Episode 23: The only way to master your future is to invest in yourself.
Bachir Siam comes with an impressive resume.
He is highly qualified (CPA, CISA, CTP) and has spent the past many years climbing the corporate ladder in finance at Andersen, Motorola, PepsiCo and now Mindshare. We reconnected after 19 years (!) and it immediately struck me that over and above his experience (and unlike many people), he had introspected deeply on his life so far. I lost no time and interviewed him, focusing on his frank and practical insights on the importance of certifications, the other side of “glamorous” careers, career tips, common mistakes people make in personal finance, the risk of dealing with so-called “independent financial advisors” and how to aim for financial freedom.
We are ex-colleagues in the same age bracket and more importantly, share similar experiences and views so I had a blast talking to him. I hope you do too listening.
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Binod Shankar:
This is Binod Shankar and you’re listening to the real finance mentor podcast from the realfinancementor.com. The real finance mentor is your go-to resource for insight and inspiration on careers in finance, CFA and more. Now you might think, why this podcast? Well, my goal is to deliver insight and inspiration for your financial career, by making it, one: relatable. I mean this is not theoretical stuff. We zero-in on the critical, practical issues. Number two: authentic. No bullshit, no side-stepping. The topics, guests and questions are all from that perspective. And number three: insightful. Take a Chartered accountant and a CFA charter holder, add 17-plus years as a corporate warrior, mix in 10-plus years of entrepreneurship, throw in a decade of full time CFA training. Add speaking, mentoring, cycling, mountaineering and other endurance activities, and that’s me! Welcome to The Real Finance Mentor, or as I call it: RFM.
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Binod Shankar
This is Binod Shankar and you’re listening to the real finance mentor podcast from the realfinancemnetor.com. The real finance mentor is your go-to resource for insight and inspiration on careers in finance, CFA and more. Now you might think, why this podcast? Well, my goal is to deliver insight and inspiration for your financial career, by making it, one: relatable. I mean this is not theoretical stuff. We zero-in on the critical, practical issues. Number two: authentic. No bullshit, no side-stepping. The topics, guests and questions are all from that perspective. And number three: insightful. Take a Chartered accountant and a CFA charter holder, add 17-plus years as a corporate warrior, mix in 10-plus years of entrepreneurship, throw in a decade of full time CFA training. Add speaking, mentoring, cycling, mountaineering and other endurance activities, and that’s me! Welcome to The Real Finance Mentor, or as I call it: RFM.
Binod Shankar:
Hi everyone, this is Binod Shankar here the real finance mentor, with yet another episode of The Real finance mentor podcast series. The session is basically for anyone who wants to get insight and inspiration on your careers, especially careers in finance. So as usual, we have a guest who will bring on board lots of experience and expertise.
Someone I've known for quite a long while actually, and very glad to reunite with. My guest is Bachir Siam. His first job after college, long ago, was with Deloitte. While he was studying for CPA exams, he received an offer from Arthur Andersen, which was then ‘The audit firm’ to work for, until of course, the unfortunate Enron collapse. In fact, it's at Anderson that I met Bashir, nearly two decades ago, and we all woke up one day as EY employees as the Arthur Andersen practice was taken over by EY, across many markets globally. After leaving EY, he has worked in several global businesses such as Motorola, in the capacity of finance and shared service manager, with PepsiCo as finance director, at Mindshare as regional CFO, until his latest role as group CFO for the MENA region.
He is quite well-qualified as well. He holds a master's degree in finance. He is a CPA holder; he is a certified Treasury professional; he is the holder of the Certified Information Systems auditor qualification as well. He also has the Diploma in IFRS from ACCA, and in 2005 he completed an executive education program in mergers, acquisitions andrestructuring from Harvard Business School.
Beyond his career- he enjoys teaching (he) used to lecture on a part time basis at American University in Dubai, and has also helped prepare students for the CPA, IFRS, CMA etc. So, a man with a lot of experience, which I'm very keen that he shares with us today on the podcast. So, welcome on board, Bachir.
Bachir Siam:
Thank you very much, Binod. Thank you for the long introduction.
Binod Shankar
Well, you deserve the long introduction. Because unlike a lot of my candidates who are two/five years into their career, you are a veteran. So, there is a lot to talk about, fortunately. Now, Bachir, we’re incredibly talking for the first time in nearly two decades! The last time I met you was probably at some Andersen event, maybe at some iftar or something in 2001 or 2002, before it all broke up and then we lost touch. And of course, recently, we connected, thanks to LinkedIn. You reached out and I'm so glad you did. And that's why we're having this interview. So, what prompted you to reach out?
Bachir Siam
Yeah, after 20 years, a lot of gray hair in these 20 years from both sides of the aisle.
