For thirty years, I have been following the machinery of banks, insurance companies and investment companies. Traditional views show that a positive, trusted attitude leads to success in life. We were taught from a young age that assuming the best people usually work well. This approach is very admirable in most human interactions when buying financial products.
This reveals an uncomfortable fact: You should start every financial transaction with distrust and suspicion. This is not a pleasant suggestion. It is the opposite of our natural tendencies. This is the only safe way to do it as countless well-intentioned savers throw their hard money to smooth brochures and smooth speech agents.
Why are financial services different? Because, unlike almost every other purchase, everything here is money – your money goes in and their money comes out. When you buy a car, you exchange currency for tangible benefits: shipping, comfort, maybe state. Both sides can win. Automakers make money and you get a vehicle that meets your needs.
Financial services operate differently. They are fundamentally zero and zero. The provider withdraws less per rupees (whether it is administrative expenses, processing expenses, commissions or hidden expenses) in your rate of return. Every bonus paid to the relationship manager, every Rs paid to the influencer, comes directly from the money you entrust them.
This principle is more obvious than in the cryptocurrency world. The crypto industry may represent the purest distillation of modern financial misleading. Deprived of technical terms and revolutionary rhetoric, and what remains is a classic mechanism of wealth transfer, not as claimed by the rich to the masses, but predictably, from the uninformed to those with good figures.
When someone is excited about the potential of blockchain’s “democratic finance”, they rarely mention that early adopters and insiders have positioned themselves as a substantial benefit from large-scale adoption. Regular retail investors entering the cryptocurrency space did not participate in the revolution. They provide liquidity for others’ exit strategies. The zero-sum nature of financial services has reached its deification in the cryptocurrency market, without even the pretense of producing assets.
This does not mean that all financial products are bad, or that every consultant is dishonest. Many people offer real value. But the incentive structure is inherently problematic. Objectivity becomes the first casualty when it is recommended that you earn more income by turning you to certain products.
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In India, this issue is magnified by regulatory frameworks that, in fact, often prefer institutions more than institutions. Considering nearly all insurance products (except for regular plans), it will continue to be actively sold despite the poor performance of most investors. Or when market sentiment peaks, there are precisely launching many innovative mutual fund programs designed to capture your money at the worst time.
The concept is very simple: instead of predicting which stocks will soar, focus first on eliminating stocks with red flags. Often, it is much easier to determine what might be wrong than predicting something that will be great. Similarly, elimination is your most powerful tool when choosing a financial service. First eliminate products with red flags: high costs, complex structures or inconsistent incentives.
Unfortunately, we hear the exact opposite. When one looks at the market for savings and investment products today and sees the portfolios people gather, it is clear that people are in a desperate need for self-awareness and aggressive minimalism.
How do you protect yourself in this environment?
First, educate yourself through independent sources. Read books and columns that don’t try to sell you anything. Secondly, make decisions independently without the pressure of sales and sales. Third, embrace it simple. Simplicity is best for your goals because you always know what is happening and why.
When it works, you can understand why and do more, and when it doesn’t, you can figure out why not. Will this approach feel cynical? Maybe. But on financial issues, healthy suspicion is not cynicism, but self-protection. Think of it as a defensive driving for your money. You may usually trust other drivers, but you still check the mirror and keep a safe distance.
So the next time someone provides you with “a lifetime investment opportunity”, insurance policies that “guaranteed” the market challenge returns, or cryptocurrencies that “cannot fail”, remember: in financial services, trust, but insufficient verification. Verify, then verify again, then consider trust-maybe.
Your financial well-being does not depend on finding the perfect consultant, but rather on developing intellectual self-reliance to discover when it won’t add up. In this industry, information asymmetry is the norm, and regulations often lag behind innovations in extracting wealth, assuming that the worst is not pessimism, it is prudent.
Dhirendra Kumar is the founder and CEO of Value Research, an independent investment research firm.
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