs that put in the same number of hours of effort per client, the RIA with more credentials / experience will usually have a higher hourly fee
- The variation in the number of hours of effort is a choice that each RIA is making about the whether they should go into more depth or not
- If RIAs disclosed the number of hours of effort, then it would be easy for potential clients to figure out which RIA to engage with, as illustrated in the table below
- Typically, Upper Middle Class / HNI clients would prefer more depth in the engagement even if that means higher total fees...
- ...while Lower Middle Class clients would prefer lower total fees even if that means less depth in the engagement
- Though the table below does not apply to Fixed-Fee Financial Planners, it still can provide some insight about Fixed-Fee Financial Planners. Most Fixed-Fee RIAs deliberately will not even verbally disclose the number of hours of effort. So for example from a total fee that is in the ballpark of Rs 35,000, clients are unable to figure out whether from the table below, they are engaging with RIA X or RIA Y or maybe they are engaging with RIA W that is pretending to be RIA Y
|Number of hours of effort for new clients = 3 (i.e. 1.5 hours of phone calls plus 1.5 hours of back-end work)||Number of hours of effort for new clients = 10 (i.e. 5 hours of phone calls plus 5 hours of back-end work)|
|Hourly-Fee of RIA with relatively more credentials = Rs 10,000||RIA X Total Fee = Rs 30,000 (suitable for Middle Class clients)||RIA Z Total Fee = Rs 1,00,000 (suitable for Upper Middle Class clients)|
|Hourly-Fee of RIA with relatively less credentials = Rs 4,000||RIA W Total Fee = Rs 12,000 (suitable for Lower Middle Class clients)||RIA Y Total Fee = Rs 40,000 (suitable for Middle Class clients)|
8. What is the primary driver of your specific hourly fee?
- Lets start with an excerpt from my article in Mint on this topic:
- Since this model is at a nascent stage...[and] Due to the effort required for generic research, regulatory overheads in time and cost, various taxes, etc., the hourly fees are likely to increase at more than the rate of inflation.
- Only 15% of working hours can be used for direct work for clients. This is an average of 1 hour per working day or 20 hours per month
- The remaining hours are consumed in descending order by generic research; regulatory overheads; free introductory calls with potential clients; building awareness about the Hourly-Fee / Fixed-Fee approach which is at a very nascent stage of development in India; administrative overheads etc
- The time spent on generic research is extremely high in my case since I focus on clients who are quite knowledgeable about personal finance. Such clients are often already aware of the simple ways in which Dalal Street is trying to trick them e.g. they may understand that Regular Plans of Mutual Funds are a legally-allowed-scam. These clients are often engaging with me to mitigate the more complex ways in which Dalal Street is trying to trick them e.g. why Active Mutual Funds are a legally-allowed-scam and why Factor Funds which pretend to be Passive Funds are also a legally-allowed-scam
- In steady state, various taxes and regulatory fees / costs consume around 40% of the hourly fees
- Hence, net of business expenses, my effective hourly fees are one-tenth of what the client sees
- I was the first Hourly-Fee Financial Planner in India
- 'Hourly-Fees' are defined here
- In this article in Mint, I explain why you should 'Avoid Percentage of AUA / AUM fees; ask Fixed-Fee RIAs to disclose the number of hours of effort; and all else being equal, prefer Hourly-Fee RIAs'
- The best Hourly-Fee Financial Planner & Registered Investment Adviser in the US charges an hourly fee of USD 450 which when converted at USD 1 = INR 24 (based on 'purchasing power parity' due to the lower cost of living in India) is an hourly fee of approximately INR 11,000
9. Why does the Fees page of your website recommend two of your competitors?
- This is an excerpt from a post that I wrote on a LinkedIn in 2021 - Why my website recommends my two strongest competitors...:
- A fiduciary is supposed to put their client’s interest above their own interest. Logically, this automatically applies to the process of signing up a client i.e. even before I receive any money from the client. Let's see why:
- Scenario 1: Potential client C1 would like to formally engage with me. In this case, from the point of view of C1, I know that some other RIA will be more suitable and / or offers better value for money. If I do not disclose this to C1 and instead sign up C1 as a client, then after C1 becomes a client, my first action as a fiduciary should be to refund the fees to C1 and tell him to formally engage with another RIA. So, it’s simpler to tell C1 to do this before C1 becomes a client.
- Scenario 2: Potential client C2 would like to formally engage with me. In this case, from the point of view of C2, I don’t know whether I or some other RIA will be more suitable and / or offers better value for money. In that case, it's simplest to tell C2 to also speak to the other RIAs before they decide.
- Scenario 3: Potential client C3 would like to formally engage with me. In this case, from the point of view of C3, I am fairly confident that I am more suitable and / or offer better value for money (purely as one example, if they are a Private Equity investor with a flagship-course MBA in Finance from IIM Bangalore). In that case, it's simplest for me to move forward and formally engage with C3...
10. Why does this website not provide any testimonials?
- This is an excerpt from a post that I wrote on a LinkedIn in 2022:
- Confidentiality: SEBI Registered Investment Adviser (RIA) regulations states that “An investment adviser shall not divulge any confidential information about its client, which has come to its knowledge, without taking prior permission of its clients, except where such disclosures are required to be made in compliance with any law for the time being in force.” (Note: I take this one step further and do not have any testimonials on my website since I do not want to reveal the name of any client, even if they volunteer to provide a testimonial)
11. Are there objective factors that indicate that you are the best financial planner in India?
- First, only SEBI RIAs are allowed to offer financial planning services in India (Note: Theoretically, it is possible for a PMS manager to operate like an RIA but in practice there is no PMS manager that operates as an Hourly-Fee / Fixed-Fee RIA since it would be irrational for such a person to register as a PMS)
- Second, all financial planning professionals in India charge either an Hourly-Fee else then a Fixed-Fee. Any financial planner who charges a percentage of AUM fee is not a financial planning professional and is a businessman who is definitely over-charging his clients
- Third, among Hourly-Fee / Fixed-Fee SEBI RIAs, I am the only person with a two-year full-time MBA from a top 3 (or even, top 4) IIM or any equivalent program in the US
- Fourth, among Hourly-Fee / Fixed-Fee SEBI RIAs, I am the only person with prior investment experience
12. You moved from a lucrative career as a 'senior Private Equity investor' to a non lucrative career of being 'The best financial planner in India'!
- As I wrote in an article in VCCircle in 2019 - Three things aspiring entrepreneurs must evaluate before starting up:
- A very small number of startups are ‘very successful’. This unlikely scenario is like winning a lottery. So, we should ignore this scenario while deciding whether to start up... Entrepreneurship is very risky when it comes to saving enough for retirement and your children’s higher education. Hence, your desire to be an entrepreneur should be strong enough to accept the fact that there could be a drastic reduction in your lifestyle.
- The decision of whether to become an entrepreneur is a very difficult and subjective decision. This makes it very difficult to explain the decision to others. Hence, it is also one of the hardest decisions that I sometimes have to help think through, with a small subset of my clients who want to become entrepreneurs.