Abhishek Datta is a Dubai based financial planner and wealth manager. Over the years, he has helped his clients achieve their Financial Goals including those of several High Net-Worth Individuals(HNIs). In this interview with Times of Startups, Abhishek talks about the importance of financial planning and what all things can be done in order to achieve one’s goal of financial freedom.
Abhishek, Thank you for talking with us. How has been your journey so far as an independent financial planner and wealth manager?
Thank you for having me. After a 6-year journey with 2 of the biggest banks in the region, I decided to go independent and today I can proudly say that it was the right move for me on a personal and professional level. I have also achieved the desired results for my clients.
I have been able to help several affluent families and individuals grow their wealth and secure their finances.
The fact that several people are on the path to financial independence and success gives me immense satisfaction.
What are some of the market-specific challenges that you experienced as a financial advisor?
This could open a pandora’s box, but I will try to be brief.
Firstly, advisors in the region suffer from what is known as product syndrome. Clients are always on the lookout for a little higher yield or a slightly lower cost.
While those are extremely important, but lower transaction costs do not necessarily result in better returns in the long run. This trend is a result of the subconscious adaptation of the behavior of the different advisors they come across in their lives, who were pushing products, and the only differentiator they offer is transaction cost, or yield.
Financial products are commodities, and if you focus only on the transactional aspect, all you get is a transaction.
If you take a commodity, and use it to create a solution, only then can you get the desired results.
Another quirk in this market is the amount of traveling people do. Prior to the coronavirus crisis, the entire cycle could get extended by months because people are constantly traveling for work or holidays. The time between the first interaction and a follow-up meeting could be so long, that both the advisor and the client had to start from scratch.
This leads to conversations either dying off or results that are not ideal for the client due to the loss of interest/attention of the advisor and client.
But that is what makes my work challenging, to make the best use of that small window of opportunity.
Financial freedom has different meanings for different people. Based on your experience of working with a wide range of clients, which definition do you get to listen more often than not?. What are your views on Financial Freedom?
Financial Freedom affords people the luxury of choice, the ability to make decisions based on merit and not on cost.
For example, you would rather choose the school your kids attend, rather than the one that is most affordable. It could also mean the ability to pursue your passion at a certain time of your life, rather than continue working for money.
I consider a person as having achieved financial freedom, once they are able to focus on what is most important, i.e. life itself.
To achieve this, I, as an advisor, need to ask the right questions to people. Because a question, when asked right, leads to 80% of the answer.
Some financial planners make a mistake designing a lopsided portfolio wherein a large chunk of the investment is allocated to very few sectors. Some, on the other hand, make the mistake of adopting the ‘one size fits all approach’ wherein they design a generic portfolio without understanding the needs of the clients. What would be your suggestion for those who are entry-level managers and also for those who are managing their portfolio themselves?
All the above issues that you have mentioned, have a root cause.
Inadequate risk profiling.
We, as advisors, need to understand the client’s appetite for risk better in order to provide him with appropriate products based on this. We also need to understand the risk associated with a product.
“Most of us try to meet a client’s expectation, rather than manage them.”
A good advisor would carefully design a portfolio after considering the client’s risk profile and manage his expectation of returns.
The above would lead to a well-diversified portfolio and automatically manage the risk associated with it.
There are numerous other factors that one needs to look at, but it is impossible to elaborate on those in this brief conversation.
Given the market situation that we have due to the ongoing Covid-19 Pandemic, global stocks have taken a hit. However, it is also the perfect time to buy undervalued stocks. What is your take on the current situation?
I think there is definitely value in the market when it comes to specific stocks.
However, it is also important to understand, that this is not a financial crisis. Hence, we cannot yet predict when this will end, and what the new world will look like.
The access to free credit can lead to mispricing of stocks and assets. Most of the global economy has come to a standstill, manufacturing plants are idle, global trade is trending lower. A lot of companies have withdrawn their full-year guidance and some economies are predicting a 10-15% fall in their GDP.
Considering these factors, I urge caution, but also to deploy money in stages throughout this cycle and not go all in.
I would urge everyone to consult a qualified advisor and temper their return expectations for the future. Before you consider investing, prepare for the rainy day and hold cash in hand for at least 6-9 months of expenses.
How important is portfolio diversification?
Over the years, I have come to realize that 90% of my job is risk management.
Portfolio diversification is an extremely important tool for this purpose.
But this is also a highly misused and misunderstood concept.
Most clients I meet, have 10 different funds in their portfolio. Hence, they believe they have a diversified portfolio. 90% of the time, this is not the case.
For instance, A client owns an ESG fund that is extremely popular, with 40% tech stocks in it. He also has an income fund with 33% exposure to tech stocks. To top it all off, he owns a pure tech fund. So how diversified is he actually?
5 tech companies make up 18% of the S&P 500, all tech stocks. So how diversified is the 500 stock index actually?
Maybe it is time most people need to relook at their portfolios.
A crisis is always a good time to clean house.
Lastly, keeping the ongoing tough times in mind, what suggestion would you give to our readers so that they can attain their long term financial goals?
Start Early, spend less, pick your advisor carefully, do your due diligence and most importantly, do not be greedy.
When you hear stories of how people make phenomenal amounts of money in the stock markets and other investments, always remember that those people are not telling you how many times they lose money. Human beings like to amplify their successes to drown out their failures.
Remember, that this is the crisis, when you could lose money even if you bought US oil at close to 0.
