Quora Answer: Why are Financial Planners Not Some of the Richest People?

The following is my answer to a Quora question: “Why are financial planners not some of the richest people?  I am expecting you to manage my money.  Where is the flaw in my line of thinking?” 

How much money does the average client have that would make a financial consultant rich?  If that financial consultant had one client, and that client was a multi-billionaire who was exclusive to him, that financial consultant would be wealthy.  How much money do you have that managing your money would make a financial consultant wealthy?  The commission for financial servicing is in the single digits or low double digits.  That is a tiny portion of the entire management fee or distribution cost.  This means a financial consultant needs to have around 200 mass affluent clients to be financially comfortable. 

Financial consultants who manage high net worth clientele are some of the wealthiest people around.  If you are not a high net worth individual, you are not likely to meet that financial consultant, or if you do, you would not be able to afford what they recommend.  Even among them, there are different levels.  These types of financial consultants are either elite planners, senior relationship managers, or run their own consultancies. 

The flaw in your thinking is believing you can afford an elite financial consultant, or that they would be inclined to offer you their services.  You get what you can afford.

Quora Answer: If I Claim Personal Bankruptcy, am I Ineligible to Work in Venture Capital or Private Equity?

The following is my answer to a Quora question: “If I claim personal bankruptcy, then will I be ineligible for a job in venture capital or private equity?” 

If you are an undischarged bankrupt, it is unlikely you will get a job in any part of finance.  You will fail compliance requirements, and will not be allowed to work anywhere close to any position that manages funds.  You could conceivably work there, but perhaps in marketing, or some form of administration work.  You will never sit on the investment committee, or make partner. 

If you are a discharged bankrupt, your prospects increase substantially.  That being said, it would be difficult for you to secure the required financial licenses to be a consultant, relationship manager or anything front end.  You would have to declare the circumstances of your previous divorce.  Medical bankruptcy is not a thing where I am from, because we have near universal healthcare.  It is unlikely that a divorce settlement would lead to bankruptcy here due to the way assets are divided here.  In most cases, it is personal debt.  That sort of impropriety is unlikely to move the regulatory authorities to grant you a license.

Quora Answer: What is Some Financial Advice Rich People Always Notice?

The following is my answer to a Quora question: “What is some financial advice that rich people always notice?” 

That really depends on which “rich people”.  The wealthy socioeconomic classes are not all the same.  Some people built their wealth through entrepreneurship.  Some people achieved wealth through some skill or professional qualification which is divorced from financial knowledge.  Some people are wealthy due to the lottery of birth.  They are either thoroughly imbibed in the science of financial engineering, or they are useless heirs who are living off the work of prior generations. 

People who built their wealth through entrepreneurship tend to be risk takers in their business.  Building a business is a series of calculated risks.  When making financial recommendations, they focus on risk exposure.  This could be currency risk, political risk, or something else.  This is important for them because they need to manage that risk on their personal financial management, and on the business side.  A good financial consultant is appraised on that, and makes recommendations accordingly. 

People who built their wealth through professional skills are interested in diversifying their income streams.  Their concern is the loss of ability to continue earning through their professional skill though illness or disability.  A career-ending injury, even with insurance coverage, often means a drop in socioeconomic status.  Insurance alone cannot replace lost income if that coverage is inadequate.  Insurance coverage can never adequately address loss of future income because that is difficult to quantify.  As such, investment plans have special significance. 

People who are part of inherited wealth are either the easiest to deal with, or the most difficult.  Some of them have been schooled in finance, so they understand the work of financial consultant, bankers, tax consultants and accountant.  They are easy to work with because they grasp the recommendations and structures quickly.  Sometimes, they make the requests themselves.  For them, a large part of their focus is on diversification and investment horizons.  They are looking for opportunities. 

Some of them are difficult because they think they know everything.  A little knowledge implies a lot of ignorance.  These people should be avoided.  They want to have full control, but they will outsource blame for failure.  Others are difficult because they are ignorant.  Since they are wealthy, they are only interested in enjoying what they have.  One wants to know everything in minute detail without fully grasping all that information.  The others knows nothing, so they cannot make proper decisions.

Quora Answer: Do Angel Investors Own Part of the Company

The following is my answer to a Quora question: “Do angel investors own part of the company?” 

