Role of Intermediary in Investing

Given the latest regulator rulings on intermediary compensation, many people are envisaging the move to direct investing or an advisory fee based model.
While these models will continue to evolve, there would continue to be a role for intermediaries in investing for two reasons

• Unlike buying products online where you can compare one tangible versus another, investing requires an estimation of what the future of the product would be like. This requires expertise.
• Given sub 5% penetration levels of equity and mutual funds in India, there is a large role of education and expertise needed by investors; especially new to investing/novice investors and those who do not have much time or bandwidth to look after their investments

Investors today exist in different psyches:

1.   Delegator- one who wants to delegate all his investing decisions to an expert. Typically a mutual fund, PMS investor
2.  Validator- one who will take his own decisions but needs advice from an expert to validate. Typically a long term stock market/mutual fund investor
3.  Self Directed - one who does his own research, takes his own decisions and trades; typically in short term stock market trades

 There is a role that an intermediary would play ;atleast for the first two audiences:

1.  Choice – An intermediary helps you choose from a plethora of investing options ( there are thousands of stocks and mutual funds to choose from) based on your profile and investing goal
2.   Conviction- He has the knowledge and experience . hence when he suggests an investing idea, he can do so with conviction. This conviction is what many times helps you take the decision.
3.  Counselling- during times of market volatility, a financial advisor can counsel you to be disciplined about investing (and not give into the emotions of greed and fear)
4. Consolidation- all your various investments ( various mutual funds, stocks, insurance etc) can be consolidated and tracked in one place by the intermediary who can provide you timely alerts for course correction etc
5. 
   

Here's a 5 minute  video we have made on role of intermediary in investing