Well, definitely love the question. First of all, it's been 20 years and throughout the 20 years, a lot of stuff happened, as you know. Frankly, I think one of the things that during the 20 years I did not really do well is to stay in touch with my friends enough, with my colleagues and the network. And you know, in your career your network is very important, basically. So, reflecting back on the past 20 years, definitely one of the decisions I've made that- definitely to spend more time with my friends and network, maybe you would call it the midlife crisis, or something else. But frankly, I've been trying to find time to spend more time with friends and colleagues. The collective wisdom you get from friends and colleagues is invaluable, frankly.
And beyond this, I've been following you on LinkedIn and I would like to thank you frankly, for the genuine and authentic, quality stuff you find on your LinkedIn. You feel that this is not commercial, it's meant really to help people advance, and make the best in their career, which is basically very important, right?
And I'm just going to share something with the audience. I've known, Binod from Arthur Andersen almost 20 years ago. You don't get to the top without hard work. I'm going to share his story. I remember, one day I was really swamped in one hell of a consolidation till beyond midnight, at the office. And I was getting help from my colleagues to get the ball rolling. I was pretty exhausted, came back early the following day to really wrap up the file and give it to the lead on the business. And ironically, I found Binod sitting on the same chair the following morning. So basically, you don't get to the top of the mountain by; you do not helicopter to the top of the mountain. One of the things is, there's a lot of hard work to be done. Also, I think, as you start your career, some people try to cut corners sometimes. But you know, in your heart, you know, if you really want to have sustainable success, a lot of hard work will go into whatever you do.
Binod Shankar:
Absolutely, Bachir. In fact, I think all of us look back to those days in the Big Four, whether it is PwC, or any other firm, or Andersen- with pride! Because that built our foundation in terms of discipline, and focus and work ethic, and commitment. And we may have hated it on those days, sitting late nights and doing audits and analytics. But that helps a lot in terms of career, life, health, going forward, and even education.
Talking about education, Bachir, you're a Certified Public Accountant (CPA), and in the recent conversation, I discovered that you’re also a Certified Information System Auditor (CISA), which is actually quite a tough qualification (as I know from talking to my friends), and also a Certified Treasury Professional (CTP). So, for the listeners who are mostly youngsters (at the) early stage of their career, trying to build a career and looking at various qualifications, I've got two questions for you:
1) How exactly have these qualifications helped you in your career?
Bachir Siam
Yeah, I think, tremendously! And I'm going to be factual basically, this is not to tout or promote any; I don't get any money from promoting any of the certifications, but let me be very frank. First, you need to really believe in your education, in your lifetime education. Whatever you learn from the university, a few years after graduation, in today's fast-paced world, will be totally the basics and not enough really to ascend in your job. So, if I want to answer this right from the start:
1) You will get more interviews. Personally, I can witness for that. I got a couple of interviews only, or the main trigger was the fact that I was certified. And the interviews open doors.
2) Beyond the interviews, it gives you the framework, a clear path, a compass, of what are the best practices, and what is really top-notch standards, processes and so on- how you should do your job, against which you can benchmark yourself.
So, effectively, it helps you get interviewed, it helps you really do a good job, it helps you get promoted and so on. But you all should not forget that it's one of the puzzles; you need to keep on investing (in) yourself even beyond certification- from an emotional-intelligence perspective, from a management perspective and so on.
If I go back to even credibly, and, factually, I recall an instance where when I started with PepsiCo, one of the areas that I was interested with was quite technical, like U.S. G.A.A.P. and tax accounting, which is a quite technical for many candidates. In fact, I think, I really hated it. When I studied for my CPA, I never was expecting that this will be a main area that I will be interested with. But the fact that I had the certification, it gave me the starting point and I was able to hit the ground running, which really creates a very positive perception and so on. So, no doubt about it.
3) I also advise the candidates to start early, get the certification early, because obviously, the return on investment over your lifetime career will be much better. Remember also, as we get older, especially for the for the ones of us, who will have a family- time will be more scarce, will be more challenging, you will have less energy and so on. So definitely if you start early, it’s better.
And also look at it as “What is the next step for me to excel in my career?” So, for example, in my case, when I progressed in my career, one of the areas of my job was to get involved in acquisition and valuation. I decided, for example, to do one more certification which is the CVA. So, don't only just go for a certification, but also try to tailor the certification that will really give you the edge you need in your area. You don't want to be the generalist; in some areas, you want to be really the master, (so) that people look for you. So, also keep on building your education. General information is good, but in few key areas, you need to be really like crème de la creme. So, frankly, the return on investment is amazing. Get it, get your certification early, and then build on that, and you will benefit from that certification over probably 40 years.
Binod Shankar
Exactly. I liked the point about choosing the right qualification or certification for your career, rather than just picking the most popular or most favored one that your friends talk about; and also, not collecting badges. A lot of people just collect certifications, and put it up on their resume or LinkedIn profile without regard to specific relevance in their career. And also, I see a lot of my students (when I was teaching for my CFA) also starting studying for the certification too late. By the time they finish it, (it is) like mid-30s. In the mid-30s, you can't do much with the qualification, because then what counts (is your) experience. Not so much- your initial qualification.
