What you should not expect from your financial advisor - Motilal Oswal
What you should not expect from your financial advisor - Motilal Oswal

What you should not expect from your financial advisor

Financial planning is all about leveraging on your assets and your income to meet your long term goals. The task is made much simpler if you have a committed and professional financial advisor to guide you through the process. The financial advisor is, in many ways, like your family doctor. Your family doctor with his knowledge and his proximity to your family can ensure that you have a healthy life. But, he surely cannot make you immortal. Similarly, the financial advisor can guide you along the right path to wealth creation. But, no financial advisor can actually build wealth or make you rich. There are no guarantees in financial planning. It is important to know what questions to ask your financial advisor and what to expect from a financial advisor. While focusing on things to discuss with your financial advisor, here are 6 things you must not expect from your financial advisor.

 

Help you realize unrealistic goals

Even with the best of financial advisors, you must not aim for unrealistic goals. If you are having a goal for the future, then it predicates on two things viz. the rate at which you can invest in and time left to achieve the goal. Let us look at realistic and unrealistic goals with respect to return expectations and time to maturity.

 

DetailsTarget CorpusMonthly SIP14% CAGR23% CAGRRetirement goal after 20 years (A)Rs.3.50 croreRs.10,000SIP of Rs.29,826 pm neededSIP of Rs.9,683 pm is enough


REALISTICUNREALISTIC

 

In the above example, the person wants to create a corpus of Rs.3.50 crore as retirement corpus after 20 years and is willing to save Rs.10,000 per month. In that case he needs to ensure that his monthly SIP of Rs.10,000 compounds annually at 23% CAGR to accumulate Rs.3.50 crore. That is not a practical assumption. If he wants to achieve Rs.3.50 crore in 20 years then he must be willing to invest Rs.29,826 per month at 14%, which is a more realistic assumption. Or else, the investor must be willing to reduce his fund requirement. No financial advisor can help you achieve unrealistic goals.

 

Give solutions without your 100% involvement
There is a joke that if you want the doctor to give you a diagnosis of your problem without your cooperation then you must be visiting a vet. The crux of the matter is that like in case of your health, your wealth creation also largely depends on how much you cooperate and how closely and actively you engage in the entire process. From the setting of goals to budgeting to identifying the investment mix, your 100% involvement will make the plan a success. On his own, you cannot expect the financial advisor to deliver results.
 
Have expertise on specific investment products

Remember, that financial advisors are specialized in financial planning and asset allocation. They are not specialized in specific mutual fund schemes or specific insurance policies. That is not their forte and that is not something you must even expect from your financial advisor. That is why, financial advisors normally stick to asset allocation and then create an investment universe for you to select from based on objective criteria. Do not expect  your financial advisor to have granular and micro knowledge of specific products in the market.

 

Be consistently profitably year after year

With the best of portfolios and the best of your financial advisor’s intentions, your portfolio is not going to perform remarkably well year after year. There are occasional years when your portfolio will underperform the index and the peer group. In a long period of 20 years, 2-3 such bad years are perfectly acceptable. You should only be worried if your portfolio is consistently underperforming the benchmarks. Your financial advisor is not a superhuman, after all. As long as he puts your goals on the right track, you are in business.

 

Give you ideas for earning windfall gains in the market

Many investors tend to mistake the role of the financial advisor with that of an investment advisor or a broker. Typically, your relationship manager at the broking house will give you specific advice on stocks for buying and selling. You must not expect these kinds of windfall gains ideas from your financial advisor because that is not his expertise in the first place. Your relationship with the financial advisor is more towards reaching your long term goals in the best possible way. Windfall ideas will not come from your financial advisor.

 

Support you outside the scope of your term-sheet

Your relationship with your financial advisor is a relationship of trust. There is a tacit agreement that the financial advisor will always work and advise in your interest. But the scope of the relationship is defined by the term sheet that you sign with the advisor. If you ask your advisor to stretch his resources beyond the call of duty, then it may not be always feasible. Stick to the scope defined by the term sheet because that is what your financial advisor is being compensated for. You really cannot expect your financial advisor to continually help you outside the ambit of the term sheet!

 

What the financial advisor will do is spelt out in the term sheet. But, it is for you to understand what you must not expect from your financial advisor.
 

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