Achievement of your life goals not only depends upon how much you earn but also on how well you manage your personal finance. While some may have the skill, experience and time to do it themselves, however, many people lack it. So, should they still manage their personal finance themselves or take the help of a qualified professional advisor?
Advisors are those with specialised domain knowledge & expertise, often backed by years of experience. Advisors are called in to vet proposals and weigh in with their counsel, based on which decisions can be taken. Their advice is invaluable in their area of expertise.
This happens in almost every area – you have lawyers, doctors, architects, gym trainers, nutritionists and even marriage planners to offer advice and services in their areas. But, in the personal finance area, advice is marked by its absence. Those who call themselves advisors are usually product sellers, who claim to offer advice for free.
But there is a class of financial advisors created by SEBI who are client-centric, independent, conflict-free. These advisers have the necessary education, certification, skill & knowledge and have a fiduciary responsibility towards their clients. They do not sell products. They charge a fee to their clients for their advice, thus ensuring alignment of interest.
However, many people question the wisdom of paying fees for accessing advice. There are so many positives which a credible advisor can bring to bear. It is just that most people do not realise their value.
1. Alignment of interest – SEBI Registered Investment Advisers (RIA) are independent and offer advice in their client’s best interest. They get paid for it by their clients, which makes this a verifiably, conflict-free arrangement at the model level! Such advisors think in terms of their client’s life and well-being and craft the plan and portfolio accordingly. This is entirely opposite to the product-centric approach followed by product resellers.
2. Advisory services – A good Financial Advisor creates a financial plan, reviews it periodically, has discussions with clients and assists them in their life journey, offering appropriate advice to stay on track, reviews and rejigs the portfolio as necessary, discusses and plans efficient succession, has deep discussion on life planning, which contributes to vibrancy, better life quality, satisfaction and peace of mind.
3. Efficient money management – A good advisor ensures that one’s money is invested in the right vehicles, optimised for liquidity and has provisions for meeting goals, are in the right assets with appropriate tenure, returns, risk, liquidity, etc. due to which the portfolio is nimble enough to accommodate all life needs as one goes along and at the same time, offers optimal returns at the portfolio level.
4. Costs & taxes – SEBI Registered Investment Advisers (RIA) suggest non-commissionable products which are about 50% lower in costs as compared to their commissionable counterparts. As RIAs are fiduciaries and keep an eye on costs paid by the client, they also suggest passive products which are much lower in costs, in the non-commissionable format. All this significantly reduces costs for the clients.
The RIA charges a fee and delivers the financial plan and the bouquet of services agreed upon, for which s/he gets a fee. If the client has the option to stop the advisory engagement, with which the fee payments will cease. This ensures accountability from the advisor who would have to offer good advice and service to retain the client.
In the commissionable products, the total expenses, including the commissions, get deducted from the client’s investment and the commission goes directly to the product seller as long as the investment stays, even if the distributor does not offer any service. This results in lack of control on the part of the investor and unnecessary financial leakage.
Efficient tax planning plays an important part while creating a portfolio which a good advisor certainly pays attention to, due to which a client derives immense benefit.
5. Mistakes and blunders avoided – Many people invariably commit mistakes in financial matters as they follow what someone in their circle does or suggests, which are avoidable. This creates misalignment in terms of what the product delivers and what is required by the client. The misalignment can also be in terms of tenure, lock-ins, tax inefficiencies, poor returns, illiquidity etc. Sometimes, the decisions taken can be serious blunders which set back the client by several years.
6. Gift of time – Many people are hard pressed for time. They do not have the aptitude towards finances, which is yet another problem. A good financial advisor anchors the personal finance portion of their client’s life allowing them to focus on their personal and professional facets of their lives in the secure knowledge that a credible advisor is doing what is right for them in a timely manner. This ensures that important decisions are well calibrated and are taken on time due to availability of advisory inputs.
Financial Advisory has not yet got the serious attention it truly deserves. Choosing a fiduciary, fee-only SEBI RIA would help in accessing aligned advice and help clients live a life where one can achieve financial freedom, clarity about the way ahead and peace of mind.
The article has been authored by Suresh Sadagopan, MD & Principal Officer at Ladder7 Wealth Planners and the author of the book “If God Was Your Financial Planner”