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3 benefits of financial advisors

By Parag Raja
October 29, 2015 08:45 IST
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Honest financial advice helps you make rational financial decisions

There is a general belief that you need financial advisor if you have lots of money to invest. In fact reverse is truer. Some who is short of money needs his limited resources to work harder.

Unfortunately most of us tend to rely on our friends, parents or other relatives for financial advice. Though they may be knowledgeable about certain financial products and possibly made fortune for themselves, they would have little insight into your current financial situation before advising you. For instance, they would not know how much you have already saved and what your priorities are.

How financial advisors help?

In a recent survey on financial planning and advisory, conducted by Jago Investor, 74 per cent of the respondents wanted to hire a financial planner for their wealth advisory, provided if they find the right one. So how do the right financial advisors really help?

They bring order and a roadmap for the future to the otherwise unplanned chaos!

Even if you have a do-it-yourself philosophy about handling your money, working with a financial advisor is one very smart move you can make to channelise your investments. They will help you organise your financial life and also ensure you start early to maximise benefits. A good financial advisor can help to...

Identify and carefully prioritise financial goals and chart out a clear roadmap for achieving them

Help demystify complex financial decisions and provide new insights and investment options: for example: they can help segregate real and exaggerated/understated  needs when it comes to how much to invest for child’s education and also advise on how to get best returns through combination of products

Will consolidate your finances and plan savings and investments around your financial needs including detailed plans for expense planning, retirement, insurance, tax and estate planning needs

They represent the voice of quiet reason

Often people say that they rely on news to find out where and how to invest. However it is also true that often it is the loudest voices that get the press and airtime and which are not necessarily the most rational ones. Thus a financial advisor can help you break through the clutter news media can create regarding investments. They would not only give reasonable and rational advice, but also tailor the plans according to your financial needs which can have very specific requirements that general investment advices won’t cover.

Qualified financial planners can deal with a myriad of financial topics and help you navigate through complex product web, each offering attractive returns but different propositions. They can answer all your questions on which asset class you should choose depending on your risk profile and advice on optimal tax saving options.

They effectively harness the power of compounding

Professional financial planners are equipped to offer rational advice which our existing financial plan may otherwise lack. Most often you may not realise that your investments are skewed towards one type of asset class, leaving you with little buffer in case markets for that asset class underperforms. An advisor will help leverage the power of compounding through regular, even if smaller, investments. It is not necessary to wait till one accumulates a sizeable lump sum to get desired amount. Investing small amounts at regular intervals, over a long term can give you similar returns.

Most importantly a sound financial advisor can make you realise the benefits of starting early. Investors, especially those in the early stages of their career, often are ignorant about the power of compounding.

A good financial advisor is thus as important as having financial decision to reach your financial goals, regardless of the size of your corpus. A good advisor will optimise your savings and direct you to proper investment avenues ensuring that your corpus adds up on the go.

Photograph: 401(K) 2012/Creative Commons

Parag Raja is Executive Vice President & Head -- Agency, Max Life Insurance

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Parag Raja