Should You Hire A Financial Adviser?

By Saroni Chakravarti | July 4, 2020

While the cost of hiring a financial adviser is prohibitive, there comes a time in your life when hiring one may actually make a lot of sense. Read on to know more. 

Financial steps to take before moving abroad

With so much information available online in just a click, paying for advice to many may seem like a poor decision. But not everyone’s relationship with money is smooth and uncomplicated.

A sudden job change or inheritance can often throw you off your path. You may need some expert advice and guidance. This is when hiring a financial adviser can make a lot of sense. But there are a couple of things you’ll need to bear in mind before you get one onboard. Let’s take a look.

When Should You Hire A Financial Adviser?

Some of the questions to ask yourself to decide if you need a financial adviser or not are:

  • Do you have a fair understanding of investments?
  • Do you have the knowledge and time to monitor, evaluate and make periodic changes to your portfolio?
  • Do you enjoy reading about wealth management and keep yourself up-to-date with changes in investing and insurance?

Even if your answers to all these questions are in the affirmative, you might still need the help of a professional. This is because they will know crucial aspects about investments and insurance that a layman’s eyes may miss out on.

Changes in taxation laws, Mutual Fund withdrawal rules, when is the right time to exit a fund, what kind of financial product is best suited for your goals etc. are some of the things that they can guide you with.

Additional Reading: Why Working Women Need A Financial Adviser

Life Events That Demand Financial Planning

For most people, a sudden event creates the need for them to seek the help of a financial adviser. These usually involve windfalls or sudden losses. You will need to develop a long-term financial plan that includes considerations for retirement, funding your children’s education, paying off your Home Loan etc.

Other triggers could be –

  • You’re nearing retirement and want to ensure that you’re on the right track.
  • You just inherited some money from your parents and want advice on how to use it.
  • You recently got married and need advice on how to manage your finances as a married couple.
  • You recently got divorced or widowed and need help moving forward financially as a single person.
  • Your parents are getting older and they need help managing their finances.
  • You hate financial planning and investing and need someone to manage your financial affairs for you.
  • You enjoy financial planning and investing, but want a second opinion to see if you could do better.

Additional Reading:  What Is A Robo-Adviser? How Does It Work?

How Much Do Financial Advisers Cost?

There are two types of fees that financial advisers charge:

Annual Retainer

Financial planners charge a fee of some thousand rupees for drawing up a comprehensive financial plan.

Percentage Of Invested Assets

In this case, they’ll charge a flat percentage of your assets under management (AUM) –  usually between 0.25% to 1% per year.

Rule of thumb: Whenever you meet a financial adviser, always ask how they are compensated. For instance, some financial advisers earn their fee from banks and investment firms. So, they may offer “free” advice which you may find tempting, but they usually earn commissions from the investments they sell you.

Over a period of time, being in the wrong investments can end up costing you more money than paying an adviser. A good adviser should be transparent, so choose wisely.

Additional Reading: Meeting With A Financial Planner? Here’s What To Expect

Pros Of Hiring A Financial Adviser

Financial advisers can help you plan for the long term. With so many goals competing for our limited financial resources in our 20s and 30s –paying of Education Loans, saving for an emergency fund, buying a house, taking a vacation, getting married etc. , a financial adviser can help put together a plan for you on the basis of your goals and income. The depth of a financial adviser’s knowledge can make a lot of your difficult decisions easier.

Financial advisers can even help you buy or invest in financial products, or even act as a liaison with a broker or money manager.

Cons Of Hiring A Financial Adviser

One thing to note here is not all financial advisers are good. An incompetent, or worse, dishonest adviser can cost you a lot of money. Advisers of this kind can get you to buy or sell more than necessary to generate higher commissions for themselves.

Similarly, they can also push you into expensive investments like Mutual Funds with high expense ratios when a similar low-cost index fund could be a better choice. An adviser who brings to you a sketchy financial plan is also doing more harm than good. Plans do need to be flexible given changing interest rates, changes in the economy, and the curve-balls life can throw at you personally – a sudden loss of a job, long-term illness etc.

A financial adviser also needs to be prompt when it comes to handling your emails and calls. Timing is crucial when it comes to certain financial and investment scenarios, and you must feel confident your advisor will respond to you promptly.

This pandemic has taught us the importance of sound financial planning more than anything. Ready to kick start your financial journey? Click the link below to get started.

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