Financial advice and advisors have acquired a whole new meaning and status within the investment world. The wide variety of investment options available for an investor has triggered this change. Amongst investors, there is definitely a renewed understanding of the importance of planning early and making the right investments with an optimal asset allocation; with a view to build the right corpus for every relevant need. Each significant market fall also reminds many investors that DIY (Do It Yourself) without sufficient experience and expertise can really hurt.
Concept & Relevance of Financial Advisors
In India, people are inherently fond of giving advice. However, there has been a definite sense of evolution in the way investments are treated over the years. There is a new breed of investment professionals, imparting sound knowledge on what investment pattern would suit which need and how one should adequately hedge risk in the pursuit for maximization of returns. With so many complex investment instruments on offer, and with volatility in markets across asset classes like never before, professional advice is increasing in relevance. Further, not all of us may have the competence or the time to take care of one`s investments.
The evolution of the financial advisor has also happened in the light of regulatory reforms, which have in a certain sense affected the livelihood of many advisors who essentially thrived on commissions. With the entry load on mutual funds gone and ULIP charges capped adequately, there are fewer, but, definitely more competent players who are typically paid for what value they deliver.
Evaluating a Financial Planner / Advisor
One needs to look at a range of factors before choosing a financial advisor:
Experience - Nothing can replace experience; a strong track record of managing portfolios over the years speaks volumes. Examine the `Wealth Manager`s` track record and annual investment return when selecting someone to handle your portfolio. Pick a manager who has a proven record of positive returns - Anyone can have one or two great years. But, consistency over many years is what counts.
Product Profile & Service Assessment - Scout for someone who offers holistic advice. This will help you shop for all your financial goals under one roof. Whilst you associate yourself with a financial planner, evaluate the post-sales service - renewal payment, redemptions, switches are going to be an integral part of managing your wealth. Going with an agent, could be costly, since you may not get appropriate help, post sales. It is better to be associated with a team which provides adequate support on these key issues.
Talk to existing clients - Before signing up for advice, check the reputation in the market. The simplest way to do this is to talk to existing clients. It is also appropriate to talk to clients who have had a long standing association with the organization. It will give a fair idea of how the financial advisors have been effective in enabling the client to meet their short-term or long-term goals by following the road map prescribed by their advisor. Evaluate various parameters such as effectiveness of advice, pro-activeness, transparency etc.. While understanding the performance, also find out about the performance in the years when the market did not do too well.
Fee Structure - Professional Financial advice does not come free - it never was. Financial advisors work on three types of remuneration models - a fee model, commission model and a transaction based model. A combination of the models could be used by a few advisors. Fee based model has seen a spurt in recent times, since the regulatory authorities are on a revolutionary spree to set right the unscrupulous practices in the financial world. A fee model seems appropriate while seeking financial advice, given that the advisor will have the client`s interest in mind and to a large extent the advice will be unbiased. One needs to keep in mind that a good advisor can deliver significant returns. Hence, focus on better performance than on lower fees. One should not end up being penny wise, pound foolish.
What`s in store?
Financial health is pertinent; and just like self-medication can cause havoc, investments made in an adhoc manner can wreck havoc on your life`s plans. Aligning your investments with your financial goals is extremely important - you need to understand various nuances of personal finance while managing investments. Contingency, emergency, health / life risk hedging are also important factors in financial planning. Although you may get it right many times, you may not be able to de-risk your investments at the right points. This could be really crucial, especially when markets hit a rough patch. If you do it all on your own, you may either get too conservative or too aggressive - both these scenarios are dangerous.
A financial advisor will help you to achieve optimal returns at certain risk-adjusted levels; he will also help you to optimize on your tax benefits. Furthermore, he will create a risk cover pattern, wherein your long term financial goals are achieved even in case of an eventuality. For a retail investor, optimizing on taxes and achieving personal goals may be the only nuance to consider. However, for a HNWI, asset allocation becomes a challenge, since over-diversification could become a challenge. An advisor plays the role of, `How much is too much?`. It becomes pertinent at such levels to maintain and grow your wealth by de-risking the portfolio at relevant levels.
Financial advice needs to be customized to each individual / family based on their needs, timelines, liquidity requirements, past investments, risk appetite etc., Hence, it becomes necessary to seek professional advice for managing your investments.
Keep in mind that not all advisors are experienced, competent or capable of providing the appropriate levels of service. Choosing a `Financial Advisor` is as important as choosing a doctor; a decision that calls for careful evaluation. Once you choose your advisor after a detailed evaluation, do give sufficient time to perform, even as you try and understand the rationale for the advice. Your advisor should help you build wealth in a disciplined and risk-managed manner. Don`t just go by best returns in the short-run - a market fall may just take it all away! In fact, the true strength of an advisor is demonstrated in difficult periods. So, go ahead and secure the future of yourself and your family.
MITUL SHAH
9879586722
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