Bachir Siam
Yeah. And that is an important point, I think, worth mentioning. Your employer will not pay you more because you get the certification, you need to apply the knowledge. Never mistake the fact that “I have on my wall 10 certifications; they are going to increase my salary.” Applied knowledge is what counts in life. “How are you going to apply it and make the company more profitable and add value?” Never forget the difference between knowledge and applied knowledge!
Binod Shankar
Absolutely. That's one thing. Upskilling and employability is so critical. Thank you so much for raising that. My second question, Bachir, regarding that was, of course, why do you think a youngster should, if at all, consider any or some of these qualifications like CVA, or CTP, or CPA, or CISA?
Bachir Siam
Frankly, maybe I can explain it in a way that will resonate with everyone listening to us. The ROI- Return on Investment. Frankly, if you look at the effort, the time, and the money you would invest in professional certification like the CFA, or the CPA, it's a no brainer. The potential that it will give you, the knowledge, the potential of getting higher the promotion. The ability of freely (ascend) in your job versus the energy you put in and the money, it's a no brainer.
And I would say, if you would really compare it with some of the masters or the MBAs, the return on investment will be higher. So, the evidence is overwhelming, even if you look at the statistics of people with a certification as with no certification. And this is, as I said earlier, “An investment that will yield returns over 40 years, perhaps more.” So, this is very important. And you might lose your job, but no one will take your certification from you. This is something that will serve you for the rest of your life. So it's a no brainer, frankly.
Binod Shankar
I like the last one, Bachir.Certification is almost like a safety net. It's your guarantee. It doesn't matter where you're working, who’re you working for. Now let's switch tacks and change gears and talk about something that both of us have experienced, and you're still experiencing, which is- ‘corporate life’. We are both at a higher level. And most people don't realize that senior corporate positions are not as sexy as they look. All they see and dream about, are the high-profile brand, fancy job title, good pay, lavish perks, living in Jumeirah islands, etc., etc. But you've been there, and I'm sure there are several downsides that you probably have experienced and are hence frustrated with. Tell us three aspects that you would rather do without in corporate life.
Bachir Siam
Yeah, so, as a rule of thumb in life, “You can't have it all.” I mean, you work in a company, in an amazing brand, it's a talent magnet, you got a lot of perks, and so on. But generally, there are three-four challenges you will face in any large company and starting with number one bureaucracy. I said, “There is a direct correlation between the size of the company and the likelihoods of having a bureaucracy.
In Simple English, if you need to steer a large ship, it takes a long distance to steer a large ship. as simply as this. Bureaucracies with stifle innovation, will demotivate people, will delay decision making, and the flow of information between the customer and the decision maker basically becomes riddled with bottlenecks, and so on. So, the people that need to make the decisions are really separated. So, bureaucracy is a real challenge that all large organizations face and few were able, really, to sort that out, if you want, drastically.
Another element- passion. I mean, working on your business or your own gig is automatically something you have a passion for. Because, otherwise, you wouldn't do it, unless it's something you were passionate about. And again, in a large business, you can’t pick and choose. There will be a large piece of the puzzle or assignments you're entrustedwith; you need to get it done with. You might even not be convinced with the strategy, or the priorities for the next one or two years, but “the hell”, you need to get it done. In any company, if you try to really steer against the strategy, you will be standing on the tracks of a train. You can debate as much as you want, but you need to stick to that.
So, passion- it's not something as easy to any large organization to have, versus a smaller business. And also, the element that also you will face in the corporate world, let's not forget that you are rewarded. You get your salary and your bonuses based on your time and your energy. So, it's a clear equation- you invest your time and your effort, you are rewarded.
So, when you leave, or you retire, or you're let go, the music stops. So, it's not like when you incorporate your business or you start your own gig, the sky is the limit in terms of earnings and so on. You should never forget, that as a business, you are easily replaceable. And I'm going to share an example that we tend to forget.Steve Jobs is probably one of the most iconic inventors and CEOs that the world has; we tend to forget that even Steve Jobs in 1985 was let go by Apple. So, never confuse the difference between your own business and the company. Obviously, you need to be passionate to grow in your career.
But these three challenges, I think: bureaucracy, a lack of passion as well, and the difference between the salary and the equity on the long run are key elements that separates and make it more challenging between a large business and a small business.
Binod Shankar
No, absolutely. Bachir. I think we talked about that earlier, during our calls, I think, if you want significant financial freedom, and even just significant operational freedom, corporate life is probably not the place you should look for. If you want to be financially independent and retire early, for example, you're not going to be able to do that properly when working in corporate for various reasons. So, we talked about the things you don't like, but of course, as a result of all this, you must have learned a lot of lessons, and matured a lot since entering the workplace. So, from your experience, what are the five important realities of the corporate world that you think every young finance professional must know before they enter the workplace?
