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Wealth building is a top priority for many Indians. Still, an overload of information and lack of knowledge is leading many Indians to believe they can handle everything themselves without professional help. This is clearly evident as the ratio of financial advisors per million people in India is low when compared to countries like the US.

Whether you are new to your job or soon to retire, planning for your finances is important. This is where financial advisory becomes essential. 

But what does being a financial consultant entail? More importantly, how can you choose the right financial advisor to help you build wealth? Let us find out. 

What is a Financial Advisor? 

In simple terms, a financial advisor is a professional who helps individuals, families, or businesses make informed decisions about their financial resources.

Defining financial goals involves identifying personal and overarching objectives that you aim to accomplish in the future. These goals can be categorised into three distinct timeframes: short-term, medium-term, and long-term.

Now, what does a financial advisor do? 

What is the Role of a Financial Advisor? 

The work of a financial advisor is very extensive. Thus, understanding the financial advisor roles and responsibilities is important. 

A financial consultant/advisor can:

  • Choose the best investment options, like stocks, bonds, mutual funds, gold, etc., that work for you 
  • Analyse your risk tolerance, time horizon, and financial goals to suggest an optimal asset allocation mix that balances potential returns with an appropriate level of risk
  • Provide detailed step-by-step customised financial planning tailored to your situation and financial goals
  • Guide and support you on budgeting, instilling good savings and investing habits
  • Among other things, they also offer customised debt, insurance and estate planning 

Types of Financial Advisors 

Financial consulting can be done in various ways to help investors achieve their goals, such as: 

1. Registered Investment Advisors

A registered investment advisor or RIA is a person/firm, who for consideration, is engaged in the business of providing investment advice to clients or other persons or groups of persons. They are registered with SEBI and charge an advisory fee. Also, to offer these services, they need financial advisor certification. 

2. Distributors

In India, these are advisors who are not registered with SEBI as RIAs. They are affiliated with financial organisations and sell financial products like mutual funds and insurance and earn a commission for that. 

3. Wealth Managers 

Wealth managers provide comprehensive financial consultancy services. They usually deal with people with high net worth and handle all their financial needs like retirement, investing, insurance, legal, tax and estate. 

4. Stockbrokers and Investment Consultants 

Financial brokers facilitate the buying and selling of securities, while investment consultants provide personalised guidance in selecting the most suitable investment instruments tailored to an individual’s unique financial profile.

Understanding investment/financial consultant vs financial advisor can help you make the best decision. 

5. Robo-Advisors 

Robo advisors or AI financial advisors have gained popularity in recent years in India with the rise in technology. The online financial advisor in India uses automated platforms and algorithms to offer financial advisory. Though cost-effective, this kind of online financial advisors services lack human touch. 

Classification of Financial Services Offered 

What is the work of a financial advisor? Qualified financial advisors offer various types of financial services:

1. Investment Management 

Financial advisors in India assist their clients in building and managing their investment portfolios based on their risk profiles. They help in choosing the right mix of assets, like equity, gold, bonds, etc, based on your risk profile, financial goals, and time horizon. 

2. Retirement Planning 

Are there financial advisors for retirement? Yes. Retirement financial advice is crucial keeping in mind inflation. A retirement financial advisor helps in securing retirement by choosing the right pension products like provident fund, National Pension Scheme (NPS), etc. 

Mutual funds are also at the forefront of retirement planning especially via the SWP (systematic withdrawal plan) route. SWP allows retirees to generate regular income streams by systematically withdrawing predetermined amounts while keeping the remaining corpus invested for continued growth.

3. Tax Planning 

Tax planning is also another aspect that financial advisors take care of. They help in minimising tax liabilities by choosing the right tax-saving investments like Equity Linked Savings Schemes (ELSS), provident fund, and NPS.

*Note that, ultimately, all clients should consult their respective CAs or registered tax practitioners and make an informed decision.

4. Estate Planning 

Financial consultants can help clients plan for the distribution of their assets after their death, including creating wills and trusts.

