Technology is bliss. As a Non-Resident Indian, you would certainly agree with that statement. Remember the time when investing in India was nothing short of a harrowing experience.
Coordinating with your family back home in India, discussing various investment avenues, getting the paper work done, issuing checks and finally hoping that the investments pan out as intended. You probably look back and wonder how you managed all that.
Thanks to technology, that method of investing is pass�. Internet banking and online investing are the new buzzwords. And let's not forget the legion of relationship managers who are just a phone call or an e-mail away. Investment advice flows in a seamless manner and is made available instantly.
Your relationship manager is a 'one-stop-shop' of sorts for all your investment needs. A phone call or an e-mail and your investments are taken care of. A couple of minutes, minimal effort and mission accomplished!
The cost factor
While the convenience that an NRI enjoys while investing is undisputed, we aren't convinced that investing has become any better. On the contrary, the convenience comes at a cost i.e. being laden with unsuitable investments. Surprised? You shouldn't be!
Let's deliberate on your relationship manager. The polite, suave and efficient individual, who regularly sends you e-mails and keeps you updated of forthcoming investment opportunities (read new fund offers - NFOs). Are you confident that he is honest and always offers you advice that is in your interest? Maybe he does, but what if he doesn't?
Let's not forget that his interests are served, when he gets you to invest more. The same translates into higher commission earnings for him. But making incessant investments need not be in your best interests. So we are faced with a 'conflict of interest' situation. What's right for you isn't right for your relationship manager and vice-versa.
Evaluate your relationship manager
Finding out whose interests your relationship manager really serves isn't very difficult. Ask him the following questions:
1. Ask your relationship manager to disclose the commissions he earns on the funds recommended by him; compare with those schemes that have not been recommended. Usually the funds offering the highest commission will make it to his recommended list.
2. Does he routinely get you to switch your monies from one fund to another on the pretext that other funds are likely to perform better; if his recommendations were honest in the first place, this would not be necessary. This is commonly referred to as churning. Every time you make a 'fresh' investment, the fund house charges you an entry load, a part of which becomes compensation for the agent/distributor i.e. the entity your relationship manager represents.
3. He sells you virtually every NFO that hits the market. This is not surprisingly, given that NFOs tend to pay the highest commission. In other words, higher earnings for him.
Surely there's a possibility that your relationship manager is an honest and upright individual who only has your interests at heart. But then it's possible that the opposite is true.
And if that is the case, then you would agree that the convenience of having access to a relationship manager has come at a cost, and a rather dear one. Being saddled with unsuitable investment avenues will mean that your returns over the long-term take a hit and it is therefore likely that your objectives will not be realised.
The solution
The solution lies at the core of the problem itself; the conflict of interest. The relationship manager's keenness in getting you invested, forces his hand and prejudices his advice. So the solution lies in separating the two; advice and investing.
Seek advice from a source wherein offering advice is the core activity, for example a research outfit. Since the entity is compensated for its efforts by way of fees, you can rest assured that you will get the 'best-in-class' and unbiased advice.
As regards the investing part, you can always fall back on your reliable relationship manager. This will ensure that you end up with the proverbial 'best of both worlds.'
In conclusion, don't get swayed away by the convenience of new age investing. The hidden costs could be a bit more than what you bargained for.
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