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Here's why you need a financial advisor

By Anil Rego
January 19, 2016 08:56 IST
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A good advisor can make or break your financial future

Today, when information is freely available, the debate on the usefulness of professional advisors rages on. While there are those that feel they can invest without the help of an advisor, there are others who are clueless about the financial markets and the various options for investments. It is to the latter category that most advisors cater to, since one of their roles is to impart financial education and to hand hold clients in their investments.

An investment advisor or financial advisor is a general term for professionals who render any sort of financial advice or service to their clients. These professionals usually give personalised service, with their advice differing for every client based on the circumstances and requirements. The end objective of such planning is to provide financial security and ensuring that all the client's goals are met.

A good advisor will put together a detailed profile of you, based on questions asked by them, in order to get a good understanding of your current income levels, investments, financial objectives, expenses, tax slab, risk tolerance, insurance coverage, estate plans, retirement programmes, financial goals, etc. This will enable them to give you specific advice on what to invest in.

The process of financial planning constitutes:

a. Understanding the client's goal

b. Gathering all relevant data and information regarding the client, their financials, lifestyle, goals, etc.

c. Analysing the data and information

d. Constructing the financial plan taking various factors into consideration

e. Keeping track and updating the plan as and when required

The financial plan that an advisor suggests to you is typically a set of recommendations and strategies for the client to use and the advisor will be able to answer hard questions about the plan they map out. These advisors are typically constantly updating your investment plan to cater to your changing requirements, and income/expense levels.

The important point to note is that the advisors closely monitor the stock and debt markets for trends, and are able to lay it out for you in easy to understand language and help you make the right investment decision to reach your financial goals.

Since many advisors get a fee from either the client for their services or from the mutual fund/insurance company for selling their product, it is important to understand their revenue source from Day 1. This will avoid the problem of cross selling/wrongful selling, since if they are on a commission basis (as most bank relationship managers are), they will be pushing you to invest in products that fetch more revenues for them. While on the other hand, a fee based advisor can be more impartial.

Today, all investment advisors have to be registered with SEBI, and it is important to ensure that the advisor you choose is properly accredited and capable of giving you sound advice. Use your judgement to select a good investment advisor, and apart from checking her/his credentials, also check their track record and ask for references before starting work with one, to ensure that you have picked the best advisor for you.

Summary:

  • A financial advisor is a professional who advises clients on preparing a financial plan that will encompass investments, savings, debt, etc. to meet the clients' financial goals
  • It is important to select a good advisor based on their reputation, track record and qualifications
  • Check if they are fee based or commission based -- to ensure that you are not sold anything that you do not require
  • A good investment advisor will be able to guide you towards your financial goals and help navigate the myriad instruments available for investments

Illustration: Uttam Ghosh/Rediff.com

Anil Rego is the founder and CEO of Right Horizons, an investment advisory and wealth management firm that focuses on providing financial solutions that are specific to customer needs.

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Anil Rego