It’s the age of hyper-connectivity. We are more connected to each other than ever before and also, more connected than required. With information flowing from all directions, more people are aware of things. Or, do they just ‘know’ about it without any comprehension of the basics?
More advisors than money
We should know that too much information has given rise to too many self-proclaimed experts. Of course, for a long time, there have been big investors who nudge people to take some action by dropping subtle hints. We can’t forget the experts on business news channels, can we? To make matters more complex, the latest breed of experts are the influencers who flood social media with their unsolicited financial advice.
The problem this over-supply creates is that it creates a grey area between the genuinely good advisors and the ones who are not. That’s the area where most investors get stuck because the ones who give great advice charge a lot and the thought of ‘growing money’ and ‘Rs. 10 to Rs. 10 lakhs’ are too tempting for small ticket investors to let go.
The fine line between advising and hard-selling
There are basically two types of advisors we can find in the market – ones who genuinely advise what’s best for your goal and overall financial health. The other kinds are the ones who will sell, rather than thrust it into your mind, their services whether you really need them or not in return for a fee or commission.
What investors should know is how much they can afford to pay the advisor and weigh it against the potential returns. But before that, they should try to evaluate how much they can set aside for investment after having enough for all other needs. Whether the investment in the suggested avenue is suitable or not – in terms of risk, tenure, liquidity among a few others.
It’s quite natural that we tend to take a stranger’s advice at face value, especially when that stranger seems to be a professional and is telling us what we want to hear – small investment, less time, great returns, etc. Due to a lack of financial awareness (about how money can be managed), how the advisors work, and the basics of investing, it’s no surprise that most of us give in to the rosy picture painted only for us.
What one should expect from an advisor?
This is one of the aspects that most investors seem to get wrong. People go to a financial advisor to get some counsel on how to get their finances sorted, in general, or for a specific goal, because they DON’T KNOW how to do it.
Their role is to mitigate the potential investment risks and tap into opportunities when it’s there. Because they have a degree or two in finance doesn’t mean that they can achieve a 2x, 5x growth on their investment in a month’s time. It’s possible only in beautifully written movies.
Do you really need an advisor?
While we prefer to have control over everything that’s ours, especially our hard-earned money, most of us worry, rather fear, about handing over the responsibilities of looking after our savings to a professional investment advisor. However, we also blindly trust the experts on social media who have no track record to show except screenshots of 5-figure numbers marked in green.
But then, one might think ‘Why not manage money on our own?’. Yes, it is possible and many people do it. But one needs to consider how much time and effort are required to manage money EFFECTIVELY. Of course, knowledge about the investment avenues is a prerequisite that most people won’t have. That’s why it’s better to let the experts do the work of managing money if one lacks expertise or time or both.
But how do we choose an advisor who takes care of our savings and works in our best interests?
How do you choose a financial advisor?
Before we get to the ‘how’, we need to know about ‘when’. When should an investor seek a financial advisor’s services? The answers are fairly simple, but many. A few obvious ones would be when you are not aware of how to go about your finances and the other being when you don’t have the time to put effort into learning or when you have a specific goal for which you plan to keep the finances ready. Of course, retirement plans are also on the list.
Now, let’s move to the ‘how’ part.
TRUST is the biggest factor when choosing a financial advisor. Keeping that in mind, one should consider:
- the advisor’s authenticity (license from the relevant authority),
- experience,
- the way relationships are built with clients (talk to existing clients) and
- of course, how much they charge as a fee. If it is satisfactory for you for your investments, go ahead. If not, check with other advisors.
Also, you may not find the ‘ideal’ advisor who ticks all the checkboxes. You need to prioritize your goals and strike a balance.
Now, before you start looking for your ideal advisor be clearly aware of which part of your finances requires expert advice or monitoring because advisors have expertise in different areas and you need to have the right one for your finances.
As an add-on, keep this in mind: Advisors are NOT MAGICIANS. They only manage money in the best way possible way in a given scenario.
You are what you give attention to
It’s necessary to be aware of the fact that managing one’s money involves more clarity in thoughts and then a bit of decision-making. The answers to ‘why’ and ‘when’ one should consider investing precedes ‘how’ and ‘where’ to invest. Yes, we all have got only one life and that’s a good enough reason to not make a mess of it by listening to every Tom, Dick and Harry of investment we come across in our day-to-day lives. Like Charlie Munger says, “People calculate too much and think too little”. Don’t be one of those ‘people’. Think and choose your advisor.
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