A person suffering from an ailment or involved in a legal wrangle seek a doctor or a lawyer for professional help. However, if he must invest his hard-earned money then he will shy away from seeking a financial adviser. A financial advisor is a professional who provides financial guidance to clients based on their needs and goals and helps manage their money including investments and other accounts. There are two types of advisers: Fiduciaries are the ones who charge a fee for their advice and holds assets in trust for a client; the others are distributors who earn commissions from the products they sell to their clients. Then there are financial planners who are professionals helping companies and individuals create a program to meet long-term financial goals. In India, due to the proliferation of the financial industry, the same entity performs the dual task of planning and advising the clients. Financial advisors choose investments for a client by assessing the investor’s tolerance of and capacity for risk. Often, a person seeks a financial advisor after suffering a loss of investment, or due to a windfall of capital, or for his need to save for retirement. As per the third CFA institute investor trust study report, 70% of Indian investors hire professional advisers vis-à-vis 54% globally.
Why does one require a financial advisor in today’s digital world? After all, so much information
is freely available on the net and number offer-based Robo-advisory services have also sprung up in the market. Nevertheless, self-investing is as harmful to your financial well-being, as for the health of the people indulging in self-medication after researching on the internet. Although there is a lot of data and information available in the public domain but is it enough for the investor to take prudent financial decisions? Data available on the internet is raw, unorganized facts. When somebody processes, organizes, structures, or presents this data with reference to a context, it becomes information. Both data and information are freely available and easily accessible on the internet. However, the retail investor lacks the experience and insight to combine with this information, which we term as knowledge. When the individual applies this knowledge to discern and makes good judgments about what is the right thing to do in a situation, he has then gained financial wisdom. The ancient Greeks called this ‘practical wisdom’ as Phronesis.
Recently, I read an article by Radhika Gupta, CEO Edelweiss Asset Management Limited, where she imaginatively coined an acronym PEACE. She discusses that the financial adviser brings peace and comfort to the client. The acronym PEACE per se had the following important elements:
Trust and service are the two most important facets of any adviser-client relationship. It takes time for an adviser to reach the stage where his client starts trusting him. To do this, the adviser must provide detached and candid advice that is always and every time for the betterment of
the client. On the other hand, the client must learn to rely on his adviser through good and bad market times. In today’s time, service plays an equally important role in fostering the adviser-client relationship. To provide quality service, the adviser must use technology for the portfolio management of his clients, generating timely reminders to them about impending investments and withdrawals, initiate properly vetted periodic portfolio reviews to the clients, provide value-added services through online portals and mobile apps, enhance digital outreach through innovative and targeted use of social media.