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In India, the penetration of mutual fund (MF) products is less than three per cent. A disproportionately low number of financial advisors is one of the reasons behind the poor adoption of financial products in the country. Rick Kahler, president of US-based financial advisory firm Kahler Financial Group, tells Chandan Kishore Kant good advisors are vital in India. Edited excerpts:
What do you think about Indian financial advisors?
Among Indian financial planners, the hunger and passion to serve their clients is immense. I am very taken by how advanced these planners are in their knowledge of integrated financial planning. Financial planners in India and the US are quite similar. Consumer desires and the underlying issues in the two countries are the same. Less than three per cent of India’s population invests in MFs. This deters people from taking up financial advising as a profession. For financial advisors in India, the growth potential is an exciting thing. As the middle class grows in India, there will be more and more demand for financial products and services. It will certainly grow.
What do you think about Indian financial advisors?
Among Indian financial planners, the hunger and passion to serve their clients is immense. I am very taken by how advanced these planners are in their knowledge of integrated financial planning. Financial planners in India and the US are quite similar. Consumer desires and the underlying issues in the two countries are the same. Less than three per cent of India’s population invests in MFs. This deters people from taking up financial advising as a profession. For financial advisors in India, the growth potential is an exciting thing. As the middle class grows in India, there will be more and more demand for financial products and services. It will certainly grow.
Less than 3% of India's population invests in mutual funds. This deters people from taking up financial advising as a profession.
I think the prospects of India are pretty bright based on the research I have read. The exciting thing for financial advisors in India is the growth potential. Just look at the potential of this market, it's phenomenal. As the middle class grows more in India, there will be more and more demand for the financial products and services. It will grow certainly.
What qualities does a financial advisor need?
Good financial planners are client-centric. Their concern is the client and they act as the clients’ advocates; we call it fiduciary duty. We have a similar situation in the US. Not more than 20 per cent of financial planners are client-centric because commissions are prevalent. Products are pushed there, too. For an advisor, the key is to be focused on clients and know what is best for them.
Financial advisors need to help the client determine what their goals are. Most of the times the clients don't know what their financial goals are, so financial advisors need to dig deeper. They need to find out the client's thoughts, feelings and beliefs about money. An average person has 50 to 200 beliefs about money, which operate subconsiously. They need to know what is important for the clients. One must be a very good listener.
Some advisors try to time the markets. Can that be a setback for investors?
According to research one shouldn’t time the market; one should stay in the market. In 2008, investors and investment advisors panicked. Wasn’t it interesting that they decided ‘buy and hold’ does not work at the bottom of the market? A study on investors and financial advisors found they had grossly under-performed the market. Overall, an average investor and advisor will do half a percentage better than the inflation rate. They might do three-four per cent worse than the market index. Why? Because it was found they had timed the market.
I think investment advisors need to be very careful and not time the market. By doing so, they can make the same mistakes that their clients do. You need not be oversmart to make money. I tell my clients the dumber I have become about markets the more they have made, the returns just got better.
Does psychology work while making investments?About 90 per cent of all financial decisions are made emotionally. Many investors and financial advisors think they are practical and logical, and they do not run on emotions. If that’s the case, what was the dotcom craze all about? Was spending billions of dollars on stocks that never earned profits logical? The best investors and investment advisors are those who are very wise emotionally. The most successful chief executives have very high emotional intelligence. That is important. Only an emotionally aware person can sell when he feels the markets are about to crash.
India has very few active investment planners, about 15,000 for 1.25 billion people. Youngsters aren’t very keen on the profession. What’s your advice to them?
India is where a lot of developed economies were 30-40 years ago. The prospects here are bright and I think financial planning will be recognised as a profession. Even in the US, we do not have enough young people as financial advisors, though we have 100-odd universities providing degrees in financial planning. Right now, financial services are being looked upon as just selling stuff. There is a huge difference between someone selling a product and someone doing technical planning that incorporates taxation, retirement, insurance and investments.
