Why do I need a SEBI Registered Investment Advisor?

Will my data be safe & secure with the advisor?

A Registered Investment Advisor comes directly under the regulations of SEBI and is expected to act as a client fiduciary and hence is bound to keep all information confidential. However, you may insist on signing a Non Disclosure Agreement (NDA) to ensure some legal sanctity as well.

How should I implement the investment recommendations?

It is always advisable to keep the implementation of investments separate from the person who provides the investment advice. This ensures that the advice provided is truly independent of any monetary incentives from the product manufacturers. Even mutual funds provide ‘Direct Plans’ which does not engage any agent and can be directly implemented upon the advice received from a SEBI RIA. Even for investments directly in the share markets, there are reputed online discount brokers who charge a flat fee per transaction instead of a percentage of the transaction amount. Such options will save you huge amounts of money in operational expenses in the long run.

Some advisors may have their family members involved in distribution of investment products, and if the advisor insists on implementing the recommendations with them, you may excuse yourself from doing so and choose the direct mode.

What is the guarantee that the money invested will be safe?

No advisor can (nor is supposed to) provide any guarantees on the recommended investments as they are subject to market vagaries. It would pay you well to understand that even bank deposits are safe only to the extent of ₹1 Lakh through the insurance scheme of the Government of India! Therefore, you need to understand that the investments made require your patience to deliver performance. The key to successful investment is to know the risks involved and create a diversified investment portfolio spread across various asset classes as per your financial strategy determined through the Life Cash Flow Analysis and Feasibility Study of various goals. You may insist that your investment advisor takes you through this process before recommending the investments!

Why do I think I don't need financial planning ?

I am too young / old
While it is true that the younger you start the more beneficial the process will be, financial planning is worthwhile at any age. Although younger people may have more decisions to make regarding their financial lives, changing laws and circumstances can lead middle-aged people and seniors to have to adjust their financial plans as well. Changes in tax law, for example, may require many people to revisit certain investments or estate plans, and adequate disability planning becomes more important as people age.

I save enough
How much is enough can only be determined after you do your need analysis in a scientific manner?

I have enough assets to take care of my needs
What is termed as an asset is itself a debatable issue, however generally an 'Asset' is "what produces an income for the holder." And if left unmonitored assets could lose its value due to market forces and may be insufficient to fulfill the needs when they arise.

I can always borrow when I need
Borrowing of money depends on various parameters such as interest rates, repayment capacity and eligibility which may change from time to time and is independent of the timing of requirement. Therefore complete dependency on borrowing is not recommended.

I don't need to think about retirement, my kids will take care of me
Every individual has his/her own priorities which are more or less decided by circumstances. In such a scenario, it is always advisable to build the nest before it rains instead of depending on someone else, even if that someone is your own child.

My business will take care of me
Business is one of the most volatile sources of income. There are many governing factors such as recession and liquidity in the market which could adversely affect the profitability of a business. Therefore it is recommended to avoid excessive dependency on one's own business and create a parallel passive source of income through an appropriate investment portfolio sufficient enough to provide for the financial goals.

I do enough investments to save tax
Investing to save tax is the most popular practice prevailing in India. No doubt that is one of the strategies of tax planning. However, many a times such investments are done without analyzing the instrument or the financial objective.

My business will always be profitable, so I reinvest all my income into my own business
As the old adage says, don't put all your eggs in one basket even if the basket is your own!! Therefore reinvestment into one's own business should be after budgeting for creation of an appropriate investment portfolio sufficient enough to provide for the financial goals on a year on year basis and also after taking into consideration one's life stage.

I'll always have my job
In the current economic situation, job security is a very distant dream. Almost surely you would get another job, however, there is no guarantee of similar income being replaced in the new assignment and what about the period in between these jobs when there is no income and only expenses? Would you be able to sustain your current lifestyle?

I am insured
Insurance is just one aspect of financial planning. In addition to checking whether you are adequately insured in a scientific manner, we should also take care of the various financial goals in a systematic way by making sure that adequate cash flows are available at the right time.

How can I ensure that my Financial Planner is unbiased?

An ideal financial planner is expected to be totally unbiased towards the client. However you may judge his genuineness by the certification he possesses and by his method of remuneration i.e. fees or commission. A financial planner who provides fee based service is almost always unbiased, because he is not dependent on making money through commission from the investments made, and therefore solutions provided would most probably be in your best interest.

Can I do my own Financial Planning?

Some personal finance software packages, magazines or self-help books can help you do your own financial planning. However, you may decide to seek help from a professional financial planner if:

  • You lack expertise in certain areas of your finances. For example, a planner can help you evaluate the level of risk in your investment portfolio or adjust your retirement plan due to changing family circumstances.
  • You need to infuse more accuracy in what you have done for yourself
  • You don't have enough time to spare for doing your own financial planning

How to make Financial Planning work for you?

You are the focus of the financial planning process. As such, the results you get from working with a financial planner are as much your responsibility as they are those of the planner. To achieve the best results from your financial planning engagement, you will need to be prepared to avoid some of the common mistakes by considering the following advice:

  • Set measurable financial goals.
    Set specific targets of what you want to achieve and when you want to achieve. For example, instead of saying you want to be "comfortable" when you retire or that you want your children to attend "good" schools, you need to quantify what "comfortable" and "good" mean so that you'll know when you've reached your goals.

  • Understand the effect of each financial decision.
    Each financial decision you make can affect several other areas of your life. For example, an investment decision may have tax consequences that are harmful to your estate plans. Or a decision about your child's education may affect when and how you meet your retirement goals. Remember that all of your financial decisions are interrelated.

  • Re-evaluate your financial situation periodically.
    Financial planning is a dynamic process. Your financial goals may change over the years due to changes in your lifestyle or circumstances, such as an inheritance, marriage, birth, house purchase or change of job status. Revisit and revise your financial plan as time goes by to reflect these changes so that you stay on track with your long-term goals.

  • Start planning as soon as you can
    Don't delay your financial planning. People, who save or invest small amounts of money early on, and more frequently, tend to do better than those who wait until later in life. Similarly, by developing good financial planning habits such as saving, budgeting, investing and regularly reviewing your finances early in life, you will be better prepared to meet life changes and handle emergencies.

  • Be realistic in your expectations
    Financial planning is a common sense approach to managing your finances to reach your life goals. It cannot change your situation overnight; it is a lifelong process. Remember that events beyond your control such as inflation or changes in the stock market or interest rates will affect your financial planning results. Therefore it would be better to develop an attitude of 'controlled greed' and 'controlled fear' instead of an unhealthy extreme in both cases.

  • Realize that you are in charge
    If you're working with a financial planner, be sure you understand the financial planning process and what the planner should be doing. Provide the planner with all of the relevant information on your financial situation. Ask questions about the recommendations offered to you and play an active role in decision-making.