Bachir Siam
Yeah, we learned a lot and we will keep on learning. Obviously, as you know, (in) life, every step on the ladder is a new experience. Some of the things that I've learned (and sometimes really the hard way) is, if I go back to what we were talking about:
1) The professional certification: Many candidates tend to forget that you will not get promoted purely on your certification, you need to bring value to the business. And in many cases, as you grow in your career, your managerial, your emotional intelligence will count for more, to get promoted. Your ability to lead people, your passion for the business; if you're calm and collected (and) can manage crisis, if you're genuine with people, you try to coach people, you have a reputation, people want to work for you because you coach them. These are traits that will help you get promoted.
2) So, obviously, if you look at CFOs, of even very large organizations, they will tell you the technical part is the hygiene, it's a must have. You need to know the technical part. But as you start managing hundreds of people right, your many candidates tend to forget the soft side, which is as important. And let's not forget that ultimately, if you have someone who is not able to work with people and collaborate, even if technically very good, is not going to really progress in his career. So, this is a critical element.
3) You need to understand the business’s ins-and-outs. So, if you work in an industry, really try to understand every single detail you can get your hands on. So, who are your customers, what the customers knows, the supply chain, the innovation, the competitors? If you compare your company with the rest of the pack- with the competition, which key areas and issues are important, which one are important for the investors and so on. So, if you're looking (at), for example, an airline company, you need to always focus on the asset utilization, how many hours these airplanes are flying, and so on. The more you understand the business, the more value you could add, and you would also in-between, as you create value, get promoted. Keep in your mind that you don't work in the finance function, per se, you'll work in the company and your job is to help the company manage its finances. So, embrace the industry you work for. This is, I think, something very important. And it will show; if you love the industry, it will also show.
4) Another area is: any(thing) unique, to be watchful for the trends. So, nowadays, for instance, digitization is impacting every function in a company- turning the business digital. Even in finance, we're automating a lot of processes. Like, payment is almost automated to a large scale and so on. So, always keep a close watch on the trends on the disruption. And you need to understand this innovation because artificial intelligence is not anymore something that will impact us in the next century. Artificial intelligence (will impact us) in the next couple of years. So, you need to be watchful for this. And frankly, some people are losing their jobs because of these trends. To the contrary, some people who are embracing these technologies are really benefiting from that.
5) I think another force element is (also, I have learned, and I haven't excelled in this early) you build your network. Keep on building your network of friends and colleagues. Ultimately, how many people will work all their career under one employer nowadays? I would say the minority of the minority. It's very rare. A long time ago, (when) you used to join the company and they used to leave a golden watch for you in the safe, you were supposed to pick it up on your retirement; these days are way gone now. So, keep on building your networks, and your networks will really help you. Personally, I have received, frankly, more employment opportunities through my network versus head hunters. So, keep that in mind. And don't wait for the day you need your network, to start building it; this is a big mistake. So, this is something key.
6) And also, another element, (and I really loved this) -never burn bridges. Let me explain this. In a corporate world, it's even healthy to debate. In a company who has a ‘yes sir’ culture, (it) will be difficult to innovate and progress. So, as you debate with your boss, as you debate even at the board level, and as you debate accordingly, don't confuse the message you're debating with the messenger, don't attack the messenger. Never burn the bridges, because that means that (the) person you're debating with could be your boss tomorrow, is even your boss today. And life is a circle. Always be tactful, always use emotional intelligence and grow this relationship.
Again, as we said a few minutes back, “It's very important to invest in your emotional intelligence, and keep in mind that you are on the same ship with your colleagues, never steer the conversation to a personal direction.”
I want to share an experience that, frankly, I've seen even by very senior people, and they get it wrong. When you're emotionally under stress, don't take major decisions, avoid to make major decisions. How many people end up sending that nasty email and then regretting it the following day? We all did. So, we try to learn as well. When your emotions are pretty high, keep that email in the draft; and sometimes the following morning, you realize that even the problem has been solved. So, keep in mind that your colleagues and you are on the same ship, never really create fictional issues beyond only debating the subject, never get into personal (debates).
I think these are some of the lessons that I've seen in practice; some people excel in them and some people pay the price.
Binod Shankar
I mean, I think, this: last five minutes of what you just said, that should be printed and bound into your book and given every new guy who joins. Because I wish I had known this 20 years ago, and I'm sure you wish you had known this 20 years ago. I wish someone had told us 20 years ago; better late than never! But like you said, technical skills and qualifications are the hygiene factor; what really counts over and above that is the relationships and managing people and a network. That's what will take you places. I can connect, especially, with the last two points you mentioned: building networks and burning bridges. Because I don't think I have been brilliant at either of those two things.
But anyway, lessons are always useful. At least we can share our wisdom with the youngsters listening to this podcast. It will benefit the upcoming generation of finance professionals.
Changing gears again, let's talk about something that is very dear to you (I know), and very, very close to my heart as well. So, this is financial literacy, Bachir, and we have talked about financial literacy quite a few times on the long call that we had a few weeks ago, catching up. Now financial literacy is a topic that you're passionate about.
