Do I need a financial advisor?
This is for people who have already realised the need of finding a financial advisor. Most people realise it after a financial emergency like a job loss, medical emergency or after having children or any major life event that compels them to realise that something is not right in the way things are going. Others who have a smooth life are often not able to foresee how they are losing money to inflation by not investing it right and it is mostly very late by the time they know that the amount they saved is not enough.
The best time to begin financial planning is as early as possible, probably as soon as someone starts earning. The sooner you start, the better; you will need to save lesser for the same goal instead if you were to start after few years. In the initial years of your career you have lower responsibilities, you can take higher risk and subsequently get higher returns. In the early career years, you would have higher disposable income due to lower expenses, even though you may be earning less since you have just begun your career.
If you are at the beginning of your career, you may do-it-yourself instead of paying a financial advisor. If you’re a Do-It-Yourself investor or want to become one, you need to invest some time on it. If it interests you, read up more on financial planning basics, follow some good blogs or use free excel templates to sort your finances in life. There are some excellent groups on social media that provide a ton of information for DIY investors as well.
If you think all this is too much work, you may delegate this to a financial advisor. The bigger problem is that you come across so many financial advisors or investment advisors, you don’t know who can really help you or is authorised to provide you unbiased advice. So, here are some things to keep in mind while you choose your financial advisor.
1. Your financial advisor must be a registered investment advisor (RIA) with SEBI which means he/she fulfils a set of criteria mandated by SEBI. This should fairly narrow out your search so you must look for the registration number on their website or ask for it. SEBI has a list of all registered investment advisors if you want to go one step further to check their credentials. This can be cross checked here: List of Registered Investment Advisors as per SEBI.
2. Always go with a fee-only financial advisor. Fee-only financial planners are those who charge fixed fees for the advice they provide. They would clearly provide unbiased advice in the best interest of you because they have nothing to gain from any recommended products. Their fees range from 5,000 to 50,000. Since there are very few fee-only planners in India, you should be able to decide easily which one you want.
1. Fee-based financial planners are those who charge you upfront fees for financial planning and receive commissions from your pocket for investments made by you through them. This is not allowed by SEBI and such people will sell you products through some family member or associate to bypass the law.
2. Do not transfer any amount for investment to the advisor. You should always be the owner of your money.
3. There are mutual fund distributors who may advice you on investments, however the problem is they may not be able to advice you based on your entire life situation. Also, some distributors may push unnecessary products that does not suit your financial profile.
4. Insurance advisors are not financial advisors. You must know the difference clearly before making your life decisions based on insurance products sold as investments.
All this is a one-time work, if you find someone who you can help you through these difficult and very important decisions in life, you are all set.
The biggest advantage of financial planning: If your finances are organised, you may sleep better, worry less, enjoy more and lead a healthier life!