Small thinking erodes big money

Even professionals with deep financial expertise – chief financial officers (CFO) and top Chartered Accountants (CAs), for example – benefit from hiring an expert investment advisor

Rajmohan Krishnan
Published: 13, Feb 2018

Rajmohan Krishnan is the Principal Founder and Managing Director of Entrust Family Office Investment Advisors. As the Executive Vice President until 2012, Raj led the team of Kotak Wealth Management across North and South India Regions. He has a deep understanding of the financial services industry and over two decades of advisory experience across a wide spectrum like Real Estate, Business Succession, Estate Planning and Social enterprises Investments. Rajmohan holds a Master’s degree from the University of Madras and executive education certificate from Indian School of Business and IIM Ahmedabad. Raj is an avid golfer.

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A couple of years ago, I met Mr. Kalidas (name changed), a well-respected man in his late sixties. I spent many months convincing him that a family office set up will help him preserve, nurture and grow his wealth. While he agreed that our proposition will add value, he wasn’t keen on spending money to grow money. “If only your fee was a little lower,” he would often say at the end of our conversations.

The last time I saw him was on his seventieth birthday. On the joyous occasion, I urged him to at least create his last Will and Testament. Again, he expressed his concern about the cost involved. A few days later he passed away, leaving his financial affairs in disarray. Had he spent a little money in creating a Will and establishing a Trust, he would have saved his children months of anguish and ambiguity.

Many Ultra High Net Worth Individuals (UHNIs) share Mr Kalidas’ mindset. They are often first-generation multi-millionaires who strove their way to the top. Growing up, they learnt to spend less and work more. In many ways, it is this conservative middle-class mindset that builds character and keeps the Indian family together. It is nothing to be scoffed at.

However, the same middle-class thinking backfires when a person acquires large amounts of wealth. Prudence in the middle class shows up as miserliness in the elite. Similarly, well-placed caution shows up as a heightened, misplaced anxiety. Yes, every UHNI must take every precaution against erosion of their wealth. But excessive fear causes paralysis or panic or both. I witness this on a daily basis. I see some of the smartest people in our country trying to pinch paise and regretting this tendency at leisure. I call this phenomenon Small Money-Mindedness (SMM)

If you are a wealthy person who wants to overcome SMM, there are some simple steps you can take:

1. Be rational Acknowledge that anxieties associated with wealth can often force you into inaction or emotional decisions. Remember that you are blessed with the ability to think rationally. That’s one of the reasons you gained wealth. To bring that rationality into this area of your life, draw a parallel between wealth management and a life-saving surgery. Will you postpone that surgery to save short-term costs? Well, you can bring the same sense of urgency and missionary zeal to wealth management. With your rational brain in charge, you can implement the measures suggested below.

2. Celebrate non-monetary benefits
Hiring a chauffeur saves you time and mental energy. Hiring a professional photographer for a wedding buys you a superior nostalgic experience – your smile will be broader when you look at the album years later. You don’t hire these professionals because of your inability to drive or click pictures. You do so for deeper benefits.

Similarly, know that your brand erodes every time you ask an investment advisor for a quote and then don’t respond. Word travels fast in the upper echelons of the market. And when investment advisors realise that you aren’t committing adequately to your wealth management needs, they might offer you financial instruments with inferior returns. They know they aren’t going to sell big to you, so they’ll also start thinking small.

“What is this going to cost me?” you ask. The answer: your resistance to hiring experts is going to cost you time, energy, emotions, brand equity and quality advice. You can’t put a price on any of those things.

3. Acknowledge the need for expertise
SMM is often the direct result of a person having made it to the top against all odds. If you are one such person, then you have exhibited exemplary vision and proficiency all your life. You are self made. It’s natural for you to believe that you can manage your wealth too. The truth, however, is that even professionals with deep financial expertise – chief financial officers (CFO) and top Chartered Accountants (CAs), for example – benefit from hiring an expert investment advisor.

We have no trouble understanding the value of expertise when it comes to a doctor or a lawyer. But we often don’t value expertise associated with vaguer services such as investment advisor. This vagueness is amplified when it comes to the niche model that I operate in, called the Family Office. So you, the UHNI, have to exercise your imagination to realise the benefit provided by a person who will manage your wealth end-to-end. It might take time for you to see that this person offers three qualities that cannot be replicated by you:

> Deep exposure to domain – which comes only with experience and an unwavering scrutiny of the market
> Dedicated focus – with loyalty to you and you alone, not to NBFCs that design and sell financial products
> Objectivity – which is the result of being unbound by emotions that the wealth creator attaches to his/her wealth

Moreover, the Family Office Investment Advisor shares your sense of caution. He will, as a rule, choose your peace of mind and brand equity over incremental growth in wealth. In the medium-term, he will give you a multi-fold return on the service fee levied by him.

4. Mix trust with caution
You want investment advisors to earn your trust and that’s how it should be. So when you initiate a relationship with an investment advisor, start small. Let the person prove their worth. You could create an objective framework to assess the value offered by every person assisting you at any moment in time.

Also, you are better off trusting a person than an institution. A trustworthy person in a dubious institution will still try and protect you.

In conclusion
When India became independent, the Nizam of Hyderabad was one of the wealthiest people in the world. He used the renowned Jacobi diamond as a paperweight, wore crumpled pyjamas all day, did not change his well-worn fez for 35 years, ate his meals off a tin plate and re-smoked the butts of his Charminar cigarettes. All in order to save money. Other accounts portray him as a person who spent lavishly on mosque renovations and the people he cared about. Perhaps his image as a miser is adulterated by unverifiable anecdotes. But the lesson remains pure.

Wise Wealth is never miserly.

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