Why You Need a Financial Advisor Even More

Over the last month, there has been much chatter on the underperformance of one of India’s largest equity funds and many discussions on whether to exit the fund. It is well-known that all funds go through periods of underperformance. By exiting during the underperformance phase, one may actually miss out on the subsequent overperformance phase. Often, investors move out to another fund chosen on the basis of recent performance only to experience the same play out and this then becomes a vicious cycle.

This is why investors need a financial advisor. Having a knowledgeable sounding board can help investors with decision-making rather than simply reacting. Most investors think that financial advisors are just for suggesting schemes, but a financial advisor ’s actual value lies in comprehensive financial planning and keeping investors disciplined. Something much needed with the changing macroeconomic environment and stagnant markets.

Take the case of Anurag, a busy professional. Despite his busy schedule, he finds time to regularly read about money management. Yet when he needed funds for a medical emergency in the family, he was constrained by the lack of adequate medical cover and his portfolio being illiquid and underperforming.

Most individuals tend to rely on employer-provided covers and do not plan health insurance based on the family’s health history. Over time, Anurag had invested in various life insurance plans and focused his investments into smallcap funds. His choice of funds was based on data that proved that in the long run, very few actively managed largecap and midcap funds outperform their benchmarks. Working with a financial advisor made Anurag realise how relying on averages or social media can be misleading.

Not all actively managed funds trail the indices and a financial advisor can identify those funds. Furthur, advisors can provide a steadying voice during turbulent times, helping one stay focused on long-term goals and build a portfolio designed to weather market volatility. Apart from creating a structured financial plan, financial advisors also bring to light opportunities or goals that may not have been considered. For Anurag, the financial advisor created a debt repayment plan to finish off loans early, an aspect which he hadn’t thought of. The advisor also formalised an international investments plan to save for Anurag’s son’s higher education overseas, which Anurag hadn’t done due to the limitations on international mutual funds and inability to manage a foreign stock portfolio. Furthur, the advisor connected him to a CA to get his tax filing on track given the complexity of the ITR and the high chance of mistakes with DIY filing.

A meaningful value an advisor gives is non-financial, that of providing peace of mind along the financial journey. So before questioning the advisory fees, investors must question what does not having an advisor cost — one panic-driven selloff can reduce portfolio returns, not having the right insurance covers can wipe out accumulated savings, poorly chosen equity schemes can lead the portfolio to underperform 6-8% p.a.! The 1% fees charged is then not an expense. It is the cost of having a structured plan, an objective voice and someone accountable with a fiduciary responsibility.

Mrin Agarwal is a financial educator and founder director of Finsafe India Pvt Ltd.