Interviewer: Tell me, what made you start an investment advisory service?
Abhishek: Significant changes happen inside you when you are shaken out of your comfort zone, especially when it is a real-life Tsunami that shakes you. I was 24 years old in December 2004, when Tsunami took almost everything away from us. Yet, the magnitude of destruction was so enormous that we only felt gratitude that all of us were alive. Not every family living in that part of the world could say that.
Despite gratitude, losing all our worldly possessions, including a roof on our head, was uncomfortable, but the thing about being out of your comfort zone is that it makes you look at life from a fresh perspective. Necessity made us look to spend money wisely. Life taught us what is important and what is good to have more than any college degree could have.
From that moment, I decided to question every traditional wisdom I had gathered about money and finance. I will not say everything we are taught is wrong, but I found that many of our beliefs were no longer practical in the 21st century. That is the time when seed idea of SahajMoney was conceptualized.
I did my MBA from IIM Bangalore and worked in corporate for a while. Once I achieved my financial independence in 2017, I started this venture.
Interviewer: There are not many Fee-Only investment advisors.
Abhishek: Oh yeah, absolutely! It is not easy to challenge traditional mutual fund/insurance-agent led model which serves their interest but not essentially that of their unitholders/policyholders.
Charlie Munger, Vice Chairman of Berkshire Hathaway, explains this well in his speech “Academic Economics Strengths and Faults after Considering Interdisciplinary needs.”
He says, “One of the most extreme examples is in the investment management field. Suppose you are the manager of a mutual fund (or insurance), and you want to sell more. People commonly come to the following answer:
You raise the commissions (or expense ratio), which of course reduces the number of units of real investments delivered to the ultimate buyer, so you are increasing the price per unit of real investment that you are selling the ultimate customer.
And you are using that extra commission to bribe the customer’s purchasing agent (mutual fund or insurance agent). You are bribing the broker to betray his client and put the client’s money into the high-commission product. This has worked to produce at least a trillion dollars of mutual fund sales.”
Fee-only investment advisory is trying to challenge this existing model by always asking the question, which nobody on Dalal Street or on Wall Street asks and which Fred Schwed in his seminal book asked, “Where are the customers’ yachts”.
Interviewer: Your target clients might ask, “What’s in it for me (WIIFM)?”. What do you have to say about that?
Abhishek: Bang on! Well, we call it CUP model and it has 3 inherent benefit of our fee-only investment advisory services.
- Commission-free saves 1%*.
- Unbiased advice.
- Personalised suggestions.
Our clients have derived these benefits and have saved significant sums of money out their hard-earned corpus, which otherwise would have gone back to agents as commission. All the while they understand as we are only advising and not executing the advice hence, they are sure of unbiased advice. Finally, we offer personalised investment advice based on their risk appetite, which makes it a humane approach while being pragmatic at the same time.
Interviewer: So why do you think that this model could trump the traditional principal-agent model in long run.
Abhishek: I believe that fee-only advisory is going to be future as it has client’s interest at its core and all it need is momentum. To use an analogy from the field of business it is like a ‘Flywheel’- a concept introduced by Jim Collins of ‘Good to Great’ fame. Flywheel involves a process of relentlessly pushing a giant, heavy flywheel, turn upon turn, building momentum until a point of breakthrough, and beyond.
Traditional principal-agent led model in name of financial planning has sold an idea that personal finance is a complex thing, and their clients are ill suited to manage their investment on their own. By selling complexity these agents extract higher commission for themselves.
We are challenging this model by showing clients that personal finance is not that complex at all and all you need to do is follow simple steps. Just like one pay tuition fees to tutor to gain knowledge, likewise you pay an upfront fee for getting investment advice.
Let us imagine that the same tutor says that you do not have to pay fees to me but must buy expensive books through me. What is not informed upfront by tutor is that he will make money out of every book that he sells to you as commission from the publisher.
Would you go to such a tutor for gaining knowledge? Perhaps no. We are trying to serve those customers who thinks like that. We are not trying to sell ice to eskimos but something which is in their own interest.
The weight of goodwill generated between clients and fee-only advisers would generate enough momentum that the flywheel would go faster and faster with the effort required to do that is minuscule when compared with momentum of flywheel in fee-only investment advisory.
Hence, I believe that fee-only investment advisory time will come. It is not a matter of ‘if’, It is a matter of ‘when’.