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Why your tax planner should not be your financial planner?

24 Jul 2023

For a very long time, the typical Indian financial planner was the chartered accountant who filed your returns and also doubled up as your financial planner. At that point of time the world of investing in India was quite small and not as complex as it is today. Today individuals have become more ambitious and are concerned about planning in advance for their retirement, the education of their children and their other long term goals. A 25 year old executive who is just out of B-school is already planning for retirement. That was unheard of even 10-15 years back. This complexity calls for a separate and unique specialization that helps you in achieving your long term goals.


Let us understand some basic differences between a financial advisor vs tax advisor. Can financial advisors give tax advice? Of course they can, but you would be better off approaching a professional CA to address like preparing your financial statements, preparing your returns, getting tax advice etc. Do financial advisors help with taxes? More often than not, financial advisors have a team with expertise in domains like investments, products, insurance, taxes, process, government interface etc. Here are 8 things to know..


Holistic versus situation-specific approach

Financial planning is more holistic and it covers your risk and returns, your long term goals, your insurance plan, your debt / equity mix, personal net worth monitoring. The financial planner typically begins with the goal in mind and then guides you through the entire process. More importantly, the financial planner tempers your expectations in terms of results and forewarns in terms of risks. Tax planners are more situation-specific and are worried about reducing your tax liability through the various safe and secure investments in the market. Tax reduction is the nucleus around with tax planners operate.


Tax planning is more of an accounting and documentation role

If you want to consolidate your incomes, calculate your capital gains, manage advance tax payments, filing returns, following up for refunds etc, then the tax planner is the ideal person. These tax planners work around a limited mandate of saving tax and helping you invest in safe avenues. The role of the tax planner is more with respect to documentation, accounting and routine filing.


Tax Planners think of the next fiscal year; not the next 20 years

This is a key difference between a tax planner and a financial planner. A tax planner will be keener to help you reduce your tax burden for the current fiscal year. After all, nobody what the budget has in store so it is futile to plan your taxes beyond the current year. The financial planner looks at the next 25-30 years as you start planning your retirement at the age of 25 and you start planning for your children’s higher education the moment they are born. When crafting a financial plan, the financial planner takes into account the upcoming 25-30 years, considering factors such as starting retirement planning at the age of 25 and initiating savings for your children's higher education from the moment they are born. To aid in this process, the inclusion of a gratuity calculator can provide valuable assistance in accurately projecting and managing your financial resources. That is the kind of very long term perspective that financial advisors bring to the table. They are more like family doctors and stay with you through the process.


Tax planners look at all investments from a tax saving perspective

It is the core purpose that makes a big difference between a tax planner and a financial planner. A tax planner will focus on investments from the point of view of tax saving. So tax planners like PPF, LIC Policies NSC, POTD, ELSS etc as they are all tax saving products. If there are no tax-saving implications, then tax advisors are not overly bothered about the risk-return metrics of the investment.


Financial planning requires understanding of risk

This is where an important difference between a tax planner and a financial planner actually crops up. A tax planner will not fret over risk and will therefore prefer products like LIC, PPF and POTD which are virtually default risk free. Financial planners, on the other hand, use risk as a leverage to enhance returns. They realize that if you want to create wealth over the long term then higher risk leading to higher possible returns is inevitable.


Unlike tax planning financial planning is not discrete and requires monitoring

Earlier we spoke about the financial planner being more like your family doctor. Like a doctor, the financial planner not only creates the plan but also monitors on your behalf on a 24X7 basis so that appropriate modifications can be made when required. Tax planners look at their job as discrete and once the tax saving investments as well as the filing and paper work are take care of; they only worry about you before the next fiscal year comes to an end. Financial planning actually builds a longer term relationship.


Tax planner’s approach is more spread out, financial planner is more granular

There is a subtle difference between the business model of a tax planner and a financial planner. The tax planner will offer an off-the shelf service to a large number of customers as the remuneration is quite small and many of them depend on the product principals to pay them a commission. The financial planner’s role is a lot more granular. An idea financial planner is one who has few customers and manages to earn more revenue per customer. The idea is to provide as many services as possible to as few customers at a very profitable price. Financial plan is a lot about detailing and a lot more holistic.


Tax planning is actually a part and parcel of your larger financial planning

This point lays out the relationship between tax planning and financial planning. Your tax plan needs to subsume into your overall financial plan so that the two are not at loggerheads with one another. Whatever tax investments and tax plans you may create must ultimately fit into your all-encompassing financial plan. That is where the financial planner tends to score over your tax planner.


Tax planning and financial planning have a different DNA and call for a different set of skills. It is best you keep them separate and don’t mix the two!

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