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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Why an Individual Advisor is better than Banks and other Institutions?‏‏

Posted by Muthu on June 7, 2010

There are those who have relationships, and there are those who need to fake them by calling everything a relationship. No, don’t get me wrong, I haven’t suddenly started writing a personal advice article. This is still about personal finance and investments. It is my firm belief, borne of years of interacting with investors, that in general, the small-scale individual financial advisor provides a much better quality of advice and service than the large organisations like banks and others. This is a general rule and there are surely exceptions, but by and large, if whoever you are dealing with calls himself a ‘relationship manager’ (or any other title with the word ‘relationship’ in it), then it’s to hide the fact that there actually is no relationship.
Unfortunately, in the mutual fund world, the abolition of entry load is producing a side-effect that has weakened the small-scale advisor vis-à-vis the relationship crowd. Since August last, the income that distributors derive from selling mutual funds has gone down sharply. It’s clear now that the resultant business stress has harmed the larger outfits relatively less. Typically, they are selling mutual funds to customers to whom they are providing a range of services (sorry, relationships) , while the small-scale advisor is providing only one specific service which earns him much less money now. In some cases, the money he now makes is less enough to take the business close to being unviable. 
Why do small-scale advisors generally provide better advice and service than the relationship peddlers? The answer, ironically, is that a larger proportion of them actually have a relationship with the customer. Often, they are someone who is personally known to the customer or has been introduced by someone whom the customer knows personally. Moreover-and this is probably the most important factor-they own their business and expect to serve the customer in perpetuity. Through personal experience, they know that they’ll be answerable for a long time to come and that any egregiously bad investments will impact the one thing that is central to their business-word of mouth recommendations.
On the other hand, the so-called relationship manager will almost certainly have moved on to his next job or his next set of relationships within months. His customer generally finds it much more difficult to leave because he uses a whole bunch of services from the bank and in any case has no personal responsibility because the advice he originally gave was also not his-he was merely the mouthpiece for whatever sales pitch his employer asked him to deliver.

Courtesy: Dhirendra Kumar, Valueresearch

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