More often, the term ‘Financial Advisor’ is looked at a person hard selling an investment scheme. However, wealth is an important part of an individual’s life and how loosely they still consider making any decision for it. One of the primary reason is that most advisors are viewed as sales people from select mutual fund companies. It’s not wrong for anyone to have that sort of an opinion, but that’s how the industry has evolved over the years. It’s of no surprise, when two people sitting and discussing about which mutual fund or insurance policy was sold to them. The best part about the conversation is, one whose mutual fund is giving excess returns has a better financial advisor. Not the one whose portfolio of mutual fund has performed consistently over the years.
Let’s draw a small parallel. When an individual visits a doctor, there is no inclination to being sold a medicine. Nobody is bothered about which medicine is sold and in how many days they will get better. Infact, if they take more time to recover, they would rather blame it on their illness. When a financial advisor does a bad job, no individual ever says that he got greedy and wanted more. The unspoken rule of equity markets is ~ buy when others are selling and sell when others are buying. Yet, most of the times, individuals find their solace in being ‘others’ regardless of the fact when their financial advisor tells them not to.
A significant part of the above question lies in the fact as to what we ask a financial advisor. Since, an individual is so glued to making more money, questions are always around investment schemes and their performance. Yet, very few individuals want to know, as to what that very same advisor does with his own money?
Have you asked your financial advisor, ‘How much is your skin in the game?’
The term skin in the game was coined by renowned investor Warren Buffet. It simply means, when a professional is selling something, how much is at stake for him/her during that transaction. Isn’t it important to know, does your advisor actually practices the stuff which he is preaching you? Yes, it’s damn important. Although, we tend to miss it all the time. So much importance has been provided to returns on investment, multi baggers, etc. over the course. However, it’s very important to look into those things. There is no second guess to knowing fully well about the risks and rewards before starting an investment journey. Although, it gives more comfort to know that your chef eats the same food which he serves you at the restaurant. It will be unwise to know if a chef eats at any other restaurant in which he works.
To understand the concept of skin in the game better, let’s look at a story. ‘Taste of Turtles!’
You who caught the turtles better eat them ~ goes the ancient adage.
Its origin is as follows. It was said that a group of fishermen caught a large number of turtles. After cooking them, they found out at the communal mealthat these sea animals were much less edible that they thought: not manypeople were willing to eat them. Mercury happened to be passing by –Mercury was the most multitasking, sort of put-together god, as he was theboss of commerce, abundance, messengers, the underworld, as well as thepatron of thieves and brigands and, not surprisingly, luck. The group invitedhim to join them and offered him the turtles to eat. Detecting that he wasonly invited to relieve them of the unwanted food, he forced them all to eatturtles, thus establishing the principle that you need to eat what you feedothers.
Similarly, next time ask your financial advisor, whether he holds a similar a portfolio of schemes which he suggests you to do it? It will enhance your faith. On a subconscious level, it will provide for a great satisfaction that your advisor is giving equal importance like he would do it for himself.