You see and hear people Bachir everywhere, struggling with their personal finances. Even here, in the UAE, where you don't have poverty levels, or huge inequalities or things like that. You see people unable to afford quality education, or quality health care, or struggling with debt, or being able to afford a retirement. So, from what you have seen (and I'm sure you have experienced and you've seen a lot, among your friends/colleagues as well, and so do I), what are the top five mistakes that people keep making, that damages their long-term, financial well-being?
Bachir Siam
So, a lot, and frankly, especially (everywhere) in this part of the world, because, here we don't have a lot of safety nets. If you live in Paris, and if you lose your job, you could have a two-year unemployment coverage, you have also medical coverage, you also have the retirement (coverage). Here, if you really don't muster your personal finance well, you don't have a safety net. Also like everywhere, our education- there is a big difference between doing a business degree and knowing how to manage your personal finance.
So, some of these, starting with the first one- actually, it's financial education. Our educational system back in school or university, very few people had a proper personal financial education to benefit from and it's compounded by the fact that (and it's funny) you see sometimes people spending long hours, or sometimes weeks, before purchasing a trip right before going on vacation. They spend weeks and the trip is just a couple of $1,000 (Binod: or buying a TV). Yeah, a lot of stuff. I don't want to talk about the car because the car you would even visit the showroom couple of times and so on. But then when it comes to choosing where to invest for your retirement, they don't get the education. So, they trust the salesman.
We all heard that be careful of the used car salesman. But what about you trusting your retirement, which is super important, and you're virtually naked, because you did not learn the basics? So, I would really urge everyone, seek a personal finance education first before you venture. Because what you don't know in personal finance is not a bliss! What you don't know in personal finance will cost you money. We all make mistakes, and I've done tons of mistakes. Try to learn from others; try to read; there are plenty of books, be it beginner, intermediate or advanced. And definitely, it's a must.
Another element is procrastination. So, people, they don't want to save today, they want to save tomorrow, “We still have time and so on.” But frankly, the human nature, the more you procrastinate, the harder it will be for you at a later stage. You will have to save more. Some people, to make up for the time, they take more risks, which also turns up ugly as well. So, start slow, I mean, you could start by saving five to 10%. And then as your financial education (increases) and you're more comfortable even emotionally, you pick it up, but start as early as you can. And also in the stock market, the compounding effect! If you start five to 10 years earlier, the difference will not be 10 to 20%, (it) could be virtually the double, and this is not an opinion, these are mathematical calculations.
Another thing is, basically, another key element, where I believe people go wrong is they mistake the insurance broker or the salesman selling them a bond or mutual fund, for an independent wealth advisor. That's a big difference! One is trying to sell you a product that’s most likely to earn a commission, and the other is your fiduciary, who is entrusted to give you a product that is only good for you. So, I would advise anyone andthis is a golden question is to ask whoever is trying to sell you a product- how does he make money? If that person makes a clear commission on the product. So, keep in your mind that ultimately that person has a vested interest in selling the product that attracts the highest commission for him, not necessarily for you.
So, another mistake: also, some people buy an investment product from an insurance company. Generally, this is not the most ideal. When you have an ache in your tooth, you don't go to the to the ER because you want to test your kidney. It’s (a) totally different product. So, the insurance generally should go to the insurance broker. So, always keep in mind that the financial advisor, most of them are unfortunately salesman, and very few- they have your best interests at heart.
Another, fourth element, very common- lack of diversification! I mean, we all heard the famous saying from Warren Buffett, “Don't test the river with both feet.” You want to test the river. However, if you look around us, how many people fail to diversify! And I can personally talk about it. I have a lot of friends who unfortunately got stuck in Lebanon with the recent economic downturn, and they had a large part of their wealth in one country. So, diversification across several geographies, several classes of assets is so important. I say, “Diversification is probably a free lunch. You don't pay for it, but it's so Important, you need to diversify your investments as much as you can”, and this is a golden rule, actually!
Fifth Element, another element also is falling prey to scams. Every week, I receive a call either someone trying to sell me a new kind of revolutionary cryptocurrency, or any new kind of gold hedge that is linked to the oil (or exotic stuff). We should never forget the difference between an investment and speculation. You really want to put at risk, your hard-earned savings during years, that you need for your retirement, and speculate?
So, I’ll gives you a typical example: for people who want to give it a try, it's fine to invest like 5% of your savings, or your net worth, in risky assets, that's fine. But the people who call you for these unbelievable investments, keep in your mind that when it's too good to be true, generally, it is the case. And go back to your financial education; ask your friends, and so on. Do your homework, otherwise, again, in personal finance, ignorance is not a bliss, you will pay a real price for this. Also, what I found, also very frequent is, (and you're not going to believe me most probably) but a lot of people end up by buying high and selling low. You would say, “Why the hell you will do that?” But (in) reality; our emotion, in many cases make the best out of us. We feel the hype of investments going up, the individual investors feel hype, they ended up buying as the valuations go up, and then when the stock market crashes, there is a panic, and they sell. Keep in mind, by the time your hairdresser is talking about it, it is definitely time to exit the market. So, it is definitely something that we see, very pervasive.