5. Risk Management and Insurance Planning 

Choosing the right insurance product is also important. Financial advisors assess the risk exposure and recommend the suitable insurance products that the client needs.

Fee Structures of Financial Advisors 

There is no such thing as a free financial advisor or free financial advisor online. Those posing as free financial advisors often earn commissions by pushing financial products that may not be suitable for you and that may be detrimental to your portfolio. 

So, knowing and understanding the financial advisor’s cost is also important before you select your financial advisory services partner. 

Also add how those posing as free advisors may be detrimental to your portfolio.

1. Fee-Only Advisors 

In this structure, the advisor charges a fee in exchange for the advice provided. The fee could be a flat fee or on an hourly basis or based on the project. 

2. Commission Based Advisors 

Here, the advisors are paid when you make a purchase or sale of an investment through them. In simple words, they charge a commission from the mutual fund or insurance company for selling you their products. 

3. Fee-Based Advisors 

In this kind of structure, the advisors charge an annual fee based on the assets they manage. For instance, if the advisor manages Rs 5 crore or more of your assets, they can charge an annual fee on your total investment. 

How to Choose the Right Financial Advisor? 

Today, many financial influencers, commonly known as fin-fluencers, share financial advice and recommendation on social media. Majority of these influencers are not qualified or registered with SEBI. This presents two key risks: quality of advice and lack of disclosures present on their social media posts. Following their advice blindly could be detrimental to your portfolio. 

And thus, selecting the right and good financial advisor is a critical decision. 

So,

  • Assess your financial needs before selecting any financial advisory firms 
  • Check the advisor’s qualifications, certifications, and experience. In India, SEBI registration is a must 
  • Ensure personal advisors/financial advisory companies are legally bound to act in your best interests and 
  • Knowing financial advisor charges in India is also an important step. Choose a fee structure that aligns with your preferences and budget
  • Some virtual financial advisors also provide financial advisor apps for better engagement. 

Benefits and Drawbacks of Hiring a Financial Advisor

BenefitsDrawbacks
Access to professional knowledge and insightsFinancial consultant services can be expensive as financial advisor is not free
Tailored plans to meet individual needsCommission-based advisors may prioritise selling products over providing unbiased advice
Offloads the burden of managing financesSome investors may depend too heavily on their advisor’s decisions instead of staying informed about their finances.
Advisors have access to advanced tools and resources Not all advisors provide the same level of expertise and service

Conclusion 

Remember, a competent financial advisor/financial advisor companies can be a valuable partner in reaching your financial goals. 

Take time to find a financial advisor. Understand the different types of financial service advisors, the services they offer, and their fee structures before you hire a financial advisor. A well-informed decision and a qualified financial advisor can help you reach your financial goals faster!

FAQs 

What is the difference between a financial advisor and a financial planner? 

Financial advisors and financial planners might sound similar. But there are differences between them. Financial consultant services advisors focus more on handling an individual’s investment portfolio. They also provide financial planning services. In contrast – a financial planner considers the person’s long-term financial goal setting and the entire financial picture. 

How often should I meet with my financial adviser? 

There is no fixed rule. Annual reviews are more common. It all depends on your personal financial goals. If there are any major changes in your goals, then you may require more frequent financial consulting services. 

Can a financial advisor help with debt management? 

Yes, there are financial services consultants for debt management. They can help you make a plan for debt repayment. These finance experts can do loan restructuring and help in budgeting and refinancing options.

What should I bring to my first meeting with a financial advisor? 

You can bring documents such as your income statements, debt details, investment portfolio details, and more to provide a comprehensive overview of your finances.

Is it necessary for a financial advisor to have a fiduciary duty? 

Not all financial advisors are obligated to prioritise their clients’ interests, but Registered Investment Advisors (RIAs), Certified Financial Planners (CFPs) and Chartered Financial Analysts (CFAs) are held to a higher standard. By law and ethics, they are required to act as fiduciaries, placing their clients’ best interests above all else.