This debate started when direct funds were introduced in India, and almost overnight investor preference shifted to direct funds and away from professional advice. But, at its core, this is a question what action should one take. So, let’s understand what it takes to ensure that the action taken is successful. Bear in mind, the professional has to be a qualified, experienced, reputed and moral individual.
For any action one may take, there are multiple possible outcomes. For example, we may take an action of going out for dinner. The possible outcomes range from having a great time with great food and great conversations, to the other end being, having to be hospitalized with food poisoning.
Each possible outcome has an associated probability, i.e. the chance of it occurring. The success of the action itself then depends on being able to control the probability of the undesirable outcome or at least the impact of the undesirable outcome if it does occur. So, in our dinner example, we could refer reviews on Zomato, judge the mood of the spouse, not eat at roadside or avoid spicy food. Each of these initiatives works towards reducing the probability or the impact of the undesired outcome.
Now, when we carry this rationale to money management, investing is an action, and the success of investing depends on us being able to exert control over unfavorable outcomes.
If one has the knowledge and the ability to design and effect such initiatives, then by all means use a DIY approach to financial planning and investing. However, surgeons have great knowledge but don’t have the ability to mitigate risk and therefore do not operate on themselves. One may have great knowledge, but can never be completely free of their biases and are too close to the picture to be able to be objective. In an overwhelmingly large percentage of cases, we’d find using a professional and ensuring a win-win relationship with him/her is in our best interest.