So, beyond this, I would say, also, I'm a big fan of passive investing. Invest in index funds; it's proven that very, very few actively managed funds are able to beat the market in the long run. So, if you buy an index fund, like the S&P 500, from BlackRock or from Vanguard, you would pay 0.15%. If you buy an actively managed fund, you could pay even more than 2%! So that fund, actively managed, needs to make up for the fee differential, for any taxation differential and so on. And statistically, there is only very, very few funds that can beat. So, again, invest the core of your wealth in index funds. And then if you want to speculate, invest in the rest 5-10%.
But we tend to forget this, as a human, we think that trainingcouple of days, we can go and win the marathon. I mean, what are the odds for me, an individual, who has no research team, to beat the professional investors?. So, it's quite sad that we see people are being sold mutual funds; for a primary reason, because the commission that the salesman makes on these actively managed funds is way higher than your index funds as well. And so, people fall into them. So, these are very common, but unfortunately, very painful as well to individual investors.
Binod Shankar
So yeah, I mean, that's interesting, quite insightful. So just to summarize your top points regarding what people should do to build their financial wealth:
1) Have financial education
2) Don't procrastinate
3) Don't mistake a stockbroker, or insurance broker with an independent financial adviser
4) Diversify, and don’t fall prey to financial scams, speculative investments.
5) Don't buy high and sell low, as opposed to buying low and selling high. And, of course,
6) Select mutual funds based on historical data as a basis for portfolio allocation.
Now, we've talked about something else, (both of us are quite furious about)- the often-destructive effect of some of the so-called independent financial advisors in the UAE. We have been here for nearly two decades, both of us, and we have seen most of them in action. You have been on the receiving end of a few of this.
Tell me four ways in which these guys, these independent financial advisors rip off unsuspecting clients via unethical and wealth destroying practices, and more importantly, how can consumers protect themselves from these unscrupulous operators?
Bachir Siam
It's unfortunately the case. It's interesting, if I'm a business graduate and I already have worked in accounting and finance, and I was at several instances, especially at the beginning of my career, buying products that were clearly crippled with fees, direct or indirect, or not really suited for my age and so on. So, what would you leave for instance to the teacher in the school? What would you leave, for example, for the engineer, or for the doctor? So, this is a problem that some of the advice that is given, is given by a salesman. So, a very common issue we face is the amount of disclosure they should make is not sufficient. So, starting with direct and indirect fees. I mean, who has the time to read the mutual fund or the bond prospectus? Or who will do it? Even there is so much caveats and legal terminology that even you will go nowhere, if you try to read it. You have entry loads, you have the management fees. Even there is a bonus that is being paid to your salesman, to whoever is selling it, and this will come out of your pocket. So, this guy’s BMW is coming from your own pocket. Don't forget about that. He’s not your best friend. So, effectively, the disclosure about the five or 10 kind of fees, and there are a lot to keep in mind.
Also, a key element is how long you are locked in? Myself, luckily, I was stuck for five years, but I have friends who were stuck for 10 or 15 years. So, this is not disclosed sufficiently. So, some people who bought an investments/insurance policy, found themselves that:
1) Their investment is underperforming visa via their benchmark, and,
2) When they try to get out, they realize that the penalty is humongous, they will lose 50-60% of the money and so on.
So, I mean, are you really explaining to the buyer, telling him the impact of him having to cancel the policy, earlier? And in life, many things change over your lifespan. People get married, people will have different family priorities, and so on. So, keeping someone handcuffed in a policy for 10 years or 15 years, and really charging him unbelievable charges to get out that are unfair, we see this very, very often.
Another element is comparing apples with oranges. So, that advisor will compare the product that is being offered to a benchmark or index, that is not comparable, number one, from a risk perspective. So obviously, if you offer me a very risky product, and you tell me the return on investment is as safe as a treasury bond, it's definitely not comparable. So, for people again, we go back to financial education, who are not savvy.
I mean, they will send them couple of charts and show that the investment is over performing. But God knows how this benchmark was calculated; and also, they intentionally sometimes omit to factor in the calculation- the fees, the fees that will come out of your pocket, the many fees that we spoke about. I read something recently and really that strikes a chord. Wall street, they want you to believe that they are making money for you, but in there, in reality, they are making money from you. So, in reality, never forget that ultimately, most of the advisors are not independent, like an independent auditor. Ultimately, they are in the business of making money.
So, we see this very often, in many countries. And unfortunately, in this part of the world, as we said at the beginning, “You don't have a safety net, you don't have a pension, you don't have unemployment coverage.” So, these investments, if you get them wrong, you're on the hook.
Binod Shankar
How can people protect themselves from these multiple unethical practices? How can they defend themselves, Bachir?
