Reasons why investment Advisor is important:
The Covid-19 crisis has hit many of our lives personally, professionally, and financially. Pandemics like these maybe once in a century phenomenon but financial or economic crises mostly come once in a decade. For many individuals and families during any kind of macro crisis like the current one, financial hurdles not only come with losing a job or loss of business revenue but also come with investment loss and savings erosion.
This is a good time to think about managing our finances and investments, what are our financial goals, who gets to manage them and how much would it cost? This is a good time to think about the above-mentioned things as many disruptions have come into our lives and the world around us. This is more like an opportunity to look back, analyze, and move forward to appropriately fulfill our financial needs and achieve our financial goals.
What are our financial goals?
For many of us who have not received our bonus, salary hike, or an experienced slowdown in business know very well that having a solid emergency fund is a must going forward to tackle a similar situation. Many individuals and families (especially millennials) did not have an emergency fund as an actual financial goal.
We can have anything as a financial goal and should have multiple financial goals. The most important aspect of deciding on our financial goals is to have then ranked on a priority basis. The goals with the highest and least priority for us should be a basic attribute for every financial goal we have.
Who gets to manage our financial goals?
Every financial decision we make is not only very personal to us but also very important. It is no surprise for all of us that the financial world and the economy are like an ever-evolving living organism that has a lot of dimensions and complexities. Having or getting expertise in the financial world is not a difficult task. The difficult part is to keep up with the evolving and complex nature of it. This point was proved recently for most of the millennials with the recent financial markets crash including reduction of savings rates in banks and fixed deposits.
This makes a very strong case to seriously consider two aspects and taking an important decision:
- Hiring a professional and certified financial adviser if we do not have one
- Evaluating our current investment advisor’s performance during this crisis and deciding whether to stay with them or find a new one
In both cases, it is important to know what kind of qualities make up for a great financial adviser. In our Indian society, every other person claims to be an adviser of everything which may not be a great thing in making financial decisions.
These are some of the qualities and attributes we believe everyone should look for before selecting their financial adviser:
Are they registered/certified?
SEBI (Securities and Exchange Board of India) is the only entity that can certify someone as an adviser. Anyone or any company without a SEBI registration cannot call themselves an Investment adviser, portfolio manager, wealth manager, or a financial adviser. The screening process for investment advisers and portfolio managers is rigorous with a high level of compliance. This eliminates the risk of trusting someone without proper credentials.
Do they have this as their full-time profession?
As mentioned earlier, in our Indian society, every other person claims to be an “adviser” or an “expert” of everything. There are thousands of part-time insurance / mutual fund distributors in India that claim to be advisers. We should avoid this trap as they are neither equipped with a high level of financial markets knowledge nor spending quality time managing our wealth/investments.
Are they trying to sell you a product or a solution (commissions vs fee)?
Even if the above two questions have positive answers, some of the registered full-time investment advisers try to sell various investment and savings products to get commissions and incentives on the back end. Thanks to SEBI, this activity has strictly become illegal recently but many still practice it.
Everyone is loyal to their source of revenue so it is for us to decide whether we want to be our advisers’ source of revenue by paying them fees or letting investment product companies like (mutual funds and insurance) being their source of revenue.
How much would it cost?
No good and professional financial advice is free in this world. Even if we manage our wealth by ourselves, we have to spend a lot of quality time on it apart from our actual profession or business. This might disrupt our work-life balance, core profession pitfalls, and sometimes wrong investment decisions.
The cost of investment advice is a very critical factor in achieving our financial goals as it may end up reducing our potential earnings. Even a 1% excess return (by paying less fee) per year for 15 years can have a huge impact on our investment returns.
Our intention of writing about this is to make all individuals, families, and organizations to seriously consider hiring a suitable financial adviser/investment adviser/ wealth manager to navigate them in their path to financial freedom. Whenever a crisis hits us, our lives get disrupted and only the ones that take crucial and the right decisions will be able to overcome the crisis.