One of the terms that financial advisors like to use a lot is 'asset allocation'. Almost every financial planning exercise begins with an asset allocation exercise. The sort of entities that are pitching themselves as wealth managers are specially focussed on this. The general idea seems to be someone asks you some questions that relate to your life and your earnings and your plans for the future and then comes up with a report that tells you how your savings and investmentsshould be divided into different kinds of assets.
Based on what people tell me of their experience with these outfits, I have gathered that over the last few years, the inputs and the outputs to this exercise have become increasingly complex. Once upon a time, someone would ask you a few rudimentary questions about your income and your 'risk tolerance' and then mostly recommend whatever investment could earn them the maximum commission. Now, wealth managers like to ask dozens of questions about your past, present and future income and then come up with a long and complex financial plan that mostly recommends whatever investment can earn them the maximum commission.
However, there is no doubt that we have made progress. Earlier, financial plans were typically a sheet of paper that you could just read. Now, you are likely to get a text document and an Excel spreadsheet. I believe the better wealth management outfits may even throw in a PowerPoint presentation. That's not all. I don't have accurate statistics, but there's considerable anecdotal evidence to suggest that the proportion of financial planners who wear a necktie has increased sharply in recent years.
Clearly, the age of serious financial planning and wealth management is upon us. Ever so often, one reads in a newspaper or sees on a business TV channel, some worthy captain of the wealth management industry explaining why Indians need more and more of their services and how hard they are striving to provide those services. Unlike the mere necktie-wearing financial planner who actually visits you, the high priests who speak to the media also wear business suits. Clearly,these are serious men, and they are seriously focussed upon your wealth.
The basic pitch is that rich people have complex financial needs and therefore need special services to manage their money. Like any consumer product, the pitch liberally uses terminology chosen to make you feel special. If you get attracted by a fancy advertisement or brochure for 'wealth management' or 'high-end private banking' or something like that, then the first thing to do is to close your eyes and count to ten. The most important thing is to tell yourself that these people are using words like 'wealth' and 'private' as a way of manipulating your feelings, of making you feel that they are going to do something special for you. Basically, these services are not about selling money management but a feeling of exclusivity, the same as any expensive product. The idea is to tell you that since you are wealthy, you must have something exclusive, something specially designed for you. How can you feel rich while investing in the same old things that ordinary people do? It's an easy trap to fall into since many consumer products and services are also sold with this kind of appeal. However, to fall for this 'exclusivity' a pitch for a watch or a pair of shoes is a lot less harmful than it is for investment advice.
Think of it this way. If you are a good potential customer for such schemes, it definitely means that you have more money than the average Indian. And almost certainly, you didn't earn that money by being unsmart about money. Believe me, you have a better chance of being able to figure out investments yourself than the random marketing guy some bank sends to wheedle your money out of you.
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