Categories: Planning

How does a financial advisor help you succeed?

Introduction

In this short article, we will see the most important ways in which a financial advisor can help you meet your financial goals. These points also can be used as a checklist to evaluate the competence of the financial advisor.

Who is a Financial Advisor?

Financial advisors come in all shapes and sizes. The range goes from your neighbourhood ‘well-wisher’ offering free advice all the way to the certified, regulated professional who charges a fee for their services. In most countries, the advisory business is not legally regulated – at least in the same way as say Doctors or Accountants. e.g. Unless you are a qualified and certified medical professional, it would be a criminal offense to provide medical consultation, prescribe drugs, etc. There could be quacks who do this, but they can be hauled up before the law. In most countries, financial advise is not treated this strictly.

How does a Financial Advisor help you succeed?

A recent question in Quora asked how a financial planner helps with achieving the goals – here. I had given a quick response specifically for fee-only planners/advisors.

A fee-only planner is committed to/regulated to earning from clients’ fees and are either voluntarily or regulatorily not earning any commission from the products that they recommend. If so, these are the few things that the planner would do:

Spend time with you to understand your aspirations and wishes and come out with clear goals
Develop a plan structured to meet your goals. This of course includes the recommended investments.
Very importantly, spend time with you to discuss the plan and ensure that you are comfortable with it
Of course help you execute the plan and start making the investments
And very, very importantly, have a clear mechanism to review the progress on a periodic basis and hold your hands
1. If a planner charges one-time fees there could be additional, lower fees for periodic review
2. If the planner charges as a percentage of portfolio, the fees could include portfolio review

Point 5 is possibly the most critical factor in achieving the goals. This and point 3 is worth the fees that you pay to good financial planner. As a checklist, if any person does not do points 3 and 5, then you are better off staying away from their ‘advice’.

‘Execution’ help

Fee-only financial advisors don’t offer execution services. Often the distributors and agents plug easy execution as a benefit in their services. This is a valid point. However with the advent of online platforms and innovative consolidations, execution is quite simple. In India, the first mutual fund investment requires some paperwork. If you do this via Mutual Fund Utility, there is a small initial step. After that you can invest in almost any mutual fund using almost any mechanism. So a fee-only planner can give you almost as much help as a distributor would for execution.