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How To Choose A Financial Advisor Suitable For You

A financial advisor can help you plan your financial journey towards wealth creation, from figuring out your taxes and investment planning, to creating a portfolio for your long-term needs, to even retirement planning

The Securities and Exchange Board of India (Sebi) has introduced changes to the norms governing registered investment advisors (RIAs) in India, aiming to encourage more people to become RIAs.

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The changes come as the number of RIAs in India has dwindled to below 1,000. 

Financial planners can offer advice on various aspects, including investment, insurance, estate planning, portfolio construction, and goal setting. They help align financial goals, ensure balanced asset allocation, and help with retirement planning.

They can also help mitigate biases, particularly during market highs, by moderating expectations.

In particular, financial advisors can provide guidance to younger investors, dual-income households, and those with no experience of multiple market cycles. Engaging with an experienced advisor can help an individual calculate the necessary corpus and select cost-effective and tax-efficient products for investment. 

Financial advisors can also provide valuable advice to investors as to whether a recently-launched financial product is suitable for one’s portfolio.

How To Assess Your Financial Situation?

Before deciding whether to seek a financial advisor, it is essential to thoroughly examine your finances. 

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Your net worth will help you understand your earnings, savings, and spending habits. One’s net worth is calculated by subtracting liabilities from assets, such as investments and bank accounts. A positive net worth is better than a negative one.

Monitoring your income and expenses is another crucial aspect of assessing your financial situation. Monitoring these can help you decide if you need to reduce expenses or increase your allocations towards retirement and savings. If you don't already have a budget, it may be a good time to set one up using tools, such as spreadsheets, or budgeting apps.

Setting and working towards financial goals is essential for healthy money management. Identifying short-term and long-term financial goals can help you decide towards hiring a financial advisor. 

Lastly, determining your investment risk tolerance can help you determine an investment strategy and choose a financial advisor if you decide to go down that path. By doing so, you can better understand your financial situation and the potential benefits of seeking the expertise of a financial advisor.

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Hire Early

An advisor's recommendation should not be based on portfolio size. They can provide advice on personal finance, even for young people. 

It is suggested that households with a starting fee of Rs 12,000-15,000 should consider hiring an advisor. Early guidance from an advisor can set individuals on the right financial path from the outset, helping them make informed decisions about loan payments, house purchases, and investments.

How To Choose A Financial Advisor?

Here are a few points to consider before hiring a financial advisor.

Financial Self-Assessment: To identify your financial needs, consider basic financial planning for budgeting and saving, investment advice for managing investments, retirement planning for long-term strategies, such as Employees’ Provident Fund (EPF), Public Provident Fund (PPF), and retirement funds, and tax planning for optimising tax liabilities.

Qualification Check: Check the qualifications and credentials of financial planners, chartered financial analysts (CFAs), and RIAs to ensure credibility and ensure the right professionals are licensed to provide financial advice.

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Compensation: To find a financial advisor, consider their fee structure, which can be flat fees, hourly rates, or a percentage of assets. Commission-based advisors earn commissions from their products, potentially causing conflicts of interest. Fee-based advisors combine fees and commissions.

Experience: Ensure the advisor has experience in the areas relevant to your financial needs and review their background, years of experience, and client reviews to ensure a proven track record.

Check For Fiduciary Duty: A fiduciary advisor is legally obligated to act in your best interest. Confirm this with friends, family, or colleagues, and check online reviews and testimonials.

Get Referrals And Recommendations: Ask friends, family, or colleagues about their experience with a trusted financial advisor.

Have An Initial Consultation: Meet with potential advisors to discuss financial goals, investment philosophy, and specific services.

Assess Communication Style: Ensure the advisor communicates clearly and understandably, considering frequency of updates and communication style.

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