Why is financial advice personalized?

Why Financial Advice is personalized

Last week, I had written a blog on why we need a financial planner. This week, it is a follow-up on the same topic wherein I present my thoughts on why financial advice is personalized and why one size does not fit all.

Financial illiteracy in schools and colleges:

This is such an important topic relevant for all whatever they do in life. Whether we work for someone or are self-employed, irrespective of whichever industry we work in, not knowing personal finance is not an excuse, as all of us need to plan for our goals considering our own risk profile and time horizon. Unfortunately, we do not have this as a mandatory subject in schools and colleges. We learn about various subjects and topics, some of which we may never ever use in the future, but something which is needed throughout life is not given priority. So, when we actually get “forced” into managing our own money, we read information on the internet, not realizing that it could be very generic in nature and may or may not be relevant to our own scenario. Fortunately, financial literacy is now being given importance and guest lectures are being organized in educational institutions and corporates. I am also proud to be associated with these initiatives.

Family circumstances dependency:

With the availability of digital platforms, the execution of investments is now super-easy, but where to invest needs a qualitative judgement also (and not only quantitative available so easily) understanding family circumstances, financial behaviour of the person, etc. Someone just starting to work may need a different prescription versus someone who is married, with children and with loans versus someone who is getting into retirement soon. Even within each category, there could be differences, which can be understood only after a detailed conversation.

Investing based on returns alone:

I mentioned this in the last blog too, that investments should never be done just looking at past returns, but looking forward what is good for us and relevant. When we drive, we look through the windshield the most and less through the rear-view mirror, else an accident is almost inevitable.

Goals assessment:

How much retirement corpus someone may need would depend on various factors and conversation with your financial advisor would help you quantify the same and then we need to work backwards to calculate how much investment we need to make regularly to achieve that same goal. Same is the case with other goals like education and marriage for children, travel goals, etc. We also cannot ignore the need for life insurance until the time we have enough money for our goals. Term insurance would generally work best in such case. I have written another blog on life insurance earlier which you may want to refer.

Asset allocation:

I keep talking about this regularly and would not hesitate to repeat it once again. Asset allocation is very important and we should not look at investing in isolation. As the saying goes, don’t put all eggs in one basket. We need to have an optimal allocation in various asset classes like fixed income products, equity, real estate, cash. I don’t believe in thumb rules so widely publicized based on age, as it could vary based on circumstances, risk profile, goals of every family.

Monitoring:

Investments are not something which should be done one time and then forgotten. While I continue to be an advocate of long-term investments based on goals, still the importance of review should not be forgotten. There may not be a need to make any changes after the review, still, it needs to be done regularly to check whether all is on track or not. Funds do go through changes in their objectives and that’s where the expertise of a financial advisor who is tracking them regularly becomes important.

I view the job of a financial advisor very similar to a doctor. Whenever we visit a doctor for treatment for an illness or a medical issue, doesn’t he ask us a lot of questions to understand the symptoms first and only then prescribes medicine to us? Same should be the case with financial planner as well. If he or she is just telling you where to invest without understanding why you are investing, your time horizon, your risk-taking attitude, etc, then it is only a transaction level activity which is happening and I see it no different from that anyone can do it themselves (with lower cost). But, if there is a value add being provided, then we need to understand that while it could cost more, it could be much better than a self-prescription. We don’t self-treat ourselves by searching the medication on the internet, then why do that with our hard-earned money. Just like how we share all information with our doctor, similarly with a financial advisor also we need to be transparent, else the prescription can be faulty! Financial Advisors backed by certifications like Certified Financial Planner (CFP) are bound by strong ethics like integrity, competence, confidentiality, professionalism, compliance, etc. This is a Global certification and is a stamp of excellence granted to individuals who meet the stringent standards of education, examination, experience, and ethics.

That’s it about this topic for now. If there is anything you would like to discuss, please feel free to get in touch with me. You may also want to read my other blogs at www.financialradiance.com/blog.

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