Podcast 22nd January 2016
Have you ever seen doctors keep away from people waylaying them and asking them for cure for their ailments? Doctors avoid giving advice by way of conversation to even good friends and family, as unless the doctor knows the full history of the patient, he or she cannot provide the right advice.
Similar is the case with financial advice. Let me give you an example. A friend of a financial adviser asks her on what to buy or sell as they are meeting up for a cup of coffee. The financial adviser tells her friend that if she told her what to buy or sell, she is doing her a great disfavour. The reason is that the adviser does not know of her friend’s investment portfolio, does not know how much of knowledge she has on markets and investments, does not know if she can absorb losses or face volatility and does not know of her time horizon and purpose of investments.
Assuming the financial adviser gave her friend advice on what to buy and sell and her friend acts on it and for some reason or other the stocks she buys falls and the stocks she sells goes up. The adviser’s friend will quickly jump on her and say she gave wrong advice even if over a longer period of time the advice would be proved right.
Even worse is if the adviser’s friend places all her money on her advice and could not take the stress of loss, even in the short term. The adviser thought she did her friend a favour by providing advice with the best of intentions when asked but in actual fact she did her a great disfavour that actually hurt her friend and their friendship.
Financial adviser’s who place a strong value on their specialisation should not dole out advice for free even to their near and dear. Free advice is most often misused and leads to more pain than gain for both the adviser and the person who takes the free advice.
The person seeking free advice too should stop seeking free advice or should know the cost of free advice. Any commission agent giving free advice receives commission from the financial product manufacturer. A transparent commission agent will tell her client the difference in costs by investing directly or going through her in a mutual fund or insurance scheme. The client will then know exactly the cost of the free advice she is receiving.
There are plenty of other free advice givers. People trolling internet, the know it all person in one’s life, the retired who discuss financial affairs without acquiring knowledge and the general do gooder who means the best. It is best to avoid such advice as it comes without specifics and will hurt your financial health.
So next time do yourself a favour and do not ask for free advice even from your best friend and if you are a financial adviser do not give free advice even to your best friend.
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