Let's first understand who are Financial Planners or SEBI Registered Investment Advisors (RIA)?
Financial Planner or SEBI RIA is the person who does Comprehensive Financial Planning for the individual which includes
- Insurance planning both life and health
- Retirement planning
- Goal based Investments in different assets classes mainly in Equity and Debt.
- Children education and marriage planning.
- Debt Management etc.
- Long term Wealth creation based on Mutual Fund investment in Equity and Debt.
How do they prepare client’s financial plan?
- First of all Investment advisors collect all the information pertaining to client’s existing investments in different asset classes, their life goals, their existing insurance policies, their expenditure pattern etc.
- They access client’s risk profile by analyzing the answers stated on risk profiling questionnaire by their clients.
- Financial Planners main job is to help client identify their goals, priorities them according to their investible surplus. Investment advisor arrives at the future cost of the goals after taking inflation into account.
- They suggest their clients suitable financial products according to their risk taking capacity and time frame of these goals.
- Investment advisor support their client for full one yearof their engagement for any financial queries.
What do financial planners NOT do?
- Don't provide stock specific advise. They mostly prefer investment in equity through mutual fund route only over direct equity.
- Don't tactically change asset allocation based on short term/daily fluctuations in the market
- Don't do frequently reviews of financial products suggested to the clients. Review is typically done once a year or in exceptional situations once every 6 months.
- Good Investment advisors always try to manage the downside risk rather than maximizing the returns for customers. So they don't suggest very risky financial products even if client is ready to venture it out.
- SEBI RIAs doesn't try to generate high return by suggesting fancy financial instruments. Good RIAs always encourage clients to expect reasonable rate of return from their investment.
- Last but no least Investment Advisor does not guarantee the returns earned on the investment especially equity investment made by the customers on their advice. Nobody can predict the market. Nobody can time the market. Not even RIAs or any market expert.
So if your Investment Advisor doesn't do the listed things, you are in safe hands or else you need to change your advisor. As above mentioned things are not necessarily needed in Financial Planning.