Weekend Reads from India: Zeno’s Paradox, Rolls-Royce, and Qualified Advisers

The Japanese word for crisis is inherently pragmatic: 危機, pronounced “kiki.” It has two Chinese characters: The first denotes danger, but the second indicates opportunity. The Mandarin word — “weiji,” 危机 — has a similar construction, denoting a “turning point.”

In the financial markets, the turning points between danger and opportunity have been seamless and illusory. These transitions have been a perennial source of intoxicating bull runs and painful crashes. Market upheavals, such as the current Brexit-induced tremors, highlight the important role investment advisers play in helping clients avoid making counterproductive decisions.

My recent interactions with wealth managers in India gave me an engaging contrast to the broader difficulties of the investment world. A Bengaluru member shared his experience with the increasing demand for wealth planning from India’s young millionaires. While the ranks of Indian millionaires are growing at a rapid pace, those of Indian advisers are not keeping up. Finding an Indian adviser is not easy, and finding qualified ones harder still. India has 185,000 US dollar millionaires and a 24-million strong middle class but fewer than 500 registered investment advisers. New talent is unwilling to take up the advisory track given the current hurdles, among them the significant financial outlay and the extended period of time it takes to break even.

Other barriers to growth are clients’ unwillingness to pay hard cash for advisory services unless they experience tangible performance. And performance takes time. It is an injustice to the investment adviser’s role that monetary gain rather than sound advice is used as the yardstick for client acquisition and success. The issue of available data is not a trivial one, either. For a market in which available price information on listed equities is limited to the last 20 to 25 years, even on an ex-post basis, the simulations and conclusions have inherent limitations.

Another problem is the nature of the advisory function. Those who understand it appreciate the universal difficulty and near impossibility of picking the right active manager. Given these challenges, a senior regulator wondered if investment advisers had any future at all during a recent CFA Institute co-sponsored event in India.

How then does an adviser demonstrate value? While there may not be a magic formula, building trust through a deep understanding of client needs, educating the end investor on market offerings, transparency, being a co-investor in recommendations, and internet-based advisory are goals that seem to be working well with many established managers.

While the difficulties that investment advisers face in India are here to stay and may even increase, they are not insurmountable provided the end investor is kept informed. India is growing and is poised to be reclassified as a “lower-middle income country.” Aspirations are on the rise. Indeed, the country may well become a top market for Rolls-Royce once again. The growing demand for investment advisers in India makes it one of the fastest growing markets in the wealth management space.

Below is a list of interesting reads. If I had to recommend my top two, I would go with “Zeno’s Paradox” and “Tread Softly on Our Dreams: Advertising Must Protect Consumers from Profiteering.”

Happy reading and enjoy the weekend.

Wisdom on the Markets

• George Soros: “Brexit and the Future of Europe” (Project Syndicate)
• “There Is Now a Staggering $11.7 Trillion in Negative Yielding Debt” (Zero Hedge)
• “Wilbur Ross: I Bought Pounds after the Brexit Vote” (CNBC)
• “Market Spotlight: A Review of FT Markets’ Brexit Analysis” (Financial Times)
• “The Sun, Not the Rain, Tipped the U.K. Vote” (Bloomberg View)

Investing

• “What Not to Do When Investing” (Livemint)
• “A Cheat Sheet for Understanding the Different Schools of Economics” (Pragmatic Capitalism)
• “McKinsey’s Secret $5bn Fund in Spotlight” (Financial Times)
• “Zeno’s Paradox” (Janus Capital Group)
• “Global Wealth Report 2015” (Credit Suisse)
• “A Ding-Dong in Delaware” (Financial Times)

Fintech

• “New Fintech Companies Drawing Interest from Investors and Customers Alike” (The Economic Times)
• “Perils of Greed in Peer-to-Peer Marketplaces; India Must Enforce Stringent Business Discipline” (The Financial Express)
• “Cracks Are Appearing in Fintech Lenders” (Financial Times)
• “Populists and Productivity” (Project Syndicate)
• “Big Banks Are Fighting Robo Advisors Head On” (CNBC)

Light Reading

• “Tread Softly on Our Dreams: Advertising Must Protect Consumers from Profiteering” (The Economic Times)
• “A Cheat Sheet for Understanding the Different Schools of Economics” (Pragmatic Capitalism)
• “What It Means to Be Financially Literate” (Livemint)
• “Euro Cup 16: You Must Be Daft to Think England’s Defeat to Iceland Was a Shocker” (The Economic Times)
• And last but not least, a close-up of the planet Mercury via @skyponderer.

Close up 360 of Mercury from MESSENGER, the only object ever to orbit it #astronomy #space pic.twitter.com/ekv11nqMJs

— ★ ☾olin Stuart (@skyponderer) May 27, 2016

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©iStockphoto.com/oztasbc