Advice
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 trivialises 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. Clearly, not the way a financial advisor must feel about the profession.
A financial advisor’s work for an investor must depend on three important elements: right expectation, right execution and right priorities.
Managing these elements well also depends on investor behaviour to an extent. When an investor decides to trade too often, at the wrong times and into the wrong instruments, they turn it all upside down for themselves and for the advisor. Not being able to arrive at one success formula that guarantees the client’s investment goals can be a big reason why advisors find it difficult to substantiate their value.
However, an advisor’s priorities begin with recognising the important and the achievable — placing the client’s interests first even when the client is not able to see it, and communicating this clearly before any financial or investment strategy is made.
How does a financial advisor add value?
An 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 comprehensive financial planning is provided — which goes well beyond just choosing investments. A financial planner can increase and protect wealth, and smoothen consumption.
Encouraging consistent savings. Saving is the first step to wealth creation; the origin of all investment is saving. Starting early and keeping it consistent lets the investor garner the power of compounding. Educating the investor on the importance of steady and increased savings is a great value the advisor can offer.
Encouraging consistent investment. Market volatility is the price an investor pays for the higher expected return on equity. Studies show that investors who trade the most have the lowest return rate. A financial advisor helps the investor sit through a strategy and stick to it when the going gets tough.
Also read: Are real estate returns hyped over equity?
Financial planning. A comprehensive plan involves tax planning, granular and broad risk management, budgeting, life and health insurance planning, lifestyle management, 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 formulate, adjust, monitor and achieve personal and financial goals. Arriving at the right priorities, managing emotions and expectations, and executing the strategy may look conceptually easy but is monumentally difficult in practice — and that is the real value of a financial advisor.