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Role of a Financial Advisor
Papa invited almost 500 people to the wedding. It is my youngest daughter’s wedding, after all, he kept telling everyone. He had already married off two kids and I was the youngest. All the guests praised the arrangements of the event. Papa was humble, like always. He was polite to all the guests. But there was one man who he treated with the utmost respect. He is a special friend, Papa always said.
Papa’s special friend had been with him for a long time. He consulted him for every decision. Sometimes it made mother furious. She rebuked Papa for trusting this friend a little too much. It was just after Papa’s retirement that he told us about this friend. He is my financial advisor, he told us one day. And suddenly all of it made sense.
There was a reason why this friend knew everything about our family. Our financial position, our needs, and aspirations. Papa shared all this with him so that he could help Papa plan and fulfill the expectations of his family. He helped him plan his children’s education, their weddings, and his retirement. He helped him with Papa’s financial planning and was with him through the ups and downs of it all.
What is Financial Planning?
When you start a journey, you need to plan a lot of things. The budget, the time and place from where you will start the journey, what will be the mode of travel, where will you stop and take a break, etc. You also need to have a backup plan for emergencies. An experienced travel planner helps you plan out the minutest details of your journey. He is well-equipped to handle emergencies also.
A financial advisor is like your travel planner. He helps you plan the details of your financial journey. How much and where should you invest, when should you exit the investment, what should you do in case of an emergency, and much more?
Financial planning is careful consideration of your financial milestones vis a vis your financial position and behavior. It includes expected growth in your income and expenditure. For example, children’s education, weddings, foreign vacations, buying a house, and retirement planning are common financial goals. Financial emergencies such as ailments are also to be considered while planning.
Financial planning needs expertise and experience. It needs a thorough study of financial markets and tools. An ideal financial plan is a result of an in-depth analysis of financial products and the risks and returns associated with them. And this is what a financial advisor does.
Role of a Financial Advisor
A financial advisor is to your financial planning, what a captain is to a ship. A captain guides a ship and its crew to reach their destination safely and efficiently; a financial advisor guides individuals and families to reach their financial goals through proper planning and decision-making.
An experienced advisor will help you plan your finances in a way that you can achieve most of your goals. He/she has an in-depth understanding of financial products and will help you choose the ones suited to your needs. There are various investment options like equity mutual funds, debt mutual funds, P2P platforms, bonds, etc. Your financial advisor will explain the risks and returns associated with these products so that you make an informed decision. Ideally, different financial products should be mapped to different needs so that you can optimize the return of your portfolio and achieve your financial goals.
Papa’s special friend knew exactly what we needed. He understood the challenges and strengths of Papa’s financial behavior. Papa was running a big household on a single salary but was committed to fulfilling the aspirations of his family. His financial advisor suggested that he invest small amounts every month through SIPs. At any time, Papa had surplus funds, he added them to the portfolio through lump sum investment. His discipline worked in his favor even when he had limited investing capacity.
Papa had different financial products in his portfolio, dedicated to different financial goals. He had a mix of FDs, mutual funds, equity, and bonds. Papa did not understand the complexities of the market, and he was often disturbed when he heard sensational news about the market going up and down. That is when Papa’s financial advisor came to his rescue again.
A financial advisor not only helps you plan your financial journey but also makes sure that you stay on track. Just like a ship’s captain, who gauges the weather and adjusts the speed and direction of the ship to keep it safe, an experienced financial advisor monitors the portfolio closely and suggests changes during the course. No matter how meticulously you plan, there will be challenges and obstacles. An advisor who has experienced the turbulence of the market cycles will know what to do to steer clear of the dangers and navigate through difficult times.
An experienced finance advisor can use their market knowledge and expertise to develop a diversified investment strategy that reduces the risk of losses and provides long-term growth potential. They can also provide guidance and support to help you stay disciplined and avoid making emotional decisions during market upturns and downturns.
An important part of the financial advisor’s role is behavior nurturing. Your financial behavior is a product of your emotions like fear, greed, and regret of past decisions. And as humans, it is very natural to act on these emotions. However, your financial planning may have adverse effects when these negative emotions overcome your logical thinking.
While you will be tempted and overwhelmed during dips and spikes to make irrational decisions, it will only harm your portfolio. Your financial advisor with his understanding and experience of financial market help you stay calm till the storm passes.
I remember a time when someone had suggested a lucrative scheme to Papa. The investment scheme promised exceptional results and claimed to be immune to market movements. Papa had made up his mind to invest in it. But his financial advisor explained that schemes that sound too good to be true are often shams. In financial market no investment is completely immune to market fluctuations and it’s always important to thoroughly research and understand the risks involved in any investment opportunity before committing your money.
What will a Financial Advisor not do?
A financial advisor is a skilled professional, not a magician. He uses his skills and expertise to understand you, your aspiration, and suggest apt products. The predictions are based on a lot of research and analysis but there is always a small margin of error. The market sometimes may outperform all predictions, but there have been instances where it succumbed to unforeseen socio-economic factors and went against the predictions. No financial advisor can predict such movements. But they can help you minimize the risk in turbulent times.
Similarly, the financial advisor can help you optimize the returns on your portfolio but not guarantee anything. He/she may find the best-suited products for your portfolio but you have to give it time to grow. No advisor can make you rich overnight. You must heed his advice and not succumb to lucrative and risky investment opportunities. It’s important to be cautious and not get swayed by the promise of high returns without fully understanding the risks involved.
Although Papa respected his financial advisor, he often complained that he did not agree with him on many occasions. Years later, Papa thanked him for his disagreements because they safeguarded his investments and fetched the best possible result for him. Your financial advisor will not agree to everything you say. You may be lured by ‘too-good-to-be-true’ investment opportunities. You may also be tempted to make unreasonable expenses. A financial advisor’s role is to provide objective and unbiased advice, which may not always align with your personal opinions or desires. But remember that a financial advisor has your best interest in mind and may advise against certain decisions that could potentially harm your financial situation.
A parent can give many gifts to a child, but the gift of financial wisdom is the best. Although one of the ground rules of investment is to start as early as possible, it is never too late to plan your finances. Ask your friends or family for suitable recommendations for financial advisor and hire one who can understand your needs and goals.
