All of us have some dreams and objectives in our lives that include plans for our kids, owning a house, investing in a business or going on vacations. The goals and dreams change over time.
However, in order to fulfill these wishes without any hitches, you need to plan and manage your finances diligently with the help of a proper financial plan.
Financial Planning is a process of planning one’s own financial future.
Although a financial plan can be done on your own, but it is best to hire the services of a professional. It is similar to visiting a doctor or a lawyer for advice. You can surely opt for self-medication if you have a headache. But would you be doing the same for a more serious ailment ? Will you opt for self-medication or visit a specialist ?
So, it depends on how serious the situation is or how serious you are with your financial future.
Financial Planning is a plan for your sound financial future. If the same is not executed properly — penned down and followed up diligently, the purpose is completely lost! This is where an expert is needed.
A financial planner or an independent financial advisor, IFA can be the perfect answer to your financial needs. However, if still the following questions pop-up in your mind;
- Do I really need a financial advisor
- Is it worth paying a financial advisor
- Can I be my own financial advisor
- How to decide which one is best choice for me
- Should I use a financial advisor or do it by myself
It is normal to have such kind of questions in your mind because it’s all about your hard earned money which you hand over to someone to make the effective use of it and gives you a better result.
5 Factors To Decide Which One Is Best
Financial Advisor or Self Advisor
1. Knowledge and Expertise
Financial Planning is a 6-step process which needs to be written down and then followed to the tee.
A financial advisor studies for about 2 years, acquires in-depth knowledge and gets certified, using which he can actively help to plan our finances so that we don’t have to face any troubles at the time of financial needs.
So, why waste your time on something that is not your forte and risk your hard earned savings?
If your advisor is able to make even a 3% difference to your portfolio in one year, it makes a huge difference to your portfolio in the long run when compounded annually! That is where the knowledge, wisdom and expertise of your financial advisor can play a pivotal role.
2. Changing Market Conditions
You can read a lot of the market news on financial websites and newspapers but what you can understand and relate to your daily investment needs is a big question.
If you are fully conversant with the market scenarios, the changing trends, the conditions and can correlate the same with your investment patterns, then you might as well do the same on your own.
But more often than not, a layman would hardly be able to understand where you should invest your surplus for the maximum yield as per your risk tolerance. Thus, a financial advisor is the best person to update you with the continually changing market conditions and advise you accordingly.
He keeps himself abreast with the ongoing changes in market and possesses the required proficiency that can help you make decisions on your investment portfolio.
3. Wider Choice of Financial Products
Since a financial advisor is aware of the entire bouquet of financial products, he would be the best person to advise you with the perfect solution to your needs. A financial product needs to be solution driven and not product oriented.
Hence a financial advisor will weigh the pros and cons of the product and then advise you according to your needs, goals, tenure, risk appetite and requirement. All the factors need to be considered before a solution is provided and a solution can be a mix or a combination of one or two products as well instead of a single product.
This is where the role of a financial advisor comes into play with a huge variety of financial products at his disposal!
4. Benefit of Advised Over Non-Advised Investment
Like I mentioned, if you have a headache, you might as well buy an over-the-counter paracetamol or aspirin and have it but if you have a serious ailment or a prolonged headache, you have to visit a doctor.
A doctor will never advise medicines without finding out the real reason for the headache. It could be because of multiple reasons and the same can be treated in numerous ways. Similarly,
a financial advisor will check the financial health of your existing portfolio, diagnose your real investment needs and goals and then customize your solutions accordingly.
A doctor has a huge responsibility of saving a person’s life and can also be sued for wrong treatment. Similarly, a financial advisor carries the responsibility of saving a person’s portfolio and making him financially sound. You can take him to task for mis-selling if the product was not well explained and does not meet your financial needs.
Though, it should be noted here that taking the advice of a financial advisor can’t protect you against making losses arising from movements in the market.
5. Cost Factor
Do you hesitate even once before paying your doctor his fees for every visit? No, right? Then why hesitate to pay your financial advisor who vows to take care of your financial health for the rest of your life and release you of a huge amount of stress and time for other engagements?
You need to realize that a professional will behave professionally only if you pay him his fees. There is no free lunch. If he is not changing you anything upfront, there is a hidden cost in the product or somewhere which will fund his advice. Otherwise, why will he spend his time to advise you?
Mutual funds have an inbuilt fee of approximately 1% of the entire Asset Under Management or AUM which is paid out to your advisor. The remaining amount is invested in your portfolio. So, with mutual funds, you get all the above mentioned benefits and advises of the IFA just at the cost of 1% fee.
As Jim Rogers, a well-known financial commentator and author had said,
“Acknowledge the complexity of the world and resist the impression that you easily understand it. People are too quick to accept conventional wisdom, because it sounds basically true and it tends to be reinforced by both their peers and opinion leaders, many of whom have never looked at whether the facts support the received wisdom. It’s a basic fact of life that many things ‘everybody knows’ turn out to be wrong.”
Thus, it always makes much more sense to opt for the services of a financial advisor instead of regretting it later. For that you as well as other investors need to change the way you perceive financial planning and take it more seriously instead of taking it for granted.
Then why postpone your long awaited holiday plans or your dream house? Happy investing!