Bachir Siam
I think number one is awareness. And we go back to financial education. So, frankly, if you're aware, and you've already invested in yourself, you know which investments are comparable and which one of them is not comparable. You know, that in the current climates, interest rates are rock bottom and going forwards the climate will change. Inflation is rising, so probably interest rates will go up. So, buying a long-term, fixed instruments or fixed return instruments is risky because of this.
So, obviously, you need to invest in your education. And by the way, it's okay if you don't know. I mean, you can you can seek the knowledge. You can read, you can buy books, you can ask your friends, but hell no, don't lock yourself in a product for the next five and 10 years that will eat your earnings, for which you have worked so hard, just because of the fact that you did not get the knowledge or you tried to seek some help.
And number two is how are you going to protect yourself? People forget to ask the $1 million question. Ask that person, “How much money you make by selling me this product?” So again, I mean, are you comfortable buying a product from someone, where you know that the only revenue-stream he makes is out of the commission he makes out from you? So, definitely, it doesn't look to me an independent relationship for the person selling you. So always keep that in mind.
And finally, try to learn from the people who made it. So, if you have friends, for instance, that really were successful in personal finance and investing; try to learn from them, and try to build up gradually, you know, start with less risky investments and gradually go up in the ladder, it's fine. And also, this is one of the stages of learning early. When you start at a younger age, obviously, your portfolio is smaller, so you could afford to make mistakes. But you don't want to make a mistake when you're a couple of years before retirement. And this is where you tend to find people, as they advance in their portfolio, they still do the same mistakes because they did not get themselves educated.
So, I think these three elements, just to recap:
1) Your education is super important.
2) Understand the product and ask the person selling you the product, what's in it for him, to understand the background.
3) Seek help from your friends, or the people who are independent, to guide you through your journey.
Binod Shankar
We talked about the top five mistakes, Bachir, that people make regarding personal finance. We just talked now about how to protect yourself from these independent financial advisors and other people who try to sell you financial products. Now let's put it all together and let's turn on the positivity. And to summarize, what are the five simple practical tips you can give people on this critical topic? (I know we have covered some of it before, so briefly) What are the key things that people should do?
Bachir Siam
Frankly, the fundamental starting point to investing is to save, because you can't invest what you did not save initially. You need to start saving. And the most important tip, for me, is to automate. Our willpower is limited. So, at the end of every month, if you wait until the end of the month to save…
And let me share my personal experience. My family account, I call it the drainage account, because whatever you put in this account, it will end up in the drain. I mean, we will always find plans to use the money, be it travel or buy new furniture. So, the golden rule is to pay yourself first. So, as you get your salary, set up what banks call a standing instruction, deduct from your salary, transfer it to an account where you don't have ideally, an ATM card. So, by paying yourself first as if that is a virtual tax, you put the money aside and you pay yourself first. And you should be very proud that you've paid yourself first. And I would even go further, I would recommend that people will set up several accounts. So, one account for the short-term saving goals, like example, if you really need to change your car, if you really feel like traveling or very important, you want to set up an emergency fund, which is basically I think, a fundamental element of everyone’s personal finance, say around six months of living costs in case you need to change jobs or you have an emergency.
So, you need to have a couple of saving accounts where you pay yourself first; some of them short term, some of them long term; for your retirement for instance, or for the need to buy a house. Generally, the rule of thumb is to start with at least 10%, and then depending on your income, depending on your age you build on. So pay yourself first and automate it, don't rely on your willpower. This is very important.
Number two is to start saving yesterday because if you look at the compounding power if you put money in the S&P at 8%, or 8% to 9%, which is the historical average, a five years difference…
So, if you say for 30 years, instead of 25 years, the difference will not be 10-15%. The difference will exceed 30%. So, it is disproportionate. It's not a product of factor, because of compounding. So, you need to start saving as early as you can.
Binod: I think the magic of compounding is probably the least understood, the most misunderstood, the most underrated phenomenon in finance, probably in the world, if you think about it.
Bachir Siam
True. I think Einstein said once that after the…. Obviously, after his innovation, compounding is one of the most enlightening concepts in this world. And It's true, how much it pays off. Frankly, recently, I was reflecting with a friend, on a funny element. So, my friend had a newborn baby. In my mind, I know that obviously, it's not the best gift for me. One of the best gifts you could offer to your child, perhaps, beyond obviously, the love and the family care, which is the most important, is, imagine when your child is born, you will invest an amount of money in S&P 500 passive income. By the time this child reaches 18, or 20, it will go a long way to provide for the child in his education or wherever the priority is. So, it's an amazing gift because of the compounding. So, 8%, maybe some years you will lose money, which is true, but over, it will average out and 8% over 20 years, effectively, that will be a smart way to providing for you for your child. So again, start early. It is a very powerful concept.
