Sharing advice from one’s knowledge or experience has long been a catalyst for human progress. What we didn’t know, we learned, and what we couldn’t learn, we sought advice on. In your day-to-day life, you would have sought advice on multiple things, from careers to holidays. But recently, the most sought-after advice is undoubtedly financial advice. Gone are the times when disposable income was meagre and options for investing were scarce
According to the National Accounts Statistic 2023 report, gross national disposable income in India has increased by approximately 163.34%, which, in turn, has openexd up avenues for more investing. The downside of plenty is confusion. And when confusion can cost money, you definitely want to tread carefully. Financial advisors are the guides you can trust to avoid pitfalls.
Who is a Financial Advisor?
Financial advisors do not have a specific industry definition and hence refer to providers of comprehensive services for everything related to money, from investment planning to insurance to estate planningThe term encompasses financial professionals like stockbrokers, insurance agents, tax preparers, portfolio managers, and financial planners. Various certifications establish the knowledge and authority of financial advisors. Some of these are mandated by SEBI, i.e. Registered Investment Advisers (RIA) certification along with NISM (National Institute of Securities Market) certifications. Others are recognized globally, such as the CFP (Certified Financial Planner), CFA (Chartered Financial Analyst), and CWM (Chartered Wealth Manager).
Managing your finances in today’s world is like piloting an aircraft through unpredictable weather. A financial advisor serves as your co-pilot—trained, vigilant, and focused on helping you reach your destination safely, regardless of the turbulence.
Role of a Financial Advisor
The myth about seeking advice from financial advisors is that you should be a billionaire who needs help managing your money. This is as far as it can get from the truth. Financial advisors’ services are not a luxury but a necessity. Since it is a general term, many finance professionals come under it.
However, what distinguishes financial advisors is their intent to work in favour of the client and help them in their financial journey, unlike product sellers or agents who may prioritise commissions over client needs. From chalking out the goals to mapping the path to achieve them, financial advisors walk along with you. They not only advise or sell but also study your financial status, understand your goals and risk appetite, and create a financial plan to meet them. They also periodically review the plan and take detours. They can be compared to a financial partner who takes your financial success as a personal responsibility.
How to Choose a Financial Advisor?
A partner must be chosen wisely, and hence, choosing the best financial advisor would require adopting the four-step strategy:
Step 1: Identify your financial needs
The first step is clearly defining the area where you need help. It could either be one single area or multiple ones. It could be:
Personal finance: Financial advisors can help you chart plans to meet your short-term and long-term goals. Whether you need help saving for a milestone or a contingency, they can be unbiased and direct your funds towards achieving your goals. They help with budgeting, saving and investing.
Debt Management: If you find yourself amidst a lot of credit and eagerly await paychecks to clear debt, a financial advisor can help pull you out of the trap
Investing: If you need help investing, choose financial advisors who can do all the heavy lifting and research the suitable options, providing returns that match your risk tolerance, investment objective and horizon . You can invest in stocks, mutual funds, bonds, commodities, crypto, etc.
Tax Planning: Whether you need help understanding tax incentives or benefits, advisors with specialized tax knowledge can come to your rescue.
Estate planning: It is crucial to ensure that your assets are passed on to your heirs according to your wishes with minimum hassle and tax burden. Financial advisors with estate planning expertise can guide you through the process.
All of the above: If you need help with all of the above, financial advisors who offer comprehensive wealth management services would be the right choice.
Step 2: Know your advisor’s credentials and expertise
Now that you know what you need help with, the next step is to find an advisor with the skill set required to succeed. Certifications like CFA and CFP add extra weight and validate the holder’s knowledge. These certifications also require the holders to act as fiduciaries, meaning they must act in the client’s best interest. While certifications and regulatory registrations add value, advisors preferably with 10+ years of experience, no legal history, a transparent fee structure, and a client-first approach can also be consideredStep 3: Understand the fee structure
After knowing what you need and who could be a good mentor, the next important factor is understanding the fees involved in working with a financial advisor / wealth management company to evaluate whether they suit your pocket. Because this is a long-term relationship, the fees could be based on assets under management, a flat fee or a mix of both.Step 4: Vet Financial advisors
In the world of finance, the most challenging thing is ‘Trust’. Hence, before handing over all information about your finances and giving authority to handle your money, be sure to research. Vet all the details of the advisor.
- Validate the track record by verifying their SEBI registration and checking their legal history for red flags.
- Check the Assets Under Management (AUM), clients and fee structure
- Study their historical performance report and analyse it
- Ideally, choose advisors with 5–10 years of experience; prefer 10+ years or reputed firms for complex needs.
- Visit the official certification boards’ website and check for credentials.
- Check the reviews of wealth management companies—research on the company, its board and their credibility.
There is no room to be naive when it comes to money. The success of this relationship is based on the trust you place, and the amount of trust is proportionate to the time invested in researching and validating the details.
Conclusion
Education has given us the skills to earn money but has not necessarily made us experts in growing our wealth. Your choice of wise, trustworthy and competent financial advisor will impact your financial future. Indeed choosing a financial advisor can be challenging. But by following the simple four-step strategy, you can find a financial partner to help you achieve your goals.
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