The Role of the Financial Advisor
The person who has the capability of enhanced knowledge and expertise to aid the investors in the investment to have expected positive returns is called a financial advisor.
The work of a financial advisor is classified into two categories such as Registered Investment Advisors (RIA) and Equity Fund Distributors. On one hand, when it comes to the mutual fund products the mutual fund advisors are licensed by the Association of Mutual Fund of India to deal with the mutual fund schemes. The mutual fund advisor doesn’t charge fees for their clients but they are entitled to a reasonable commission from their respective Asset Management Company. On the other hand, Registered Investment Advisors are all-rounder players authorised by the SEBI to assist their clients in the investment decisions. The services and products offered by the RIA are based on multifarious variants which also have their branches on various other financial securities. The registered investment advisors usually charge their clients for their services.
The Importance of the Financial Advisor
There is no need for a financial advisor to guide in investments if the investors have a well-established psychological mindset with doubtless and sanguine decisions in the investment process. The investors can also directly go for the mutual funds as there are transparent packages launched by the AMC’s in the market. But, if the investors are assumed to be capable of investing without their financial planning partner, they must be prudent about the inherent risk factors present in the market. There are chances for possible damages in the financial portfolios when going towards mutual funds.
Benefits of a Financial Advisor
- The preliminary requirement in the investment process is to know the age risk factor as the investments are calculated based on the future. This type of analysis is best done by a financial advisor as the risk profile and age test will be done by him comparing the market condition and the investor's financial position.
- The investor must be aware of the KYC (Know Your Clients) progress, as the newbie investors may not be aware of and the financial advisor is needed to step into the picture.
- To focus on the right plans and also to relieve the burden by monitoring and following the investment portfolio, financial advisors are regarded as the golden hands to guard both the investors and the investment.
- Financial advisors are possessed with the ability to direct the clients matching their particular needs and also to make sure that they have relevancy regarding the mutual fund products in the markets, taxation, and their risk proportion, etc.,
- The market is favourable to successful investors is due to their patience and discipline which will be a question mark for most of the independent investors. The independent investors will get stressed due to the uncertain market variants as it is volatile and tend to make a wrong decision in which there will be no pullback.
- When it comes to the paper transactions, financial advisors are a sure time-saver as it consumes a lot of time than online transactions in investments.
The need for the DIY approach
The cost of cutting management is one of the merits in terms of direct investment. But, the investors must be aware of the loss happening during the times of wrong investment actions. Whether to check if a DIY approach is needed or not, there are some indicators to be taken note of. The points for the concept are enumerated below:
- Whether the investor has sufficient groundwork expertise?
- Is he being capable of performing online trading transactions?
- Whether he is devoted to keeping himself in the updated market trends by following the market indicators and the stock market?
- Whether he has potential knowledge about different asset classes and their returns in the market?
- Whether he knows about the different cycles in the investments and the interest rate in the equity and the debt markets?
- Whether he has sufficient time to examine his financial portfolio to update it with the updated market operations?
- Whether he can compare the different schemes and the different stocks in the market matching his level expectations?
Qualitative Characteristics of a Financial Advisor
As far as I am concerned, financial advisors should also be scrutinized like the investors to initiate a background check before the investors are investing. Whether the investors have thought that since the mutual fund advisors will get remunerations for their process, they are possibilities that they can even sell the wrong products to their clients to enjoy higher profits for their parts? If they are caught in such an act, the penalties for such behavior will be more stringent and irreversible. The investors must know about such provisions when they find out that the advisors are going reverse.
There are some qualities for the financial advisors to be looked into before them. The following categories of qualities are discussed below.
- Shrewdness in delivering the active changes in the market: It is the habit of the investors to address their clients since they are investors regarding the volatile changes in the market. There are no excuses in this issue as the advisors are informed beforehand about the market conditions and its functional trends and operations.
- Transparency and the Confidentiality of the Advisors: Another checkpoint for every financial advisor is their honesty. Investors should understand that Honesty is the best policy concept that works in the capital market also. The investors should read their investors whether they are genuine in their job when they bring up new schemes to their clients by explaining the need of the investor to invest in such schemes and policies. Do the advisors explain in the respective local languages in a simple elaborative manner regarding the portfolio schemes? Whether there are meetings conducted by the financial advisors frequently regarding the changes in the market to their clients. Was he honest with his clients, if there are mishaps in the investments made by him on behalf of his clients? Does he disclose to them about the mistakes that happened? The advisors will be honest if they have made the wrong recommendations. They will also correct their mistakes in the future.
- Loyalty Grounds: To check whether she is trustworthy or not, the investors have to be sure about them and to rectify that there should be meetings with those financial advisors to earn their trust.
- Time Management with their Clients: The investors need to be aware that it is their money the advisors are going to deal with. The investors should analyze the time parameters they are spending with their advisors. They need to check whether the advisors spend enough time with him. If he is very much interested in his client’s financial position, scheme progression, etc., The investor should also monitor whether the financial advisor is in a hurry in closing the deal without any clarification.
- Solicitous Attention is given by the Financial Advisor: The first-time investors are always in a dilemma of fear even if they are in a tie-up with a financial partner. They need more solicitous attention from their financial advisor and the financial advisors should solve any queries or problems arising from their investors. And the best advisor needs to be there with such types of investors. To test the patience and their servicing, the bear market investors are perfect people to pair them up. The bear market is known for its volatile market cycle and the investors will look for their advisors near their shoulders.
So far, we have discussed the effect which an investor will experience when he invests through a financial advisor lending him a third hand. But the anonymity of the power rests completely with the investors whether to hire a financial advisor or not. If the investors are knowing the market, they can even move solo without anyone’s help. But, in reality, financial investors are indispensable for all kinds of investors as there are enormous investors in our country.
Whatever the investors may try to do, the investors must know the fundamental knowledge about the market and its variants and its conditions irrespective of their solo performance or with the help of an advisor.