The investment world is fraught with risks. But financial experts can guide you on market trends and products to grow your wealth
MAKING an investment is not as simple as just filling in a form and writing a cheque or calling your broker and buying or selling shares.
There is a lot of hard work which goes behind every transaction. Disciplined and savvy investors follow a step-by step process in order to get it right. While the first step is deciding what kind of investor you are, the second step is choosing the product you wish to buy. The final step is all about buying the product and finally selling it off. At each stage of this process, you have intermediaries like wealth managers, financial planners, stock brokers and even the friendly neighbourhood agent to assist you.
So, for example, first it's a financial planner who does an asset allocation for you and tells you how much to invest in an equity fund or a debt fund, the second stage is choosing which equity fund you should buy and finally, it's the execution when you invest online or write a cheque. Similar could be the case when you want to buy and sell stocks. So, the question is how many intermediaries should you use and why.
Today, if you are an HNI, there are various options available to you. There is a school of thought which suggests that one should separate advisory from the transaction part, as that helps remove the element of greed. For example, there are advisors who suggest that you do not run a Portfolio Management Scheme (PMS) with a stock broker since the broker would tend to churn your portfolio more often to generate broking income. Similarly, many suggest that your stock advisor and stock broker should not be the same, as there would be a tendency of the broker to churn your portfolio more. There are advisors who recommend mutual funds which offer them a higher commission when compared to the other. Hence, there is a need to separate your advisor from the guy you wish to transact with. Keeping all this in mind, there is a plethora of choices available in the market today. You could hire the advisory services of individual financial planners by paying them a fixed fee or a fee on the basis of your assets, while you could choose to transact elsewhere. You could further segregate it by appointing a specialist custodian who takes care of the settlement issues and back office for your stock transactions.
If you are a reasonably large investor, it makes sense to have two advisors, as many a time the views of one advisor could go terribly wrong. He, however, advocates investors to go in with an integrated player, who offers a fee-based structure and does not rely on commission from the manufacturer who can offer all the three services together in the value chain as that would have cost savings. The task of managing your money becomes even tougher especially if you are an HNI.
If you are a retail investor: In the financial jungle, how does a retail investor start? As a starting point, you could get a financial plan drawn for yourself in conjunction with your financial planner. A financial planner would charge anything upwards of 5,000 to make a detailed one-time financial plan. This gives you a starting point as a retail investor. Once this is done, you could execute your investments depending on the mode you are convenient with. Even a retail investor should have at least two advisors, as it helps countercheck. Hence, your business could be split among two people. Besides, many a time if you are serviced by a small advisor, due to logistical issues he may not be able to execute your transaction. Hence, it helps if retail investors also have a couple of advisors.
However, one must also not go overboard and it should end at having two advisors, say experts. Too many cooks could spoil the broth. Hence, one should not have more than two advisors, as then things could get messy for one to manage.
