Only A Sound Financial Advisor Can Guide You Through The ‘Tricky’ Investment Journey

Naav Tat Par Bahutere Milenge, Bin Kevat Nadi Na Hoga Paar;

Yojnaaon Me Jyaadaa Mat Ulajhana, Sang Le Lo Ek Salaahkaar –Shivam

Translation: Boats are countless along the shore, but for the boatman, you won’t sail through the river;

Don’t get entangled in web of investment plans, take along a financial advisor.’

An anecdote from The Ramayana states that when Lord Ram, along with Sita and Lakshman, was on his way to exile, they reached the banks of the Saryu River. They needed to cross the river to continue their journey. Lord Ram approached the boatman, who was waiting for passengers and asked him to take them across the river. The boatman agreed to take them across for a fee. The Lord agreed and rode the boat.

Not going into nuances of the story, the anecdote highlights the importance of recognising and respecting the services of others. It also illustrates the importance of seeking help and guidance from as expert, as Lord Ram did to cross the river.

Importance of advisor in financial planning:

The need for a financial advisor is very similar to a fitness trainer who understands the value of being physically fit and being healthy. But still, we tend to break from our routine because of being too busy at work or being lazy and lack of time, discipline and knowledge. In fact, here lies the role of a coach who works continuously with the individual to achieve the objective of staying fit and healthy because he monitors your development and manages your nutrition intake and keeps an eye on your exercises.

For better understanding, when someone gets sick for a day, we typically go to the pharmacy and buy medicines over the counter. It often works but what we don’t understand is that it only gives a temporary relief. What if the discomfort lasts longer, we tend to visit a doctor for appropriate diagnosis and treatment.

Similarly, most of us are hesitant to take assistance when it comes to managing our own finances because they feel that ‘it is a waste of money and time’. They are hesitant to discuss money problems with anyone.

Financial issues are complex, intricate and sometimes hard to comprehend.

Hidden costs and risks:

They are happy with the job and living peacefully with the available resources. They don’t see any point in seeking the help of experts for financial planning and wealth creation. Most important, they believe that they have mastered the art of investment and financial skills.

It is always seen that an individual invests hard-earned money based on hearsay or believing someone who does not have any expertise on financial planning. This invariably leads to huge disappointment due to huge losses.

The first mistake an individual makes is trading in stock market thinking that he would mint money without realising that it is highly risky. He can lose most of the money in the short to medium term. Over the years, evolved investors have become more matured and have either held to their investments during market crashes or have taken course correction, which means that their risk-taking ability has increased.

However, the trend is not the same when it comes to those fresh into their jobs. It is observed that they continue to be fragile and unrealistic while opening a trading account in the F&O segment without realising the risks in the derivatives market. The basic premise of making a quick buck doesn’t hold true for most of the time and it is important to understand that there is no shortcut to making quick money. One may be lucky once but not often in the dynamic market conditions.

Let me narrate a live example that at times the same investor after making 2X or 3X returns with the help of a financial advisor suddenly takes an abrupt decision of discontinuing the services of the advisor as he feels that he has mastered the art of investing and he can do a better job and starts investing on his own.

It is observed that in most of the cases, the investor realises over a period that they do not possess the required knowledge and skill in managing their finances and thus taking a decision of going on their own was a mistake as they had invested in wrong asset classes.

A genuine financial advisor not only tells you what to do but also helps you with better choices or options for a more rewarding decision-making framework. No matter what stage of our life we are in, we need to seek help of experts who could help in looking beyond our immediate needs.

The role of a financial advisor is not about selling a product, but it is all about analysing the overall financial health of your family. He suggests areas of improvement and cautions you against unnecessary spending to help the individual to accomplish the financial goals. They not only come with an in-depth knowledge of products and markets but provide workable solutions to speed up the process of achieving the said goal. The basic understanding of finances from an expert not only helps in making things simpler in understanding the characteristic, risk tolerance but also helps in reviewing the portfolio on a periodic basis.

Financial planning is not only about selling financial products but also about giving genuine advice to an individual after accessing the needs or requirements of the investor.

The role of the financial advisor is not only to help an individual to reach financial goals sooner but also help them to understand the nuances of products, risk tolerance, taxation and markets in managing the funds over both short-term and long-term.

Along with investments, a financial advisor also helps in transferring wealth to the family members and nominees in case of an unforeseen event.

In fact, the journey of financial planning is all about discipline and improvising by making amends to past mistakes. Once bitten, twice shy, as they say!

And a good financial advisor always stands beside you through the ups and downs of the investment journey.

(The writer is Executive Vice-president, SBI Funds Management Ltd; Translation and content by Manoj Kumar Sinha, executive Vice-president and Zonal head (West), SBI Funds Management Limited)