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

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Rich Advisors Poor Clients

Posted by Muthu on May 6, 2012

Many a times I enjoy mocking myself, our industry and everyone else.

Today I’m in no mood to write any thing serious; that’s what I think and let us see how this piece pans out.

There are lots of books published on art of stock picking, making money, getting rich, managing money, changing money behaviour, financial nirvana, becoming millionaires…..the list is endless. Most of these are extremely helpful, for the authors. Writing these books is the only way they get rich not by following what they write.

Since many in our profession consider writing a book as pinnacle of professional achievement (no matter whether it sells or not), in all humility I’ve decided to write one too. I cannot think of any better name other than ‘Rich Advisors Poor Clients’; that’s what our tribe is all about. Though I’ve not even started writing the book, those of you interested in getting an autographed copy before they hit the stands, can pay me Rs.500/- as advance. If I choose to not write the book, the same would be invested in a fund; ’Muthu Welfare fund’ with a personal letter to you conveying my gratitude.

Other alternative in writing I’m considering is ‘Dialogues with my grand father- What I learnt about money’. If the book is a hit, the second one would be ‘More dialogues with my grand father’, third book would be ‘Grandfather on money and beyond’, fourth one would be ‘Grandfather for teenagers’, fifth one would be ‘Grandfather for grandfathers’… the list would be endless. You can also visit our website www.grandfatherdialogues.com for buying books, booking me for speaking and buy exclusive grand father T-Shirts, mugs and to read only positive reviews about me and my books.

I’m just sharing a secret with you. My paternal grandfather passed away even before I was born and the maternal grand father passed away in my school days. Who would ever know what my grand father taught me. He tried his best teaching me only math; which never penetrated my thick skull.

Normally when the first book gets hit, the rest of the series are merely repetitive and would be written as long as public want to buy till they get saturated.

Since I shared a secret with you, some thing more on this front. There are lots of (spiritual?!) gurus who teaches wealth building techniques.

A mail I received read like this (duly edited):

“We are so excited to hear participants report gaining amazing insights into wealth consciousness. Many were inspired to radically change their relationship with wealth and take control of their financial destiny.

Some of the highlights of the program are:

  • Insights into the minds of the wealthiest
  • Breathtaking commentaries on how people get trapped in poverty
  • How to break out of fears about money
  • How to manifest wealth

Please do not miss this inspiring evening with the participants who experienced this transformation first-hand. Lets all meet for tea and discussion and we will round it off with …Pada puja and …Kriya followed by dinner. This will be a great opportunity for those who didn’t get a chance to attend the program. We’ll be playing 45 minutes of video clip from Swamiji’s talk during the two-day program – this is an exclusive video that will not be uploaded on the You tube”

These guys assure wealth through the law of attraction, visualization, creative visualization where you get tuned with universal wealth consciousness (what ever it means) and simply get wealthy by following the techniques taught for a sizeable fee.

I envy these chaps. People like us when we say or write something should ensure that we do not guarantee or assure anything as per regulatory guidelines and other compliance norms. Whereas these guys can make any tall claims, guaranteeing a lot, shows casing or stage managing the success stories and gains both popularity and money. Who can verify and regulate universal wealth consciousness?!

If you think, only ‘new age’ gurus create these kinds of mis-chiefs, ‘old age’ gurus are no way behind, only the technique varies.

A ‘old age’ respected Guru who spoke on a Diwali day in a channel said that something on the lines that people who saw his program would get better jobs, promotions, get married, become wealthy, have children etc. We should do a study. Atleast a dozen technicians would be behind this recorded program and would have had no option but to watch it. We should see if all what Guru said happens in the lives of these technicians.

These gurus suggest chanting a particular sloka or namaa regularly would bring in all kind of  material prosperity. In our apartment, rich ladies sit as a group and chant a lot for never ending prosperity; inspired by the divine contents they see in the channels morning slot. Of course, at any day, what they do is much better than watching serials or gossiping about other households!

There seems to be only 2 options: either gurus need to be regulated by GRAI (Gurus regulatory authority ofIndia) or I’ve to revive my plan of joining them, rechristening myself as Swami Muthukrishna Acharya. Why combo of ‘Swami’ and ‘Acharya’ because I want followers from both southern and northern parts of this country. I would definitely have few thousand followers. If you don’t believe what I say, try becoming a Guru. You would automatically have followers. People want Gurus. They are in great demand.

Since no body can talk and mock about our tribe and industry better than Warren Buffett; given below are some excerpts (highlighting in bold are done by me, not in the original piece) from his 2005 annual letter to shareholders.

“It’s been an easy matter forBerkshire and other owners of American equities to prosper over the years….

This huge rise came about for a simple reason: Over the century, American businesses did extraordinarily well and investors rode the wave of their prosperity. Businesses continue to do well. But now shareholders, through a series of self-inflicted wounds, are in a major way cutting the returns they will realize from their investments.

The explanation of how this is happening begins with a fundamental truth: With unimportant exceptions, such as bankruptcies in which some of a company’s losses are borne by creditors, the most that owners in aggregate can earn between now and Judgment Day is what their businesses in aggregate earn. True, by buying and selling that is clever or lucky, investor A may take more than his share of the pie at the expense of investor B.

