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The Role of a Financial Advisor In Personal Finance

Created on 21 Oct 2023

Wraps up in 5 Min

Read by 2k people

Updated on 24 Oct 2023

Figures, charts, financial ratios, and multiple calculations, the realm of finance can be complex most times. Amidst all the complications stands an individual with expertise in everything finance. These perfectionists are like a beacon of light, showing hope to citizens who wish to realise their dreams and plans for the future. 🌄

Yes, you guessed it right! We are talking Financial Advisors. 😎

In this article, we will discuss who Financial Advisors are, what they do, and their role in helping people maintain their finances. To keep things simple, we will be calling them “FA”.
Keeping that in mind, let’s start with…

Who are Financial Advisors, and why are they so important?

FAs are professionals who help individuals and businesses make sound financial decisions. They help clients with a wide range of matters and planning, such as investment, retirement, tax, risk and debt management.

Here’s a list of the many things that make an FA so essential in personal finance:

  • They have expertise in everything finance. Like a PhD student, FAs are well-versed in personal finance and help their clients make the right decision. 🤓
  • They provide objective advice instead of being a salesperson selling a particular fund, scheme or bond, which makes them a reliable source of information. 👍
  • Along with advice, FAs also assist their clients in keeping the needed pace with their financial goals. They devise strategies like pro-leaders and help their clients track their growth simultaneously. ✅
  • FAs provide a simple and easy-to-understand approach to the complexities in the finance world. This allows the clients to take everything in without feeling overwhelmed. 🤗

Now that you know how essential an FA can be, let’s see the…

Roles a Financial Advisor Plays in Personal Finance

The first one is...

Financial Planning & Goal Setting:

Every individual has different financial goals, earnings, and liabilities. This is where financial advisors come to perform their magic trick. 🪄 Based on how much a person earns, their expenses, and their expected goals, FAs create customised financial strategies.

Along with it, FAs also help depict the pathway to achieve goals faster and more efficiently. The right way to do so is accomplished by the comprehensively devised programs and checklists provided by an advisor.

 Portfolio Management:

Considering risk tolerance and short & long-term objectives, FAs help clients build portfolios. Since they are well aware of which asset class could be a better suit for different clients, they proffer customised services. After selecting the investment options, FAs also assist their clients in portfolio management through regularly maintaining portfolios so as to take advantage of every opportunity and avoid bearing losses.

 Retirement Planning:

All the hard work we do is so that our needs are met, our loved ones are taken care of, and we have a surplus aside for later years. FAs help us in retirement planning, they direct people in devising strategies and encourage them to tweak financial goals to produce a foolproof retirement plan.

From estimating retirement income needs to optimising retirement accounts and managing annuity benefits, FAs offer their expertise. With their support, you can achieve retirement way earlier than expected.

Risk Management:

Life is uncertain, and so is the finance world. Along with stocks going up 📈 and down 📉 with every passing second, people's lives are also changing. To avoid unwanted surprises due to these uncertainties, FAs suggest the best risk aversion techniques to their clients.

A client's finance strategy devised by an FA includes insurance cover and risk management tactics like diversification. Along with this, they also review and adjust insurance plans as clients' circumstances change over time. Hence, with the assistance of an FA, you would be able to avoid major financial losses.

Know What is Diversification and it's Importance? 

Tax Planning:

With deep information about tax laws and regulations, FAs help clients minimise tax liabilities through strategic tax planning.

  • FAs explain the benefits of the usage of tax saving options like Section 80(C), Section 80(D), 529 plans and more.  
  • They also suggest selling investments to reduce capital gain tax via the tax-loss harvesting method.
  • By reviewing earnings, FA suggests options for salary deferral, deductions, and credits to reduce taxable income.

Fiduciary Duty & Behavioural Coaching

FAs are legally bound to provide transparency and protect their client’s rights to privacy. The fiduciary duties of advisors also include loyalty, good faith, confidentiality, prudence, care, and disclosure.

On the other hand, FAs also regularly clear a client’s doubts concerning any financial terms. They update the clients about the changing laws and discuss several plans instead of suggesting only one option. You can even think of FAs as your personal tutor helping you gather information about everything finance.

Things to Keep in Mind While Choosing a Financial Advisor

  • Plan out your financial needs and choose an advisor with experience to deal with those goals. It's essential that your plans and the FAs' strategies match. 📑
  • Check the authenticity of the advisor's credentials and licences instead of blindly believing the decorated certificates. 🥇
  • Before hiring an advisor, make sure to vet their background. What kind of reputation do they have in the field, what are the good and bad reviews from past clients, etc. ✅
  • Varied options are available in the market, providing advisory services like Robo and Traditional Advisors. All services have their merits and shortcomings, so choose the right one based on your requirements and capital. 🤖
  • There is a shortage of advisors, with an average figure of 1 FA for every 1 lakh investors. This means that 1 FA is busy handling portfolios of way too many individuals and is likely to make mistakes along the way. Thus, it's essential to carefully check the advisor's portfolio you are considering hiring.
There is a detailed course available on Personal Finance which explains how to expertly manage your investments. Get on Quest and pursue the easiest DIY method even FAs adopt.

The Bottom Line

In conclusion, a Financial Advisor, like a personalised genie 🧞, fulfils its client’s wishes by understanding their needs and circumstances. These individuals are there to help avoid unnecessary risks and help clients get protection from several oncoming dangers.

So, grab one such protection for yourself and meet the expert now. And if you wish to tackle the task independently, let us guide you with the perfect Recipe.

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Preeti Gupta

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A book-lover who adores everything fictional, Preeti has undertaken the life mission of tasting every flavour available in the pantry. A science student with a Master's in Mass Communication, she now wishes to conquer the Finance world as a writer. With the power invested by the randomly chosen music, she is here to make Finance fun for you.

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