In a country where event managers are paid for organising weddings and nutritionists are
paid for making diet plans, financial advisors struggle to make a case for earning a fee.
Only a small segment has managed to break through the resistance. Investors continue to
save, invest, and borrow without any framework or process in place and assume they can
manage their money. Why does one need a financial advisor at all?
There was a time when getting a job meant meeting “commitments.” There were siblings
who needed college education; there were marriage expenses; and, there were elderly
parents to take care of. Today, a young earner begins financial life on a firm footing – a
regular surplus income. He acquires a bank account and a debit card with the job. By the
end of his first year of earning, he has bought some tax saving products and applied for
loans. He has not engaged a financial advisor, yet.
If the earning class wants to focus on enhancing its income, it needs someone to take care of its surplus and keep its financial life in
order. Engaging a financial advisor is not a felt need when the power to be able to spend keeps one confident and fearless about the
future. But, soon enough, our young earner begins to default on that education loan, does not file tax returns in time, does not know
where his tax-saving policies are, and finds himself locked into a house at a location where he is no longer working. It is rare to find
earners with well-ordered financial lives. This is why anyone who earns, needs a financial advisor. Someone who will walk with you and
work for you, and ensure that your finances are in order. Let me list a few simple things an advisor can enable every earner to do.
First, they should be encouraged to save a portion of their earnings. Just as a personal trainer will motivate you to hit the gym every day,
a financial advisor will ensure that you have set aside a portion of your income for yourself. Many earners believe that they can do it
themselves, and see this as too simple a task for an advisor. Many advisors think that unless they get a complete account of all income
and all expenses, including the electricity bills and payments at restaurants, they cannot determine the earner’s saving potential. A
simple engagement that asks a percentage of the income to be saved is a good starting point.
Second, earners should have a default choice to convert their savings into investments. Many of us save regularly in our Provident Fund
(PF) and are not even aware that a fixed amount from our salary goes into a basket of fixed income investments. Earners need to
realise that such default choices help them in the long run. Advisors tend to think they can make investment plans only after a
comprehensive financial planning exercise — and get caught in the web of information and analytics they like to collect about the
investor — before beginning to talk about a product.
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If 12 per cent of the salary is already saved in the PF, setting up another 12 per cent in a diversified equity mutual fund would do no
harm. A monthly SIP (systematic investment plan) into two such funds, chosen at the start of the year and, reviewed every year, is
adequate for most purposes. The earner needs an advisor so that this allocation hap-pens after careful consideration of choices, and so
that a good fund is selected. Third, they need tools to deal with the unexpected. There are times when unexpected expenses hit the
family budget; there are times when unexpected income comes in in the form of bonus and gifts. Borrowings hurt the saving ability;
poorly allocated funds may end up in losses. An advisor should be the first port of call, when taking such important financial decisions.