How does a Financial Advisor add value to your Financial Future?

How does a Financial Advisor add value to your Financial Future?

The power of good financial advice is often underestimated in today’s quick -‘n’- easy- money attitude driven world.  It is also surprising to see that a large number of financial advisors find it difficult to communicate the value they add to the client’s financial well-being and security.

Most often they function like agents enabling the client pick funds or stocks that promise growth and returns based on a performance record. This very act trivializes a financial advisor’s services and reduces them to mere selling agents of a different kind.  You may even find a lot of disillusionment among financial advisors as they try to predict markets. Any market position has them dissatisfied and they complain about not capitalizing on the market’s upturn or feel apologetic for not avoiding the downturn. When the market is just plain stagnant, they are frustrated.  Clearly, not the way a financial advisor must feel about the profession or the environment in which they have to perform.

A financial advisor’s work for an investor must depend on these three important elements:

Right Expectation

Right Execution

Right Priorities

Managing these elements well also depends investor behavior to an extent. Sometimes the money management business even for the mega –rich can become a failure.  When an investor decides to trade too often and at the wrong times and into the wrong instruments they turn it all upside down for them and for the financial advisor.  Not being able to arrive at one success formula that will guarantee the achievement of the client’s investment goals can be a big reason why financial advisors find it difficult to substantiate their value.  And advisors seek to eradicate or balance this by putting out evidence –based or data driven approach as they feel it would appeal to the client.

However, an advisor’s priorities begin with recognizing …..

• The IMPORTANT and the ACHIEVABLE.
• It begins with the financial advisor placing the client’s interests first even when the client is not able to see it.
• It begins with the advisor communicating this to the client well and clear even before the financial or investment strategy is made.

 How does a Financial Advisor add value?

A financial advisor whose focus is only to help the investor pick out investments, will find it extremely difficult to add value.  Alternately, the advisor can add immense value when a comprehensive financial planning is provided.  A comprehensive financial planning goes well beyond just choosing investments.

Let us put it this way… A financial planner can increase and protect wealth, and smoothen consumption. And that is the benefit of financial advice in short. Breaking it down further, see below how the financial advisor is able to add value.

The Financial Advisor adds value by:

Encouraging consistent Savings:

Many investors often forget that saving is the first step to wealth creation. The origin of all investment is saving. Starting early and keeping it consistent will have the investor garner the power of compound interest. However, most of us fret over tweaking our investment portfolio a little more or worry over asset allocation rather than thinking about saving an extra 2-3%. Educating the investor on the importance of steady and increased savings is a great value the financial advisor can offer.

Encouraging consistent Investment:

Market volatility or draw-down risk is the price an investor pays for the higher expected return on equity. Keeping composure during difficult market times does not go unrewarded.  We have a number of studies to prove to us that investors who trade the most have the lowest return rate.  Going by Pascal’s wisdom…. “All human evil comes from a single cause, man’s ability to sit still in a room” A financial advisor is not someone who just leads an investor to a winning strategy but is able to make the investor sit through and stick to it when the going gets tough.

Also Read: Are Real Estate Returns hyped over Equity?

A financial advisor adds value by preventing the investor from making an instinctive decision every time the market takes a downturn, especially when the investor wants to sell at that point in time. This happens only when the financial advisor is able to interpret to the client the importance of “time in the market” and not timing the market.

Financial Planning:

A financial advisor adds value to the financial health of an investor by enabling the investor to arrive at appropriate, realistic and manageable goals.  A comprehensive financial planning goes a long way in assuring good financial health.  Financial planning is broader and involves more than just planning or picking out investments.  It involves tax planning, granular and broad risk management, budgeting, life and health insurance planning, lifestyle management planning, asset allocation, retirement and legacy planning and above all the prevention and management of a financial crisis.

In short a financial advisor helps an individual to formulate, adjust, monitor and achieve personal and financial goals. And this can be called the real value or expertise of a financial advisor. Arriving at the right priorities, managing emotions and expectations and executing the strategy may look conceptually easy but monumentally difficult in practice. A good financial advisor add value to the financial well-being of an investor at every point and action taken, and a great deal of it.

This article has been contributed by K.N. Sridharan, CEO WinRich