Another one is trying to beat the stock market. Frankly, I tried this in the past. And then I came up to the conclusion. What are the odds of me tomorrow, you know, running a marathon and ending up on the podium? It's close to nothing. So, for me, trying to beat the unicorns of Wallstreet is wishful. However, our education is based on, “I want to be the best of the best.” And however, in investment, the average is excellent. How many people would love to have a return on an investment of 8% to 10%, which is the average stock market return from the past? So, effectively, we try to play with stocks, we try to buy commodities. However, most of us should be very happy if we invest in an index fund, that tracks the stock market. And then if we want to invest 5-10% of our wealth, again, as we said earlier, we could invest in few stocks, and so on.
So, for the majority of your next egg, don't try to play around with that, invest it and diversify again. And we should not forget that even your portfolio needs to be diversified.
Another element that I would recommend, don't save for the purpose just of saving. It's not really quite exciting- just to save, just to save. (save) with a clear goal. Are you saving because you want to really go to the Maldives, in a short term? Are you saving because you would like to retire early? And you know, nowadays, many people are trying to increase their savings percentages, 40-50%, so (that) they can retire early, travel to see the world and so on. So that is the difference between saying I want to save 50% or 20% of my income, or saying I want to save because, by the time I reach 40 or 45, I want to buy a beautiful house and retire in the south of France. Emotions play a very important role.
Finally, I would say, don't try to time the market. Right. Many people try to time the market and they burn their fingers, including me many times. If you ask Warren Buffett or Ray Dalio and these people, that have much more information on what the stock market movement will be in the next few months, a very few will get a chart. They know that in the long run, the stock market is upward, the slope is clearly upward on the long run. This is why I think, if you really need the money in the next two years, please don't invest. If you really need the money in the next two years, definitely don't go put your money in stocks, because very few people can predict the market in the next two years.
So then, what's the solution? The solution is not magic. But I would recommend, average your buying. So, what we call is ‘dollar cost averaging’. So, every quarter or every month put the same amount of money; overall, it will average your cost. So, some of them, some of it will be at a high price, some of it at a low price. So, it will average out over the long run because trying to time the market is really wishful and many people fail to do that. I think these are the patterns that we see the most.
And, frankly, if you can learn from these elements rather from your own pocket, then hats off.
Binod Shankar
You know, Bachir, I have a feeling this conversation could go on and on forever. Because we have so much in common and because we have experienced so much, and we have introspected, I think, very importantly, about our experience and arrived at certain very important conclusions, and interesting conclusions. It’s been a delight talking to you after such a long time. So much in common, very insightful conversation.
But before we wrap up, given where you are in your career, and your stage and state of life, and all thoughts that are going in your mind, and we talked about career networking, emotion, intelligence, financial literacy, investing, things like that. What do you think the future holds for you, personally?
Bachir Siam
Yeah, it's a big question. So frankly, definitely, I want to continue to live my life, in line with my motto, (which) for me is, “I always strive to live in harmony with my values”, which is discover and do good. Definitely, my motto in life is to meet new people, discover new civilizations, and help people around me, and manage to live a balanced life between family and career. Beyond the need to maintain a balance in life, I've been working on a side gig. I'm working on malwanajah , which is typical translation- it's an Arabic blog for money and success. And the aim is to really help people in their personal finances. No products, no whatsoever product or sales. Really, just to help people manage this important part of everyone's life.
And in parallel, really, life we've learned every year, it's a new learning experience. Every corner, every twist is an amazing experience. That really, time is so precious and valuable. So really make the best out of it.
Thank you for today's session, by the way, and I wish everyone including anyone listening to us, a good prospective career and all the best!
Binod Shankar
Thanks, Bachir. I liked your future project on personal finance- the blog. I hope and I'm sure it'll expand to something bigger and (be) impactful on the audience. We just badly need this kind of education and insight. And I suspect our paths might cross sooner than the 20 years it took for us.
Bachir Siam
I hope so. I hope so.
Binod Shankar
To reunite, given our shared interests at this stage of our career and lives. Bachir Siam, thank you so much for joining us today.
Bachir Siam
Likewise, thank you. Bye-bye.
Binod Shankar
This podcast is brought to you by the real finance mentor. Thank you so much for listening and I really hope you found it insightful and inspirational. If you did enjoy this episode, please drop us a review and spread the word. You should check out more exclusive content on therealfinancementor.com and my LinkedIn profile which is: Binod Shankar, FCA, CFA. Let’s keep in touch! Just add your name to the mailing list on therealfinancementor.com, and we’ll tell you about new episodes plus book reviews, upcoming events and blogs. Till the next time, onwards and upwards.
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Binod:
This podcast is brought to you by the real finance mentor. Thank you so much for listening and I really hope you found it insightful and inspirational. If you did enjoy this episode, please drop us a review and spread the word. You should check out more exclusive content on therealfinancementor.com and my LinkedIn profile which is: Binod Shankar, FCA, CFA. Let’s keep in touch! Just add your name to the mailing list on therealfinancementor.com, and we’ll tell you about new episodes plus book reviews, upcoming events and blogs. Till the next time, onwards and upwards.
(Music plays)