5 Reasons Why Financial Advisors are Needed
Even the best of savers and investors cannot handle money decisions on their own and they need help
Indians are hard-working people. This drives some of us to do many impossible things. But not everybody can be an all-rounder. As we grow old, our world view often remains rigid. 'If I can earn money, I can also invest my own money' --- this is a common answer that many investors have given when asked about the utility of a financial advisor. In a world of free advice, people seem to think that giving advice is the easiest job. However, the truth is very different. Even the best of savers and investors cannot handle money decisions on their own. As careers, lives and financial goals become big, managing everything becomes an even more complicated task. As a result, there is a lack of smart investing choices. Consequently, our goals are not reached. Thankfully, our lives offer us a multitude of turning points. In such situations, we are forced to come face to face with reality. It is during such times that we realize the utility and the value financial advisors brings to the table. Read on to know 5 key reasons why you need a financial advisor today.
Free Advice is a Not Great Advice
Indians love cricket. All of us enjoy a good game of cricket and balanced commentary. Commentators describe the match progress and also come up with various tips on how players and captains can do well. But, would the game change if the advice of commentators is taken? Nobody really knows. This is because cricket commentators give free advice and they have no skin in the game. Free advice is often advice without any consequence. This is because such an advisor risks nothing. On the other hand, you as an investor risk everything because it is your money that is on the line. This is why serious investors must take the help of professional advisors. Fee-based advisors offer you personalized advice that is suitable as per your situation. The advice they give can be held accountable. This means if they are wrong, their reputation takes a hit. If they are right, more investors come to them.
A surgeon knows surgery. An engineer knows to engineer. In a similar vein, a financial advisor is a skilled person who knows everything about financial investments and planning. Most investors do not understand the depth of financial advice. It is not merely which stock to buy or which mutual fund to sell. Financial advisors assess the financial needs of individuals. They help them with investments, tax laws, and insurance decisions. It is a big umbrella under which there are different aspects. In this way, financial advisers provide clients with specialist advice on how to manage their money. Over the years and market cycles, such advisors collect a vast wealth of experience which is then used to add value to a client's investment portfolio and finances.
The job of a financial advisor involves researching the marketplace for good investments options that are suitable. They then recommend the most appropriate products and services available, keeping in the mind the investor's needs and budget. They also ensure that clients are aware of products that best meet their needs. All this is incomplete without unbiased decisions. For the financial advisor to give you unbiased advice, no part of his/her income should be coming from product manufacturers. This is how financial advisors are independent. They do not advise you about a certain product because the commission is high on the same. Only that product is recommended which is the best fit for you.
Investment advisors are regulated by Sebi in India. No longer can somebody just appear out of nowhere and become an expert. There are strict guidelines that they have to adhere to. The Sebi came out with Investment Advisers Regulation in 2013 that segregated commission selling from investment advice. The regulations demand a higher degree of competence on part of an advisor. To be eligible, you need to have a professional qualification or postgraduate degree or postgraduate diploma in finance, accountancy, business management, commerce, economics, capital market, banking, insurance or actuarial science. Or, the person has to be a graduate in any discipline with an experience of at least five years in activities relating to advice in financial products or securities or fund or asset or portfolio management.
A Friend For Life
Investors may not realize this, but financial planning is a whole-life exercise. It is not just about next 5 or 10 years. Good financial advisors look at different life-stages of a client and accordingly walk with them every step of the way. Right from the mid-30s when wealth creation process is started, to family solutions, property deals, goals like children's higher education and marriage, and post-retirement --- a good financial advisor is like a friend for life. Such an advisor will not call you to sell the latest insurance policy or talk about the best performing mutual fund this year or ask you to open a bank account to get access to the locker facility. Good financial advisors will stay with you in your good as well as bad times.
Anil Rego is the CEO and founder of Right Horizons, an end-to-end Investment advisory and wealth management firm. An MBA and CFA degree holder, Anil believes in the Contrarian approach of wealth management. His areas of expertise includes Corpus fund management, tax planning and end to end financial planning for both residents and NRI investors .
Anil has worked for Wipro as Business Planning and Merger and Acquisition Manager before starting Right Horizons in October 2003. RightHorizons has branches across Bangalore, Mumbai, Chennai and Hyderabad.
Anil has been a columnist in leading Indian newspapers. He also routinely answers queries in mainline publications and websites. He is also a Guest Lecturer with various business schools like ICFAI, ITM and Union Bank School of management. Anil has also served as member, Board of Governors, at IBSAF.