Financial Pornography is not your Value Proposition

Amar Pandit , CFA , CFP

Amar Pandit

A respected entrepreneur with 25+ years of Experience, Amar Pandit is the Founder of several companies that are making a Happy difference in the lives of people. He is currently the Founder of Happyness Factory, a world-class online investment & goal-based financial planning platform through which he aims to help every Indian family save and invest wisely. He is very passionate about spreading financial literacy and is the author of 4 bestselling books (+ 2 more to release in 2020), 8 Sketch Books, Board Game and 700 + columns.

January 3, 2020 | 7 Minute Read

“Amar, are you insane?!” is what some of you might think but the many people that I have spoken to about this appreciate the viewpoint. So before making any judgements, keep an open mind and read ahead.

First things first and so let’s start with the definition of Financial Pornography.

Like most people who just like to Google everything, search for the term “Financial Pornography” and you will be surprised to see a lot of content written on this. Let me share a definition shared on bogleheads.com by Taylor Larrimore:

Financial Porn

A slang term used to describe sensationalist reports of financial news and products causing irrational buying that can be detrimental to investors’ financial health. Short-term focus by the media on a financial topic can create excitement that does little to help investors make smart, long-term financial decisions, and in many cases clouds investors’ decision-making ability.

Notes:

Expanded media coverage, specifically the advent of 24-hour cable news networks and the internet and the tools it has provided the financial industry, has led to a large increase in financial porn.

Examples of financial porn include constant advertisements of easy-to-use trading-strategy products that purport to turn minimal investments into small fortunes, media coverage of the latest and greatest sector trends and magazines with front pages that claim to have the next 10-must-own mutual funds of next year. Many of these products and ideas expose investors to great risks posed by both the movement of the market and the risk of fraud.

The term was first coined by Emmy-winning Jane Bryant Quinn who is an American personal-finance journalist.

Another one was brilliantly phrased “To paraphrase a famous quote from Supreme Court Justice Potter Stewart: I don’t know how to define financial pornography but I know it when I see it.” 

Now enough about the definitions and I am sure you have understood what it actually means.

Your role as an IFA is to protect your client from the effects of Financial Pornography. The effects can be excessive trading, worrying about the markets (losing sleep and health), making irrational calls on investing, unable to manage Greed & Fear and countless costly mistakes.

A lot of IFAs that I have come across think that their value proposition is the following:

  1. Choosing the Best Mutual Fund
  2. Beating the market
  3. Talking about complex things like Alpha, Beta and then Gamma, Delta and what not. Some of these folks are only interested in sounding intelligent. You don’t need to show off your technical skills. Clients assume you have it….
  4. Making Complex so-called research reports and confusing the hell out of everyone.

Imagine you have gone to meet a doctor, lawyer or any professional. Does the doctor start to talk about himself that I have done 15000 surgeries, I use the Johnson & Johnson stent, I know this, I have won this award and that?  What would you think of this doctor?

Now visualize and think how do you start our conversations?

The key point that you have to understand is – Your role is not to join the stupid bandwagon of Financial Porn and tout that “Only you can Beat the Market” or “You can choose the Market Beating Mutual Fund” or “You will get Clients out before the next Market Fall.” 

Your role is to speak the truth as it is. Even if it means the prospect does not work with you. Yes, I know it is difficult, very difficult. However, what has to be done has to be done

Here is a sketch of what I believe a World-Class IFA does for his clients. I call him the HappyRich Advisor who is helping his clients in a completely different manner.

Your value proposition to your client is very simple

  • Get them to think about what’s important to them and set meaningful goals (If there are many goals, help them prioritize it.
  • Help them save as much as they can while helping them live the lifestyle that they desire or is realistically possible. Saving is the bedrock of wealth creation and helping a client figure out his number and help him save is one of your most important roles.
  • Help them Invest and guide them to be disciplined about their investments.
  • Help them avoid costly mistakes and counsel them whenever they need guidance.

After all your clients are looking at you for this one SIMPLE ANSWER “Am I doing OK?”

I hope you loved this post. Feel free to share it with your fellow IFA colleagues and friends. 

My objective here is to add real value to as many IFAs as possible and help you build the wealth management firm of the future. Let me know your thoughts and if there any topics that you would like me to cover.