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Distrust your financial advisor

This simple technique will substantially boost the quality of your investment decisions

In all the years of my writing about investments and personal finance, I have never ceased to be amazed at the sheer number of people desperately looking for advice, analysis and sometimes just basic information. A prime example is Investor Guide, a daily ETNow show that I am associated with. We try and answer investment questions that people send us. I am using the word try because most weeks we receive upwards of a thousand questions and we are able to answer just about 10 of them. That's a backlog of perhaps 50,000 in the past one year the show has been on air. The situation is the similar on Value Research's website.

In the eight years since the website became popular, we have received more than 100,000 investment queries and have been able to answer about 1100 of them.

The website is a somewhat better off because the questions answered in the past are all in searchable archives but that doesn't amount to much. Most investors view their own problems as unique and do not really try and search the archives for similar questions that others may have asked in the past. Which is a pity because not only do people's investment problems resemble with others', reading real world problems and their solutions is as good an education in financial problem-solving.

However, that brings us to the basic problem, that of the paucity of financial planning services in India. Unfortunately, I do not see this problem getting solved in the foreseeable future, at least not in the way you would imagine it to be. By and large, investors, who act on professional financial advice and planning, are worse off than those who muddle through based on their own understanding and information-gathering. The reason for this is not only clear but is universally known in India's retail financial services industry. All financial planning and advice that is provided apparently gratis (but is actually paid for through commissions) is suspect. Almost invariably, its sole purpose is to guide investors towards transactions that are more profitable for the advisor.

As I said earlier, this is not some sort of a shameful secret. It is an inevitable result of the business model of financial advisory. All businesses optimise for profitability. Not just that, nowadays, all businesses optimise for short-term profitability. Down the line, individuals working for financial business optimise for their own monthly or quarterly targets. The end result is writ large in the investing travails of ordinary people.

We'll hear a lot of noise about various businesses doing a lot to provide real financial planning and advice, but nothing much will come of it as long as these are constrained by their business model.

However, my purpose here is not to rail against the state of things but to provide investors with some practical tips on how to get the right guidance. And the answer is, somewhat unfortunately, that you must distrust everyone who is purporting to give you advice while getting paid something for making you conduct a transaction. Write these words down in large bold letters on a piece of paper: 'There is no such thing as financial planning or advice; it's all just salesmanship'. Then whenever you are subjected to advice or planning, read them out loudly to yourself, at least 10 times. This will put you in a suitably distrustful and suspicious frame of mind. You will eventually find that this simple technique will substantially boost the quality of your investment decisions. Seriously, just do it.