And, yes, all investors feel richer when stocks soar. But an owner can exit only by having someone take his place. If one investor sells high, another must buy high. For owners as a whole, there is simply no magic — no shower of money from outer space — that will enable them to extract wealth from their companies beyond that created by the companies themselves.

Indeed, owners must earn less than their businesses earn because of “frictional” costs. And that’s my point: These costs are now being incurred in amounts that will cause shareholders to earn far less than they historically have.

To understand how this toll has ballooned, imagine for a moment that all American corporations are, and always will be, owned by a single family. We’ll call them the Gotrocks. After paying taxes on dividends, this family — generation after generation — becomes richer by the aggregate amount earned by its companies.

Today that amount is about $700 billion annually. Naturally, the family spends some of these dollars. But the portion it saves steadily compounds for its benefit. In the Gotrocks household everyone grows wealthier at the same pace, and all is harmonious.

But let’s now assume that a few fast-talking Helpers approach the family and persuade each of its members to try to outsmart his relatives by buying certain of their holdings and selling them certain others. The Helpers — for a fee, of course — obligingly agree to handle these transactions. The Gotrocks still own all of corporate America; the trades just rearrange who owns what.

So the family’s annual gain in wealth diminishes, equaling the earnings of American business minus commissions paid. The more that family members trade, the smaller their share of the pie and the larger the slice received by the Helpers. This fact is not lost upon these broker-Helpers: Activity is their friend, and in a wide variety of ways, they urge it on.

After a while, most of the family members realize that they are not doing so well at this new “beat my brother” game. Enter another set of Helpers. These newcomers explain to each member of the Gotrocks clan that by himself he’ll never outsmart the rest of the family. The suggested cure: “Hire a manager — yes, us — and get the job done professionally.”

These manager-Helpers continue to use the broker-Helpers to execute trades; the managers may even increase their activity so as to permit the brokers to prosper still more. Overall, a bigger slice of the pie now goes to the two classes of Helpers.

The family’s disappointment grows. Each of its members is now employing professionals. Yet overall, the group’s finances have taken a turn for the worse. The solution? More help, of course.

It arrives in the form of financial planners and institutional consultants, who weigh in to advise the Gotrocks on selecting manager-Helpers. The befuddled family welcomes this assistance. By now its members know they can pick neither the right stocks nor the right stock pickers. Why, one might ask, should they expect success in picking the right consultant? But this question does not occur to the Gotrocks, and the consultant-Helpers certainly don’t suggest it to them.

The Gotrocks, now supporting three classes of expensive Helpers, find that their results get worse, and they sink into despair. But just as hope seems lost, a fourth groupwe’ll call them the hyper-Helpers — appears. These friendly folk explain to the Gotrocks that their unsatisfactory results are occurring because the existing Helpers — brokers, managers, consultants — are not sufficiently motivated and are simply going through the motions. “What,” the new Helpers ask, “can you expect from such a bunch of zombies?”

The new arrivals offer a breathtakingly simple solution: Pay more money. Brimming with self-confidence, the hyper-Helpers assert that huge contingent payments — in addition to stiff fixed fees — are what each family member must fork over in order to really outmaneuver his relatives.

The more observant members of the family see that some of the hyper-Helpers are really just manager Helpers wearing new uniforms, bearing sewn-on sexy names like HEDGE FUND or PRIVATE EQUITY. The new Helpers, however, assure the Gotrocks that this change of clothing is all-important, bestowing on its wearers magical powers similar to those acquired by mild-mannered Clark Kent when he changed into his Superman costume. Calmed by this explanation, the family decides to pay up.

And that’s where we are today: A record portion of the earnings that would go in their entirety to owners — if they all just stayed in their rocking chairs — is now going to a swelling army of Helpers. Particularly expensive is the recent pandemic of profit arrangements under which Helpers receive large portions of the winnings when they are smart or lucky, and leave family members with all the losses — and large fixed fees to boot — when the Helpers are dumb or unlucky (or occasionally crooked).

A sufficient number of arrangements like this — heads, the Helper takes much of the winnings; tails, the Gotrocks lose and pay dearly for the privilege of doing so — may make it more accurate to call the family the Hadrocks. Today, in fact, the family’s frictional costs of all sorts may well amount to 20 percent of the earnings of American business. In other words, the burden of paying Helpers may cause American equity investors, overall, to earn only 80 percent or so of what they would earn if they just sat still and listened to no one.

Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the fourth law of motion: For investors as a whole, returns decrease as motion increases.”

2 Responses to “Rich Advisors Poor Clients”

  1. nwo said

    Good one…
    I think your title should be “Rich Client, Poor Advisors”, where do you find good advisors these day, all are behind $$$$….. only a handful good out there.

  2. bemoneyaware said

    What an article! Did not know whether to laugh and cry. GRAI (Gurus regulatory authority ofIndia) had me in splits!
    The article shows the depth of knowledge you have from Issac Newton to Warren Buffet!

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