An angel investor is any individual who provides financial backing for the company at its early stages.  Typically, this involves taking an equity stake.  However, this may not be ideal, or the investor wants to limit his risk exposure.  In such a case, they negotiate a debt to equity arrangement, where the funds provided is considered a form of loan, which may be converted into equity at a later stage.  In this case, the investor does not have an equity stake in the company, and he may not take it up in future.

Quora Answer: Do Financial Planners Get Kickbacks from Stocks They Recommend?

The following is my answer to a Quora question: “Do financial planners get kickbacks from the stocks they recommend?” 

If they did, it would be a conflict of interest and a breach of ethics.  It would be a criminal offence, and they would lose their license.  Financial consultants are not supposed to have a relationship with the companies of the stocks they recommend, directly or indirectly.  If they do, they should declare that conflict of interest, and it should be documented.  Non-disclosure is a breach of compliance.

Quora Answer: If the Federal Reserve Increases Rates in 2022, Would It be Wise to Make Financial Decisions Earlier?

The following is my answer to a Quora question: “If the Federal Reserve increases rates sometime in 2022, would it be wise to make financial decisions earlier in the year?” 

Inflation is the rise in the price of goods and services in the economy.  The general tendency is that the interest rate and inflation rate have an inverse relationship.  In general, when the interest rate is low, the economy grows because borrowing and credit is cheap.  This growth feeds inflation.  Conversely, when the interest rate is high, the economy slows down because borrowing becomes expensive, curbing inflation.  The federal Reserve utilises monetary policy, the manipulation of interest rate, to control inflation. 

The Federal Reserve is expected to increase interest rates in 2022.  They held off raising interest rates because the Federal Reserve prioritised economic recovery after the recession cause by Covid19.  They underestimated the speed of economic recovery and pent-up demand, because there is no recent precedent to this global economic.  Inflation in the US is too high, as it is, and severely affecting the cost price index, meaning goods and services are a lot more expensive, and the price increase has overtaken growth in real wages.  In effect, the American population has reduced purchasing power.  Countries with economies closely tied to the American economy, or currencies pegged to the US dollar, are experiencing the same problem.

In terms of investments, it would be best to restrategise for a longer investment horizon.  In the short term, this increase in inflation has an impact on the market which mirrors the wider economy.  Because purchasing power is diminished, fewer counters can be bought.  Because consumer purchasing power is diminished, revenue and profits decline, which eventually leads to slower growth.  This is not the immediate case for the moment due to pent up global demand which is driving inflation.  In this period, value stocks, the stock of companies with low price to book ratio, low price to earnings ratio, and high dividend yield, tend to outperform the market.  In the short-term, the market is extremely volatile in this inflationary period.  Growth stocks are the most affected.  In such an environment, consider inflation-resistant stocks such as the energy sector, pharmaceuticals, and REITs.  They tend to grow in value alongside inflation rate.  Because of the expected higher interest rates, fixed-income instruments will be adversely affected.  Their prices will move opposite to their yields. 

In terms of loans, if you have borrowing needs, it would be better to consider borrowing before the interest rate rises.  That would make all your loans, whether housing, mortgage, or credit lines, more expensive.  You may consider moving excess funds out of your savings account or fixed deposit, into investments than can keep up with this inflation.  You may also need to consider adjusting your portfolio and loans if you are retiring within the next three years.  Otherwise, you may find that you have less funds than anticipated during your retirement years.

Quora Answer: Are Speakers Expected to Force the Audience to Believe the Way They Think?

The following is my answer to a Quora question: “As a speaker, are you expected to force your audience to believe the way you think?” 

Mere words cannot force people to believe anything.  The art of rhetoric is to articulate a position in order to convince others.  A great speaker is able to convince the audience that this was their position anyway, and he is merely elocuting it.  People do not like to be told things.  Their egos automatically push back against anything they perceive as contrary to their interests.  This is regardless of information.  Their cognitive bias only interprets information and facts according to their preconceived positions. 

A speaker utilises rhetoric to go around it by assuming the speaker persona.  He utilises kairos, an appeal to timelessness; pathos, the appeal to experience; ethos, the appeal to values; and to an extent, logos, the appeal to logic.  In the course of his speech, he weaves all these in, and subtly utilises rhetorical devices such as allusions and changes in pronouns to convince the audience that this is what they believed in all along.  People want to feel that they are part of something bigger than themselves.  The larger the crowd, the easier it is to sway them to an emotive position.