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Don't be the product

It's often said of free online services that if you are not paying, then you are not the customer - you are the product. That's also true of financial services.

Don't be the product

No one can afford to give you financial advice. Just forget about it and learn to be your own advisor. Or, I could say that you can't afford anyone giving you financial advice. Those appear to mean the opposite but it's the same thing. Since we're all used to a low-cost service economy, many Indians feel that financial advice ought to come free. Someone should come to us, talk to us about our financial needs, recommend investments to us and get them done. Later, someone should help us track and manage those investments. This is especially true for people who are prosperous beyond a certain point.

The problem is that the people who are providing this service cannot afford to do this. And if they can afford to provide the service, then you cannot actually afford to buy the service. If someone comes to you and says that they will have an in-depth talk with you about your financial life, study your financial needs and suggest a financial plan, what kind of a person would he/she have to be for you to take them seriously? I mean not just in terms of presentation, education, training, dress, manner, etc., but also the pre-knowledge and the background necessary to have such a conversation with you. I can bet that such a person would not cost a company less than perhaps Rs 1.5 lakh a month, perhaps more.

Now, work out how many customers could such a person handle on a continuous basis if (that's a huge if) they were to actually do all this financial planning and then follow up, track and help manage. Make a guess as to how much interaction would be needed over a year. Working backwards, you'll probably come to the conclusion that realistically, the financial advice and handholding that one investor needs could cost Rs 20,000-50,000 over a year. And that's not all. Where would such a person come from? Think of recruitment, training, motivation, experience. Who would manage a group of such persons? Think of a whole organisation with career progression, etc.

My guess is that unless you have about Rs 10 crore or so to invest, no one can provide this service economically. Of course, if you have that much to invest, you still may not get good service but that will be for different reasons. Of course, someone will still pretend that they will do all this for free. As with so many things that appear to be free, you pay in some other way. You pay in hidden commissions, suboptimal products and by making you churn your investments to whoever is paying the highest bounty on your money.

You've heard what they say about free online services? If you are not paying, then you are not the customer - you are the product. Financial services are also like that. If you are not explicitly paying for financial advice, then you are not the customer - you are actually the product and the real business is to supply you to whoever is willing to pay for you. Sounds harsh, and a little too blunt, but this is the absolute truth that I have realised over three decades of observing this business. This is not a new thing either. Just google the phrase 'Where are the Customers' Yachts?' You'll come across a book written in 1955 which is considered a classic about this business. You can guess from the title what it says.

So, what's the solution? The answer is simple, although implementing it will require a bit of effort - do it yourself. Unlike at any earlier time, even just five years ago, it's trivially easy to do your own research - perhaps paying for the tools and facilities - and to implement everything yourself. A host of facilities ranging from payment systems, mutual fund and stock transactions, and the very existence of direct funds make it entirely possible. It's worth the effort.

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