Too many people wonder – ‘why do I need a financial planner, I am planning to do only a Rs. 20,000 p.m. SIP’. Well maybe you do not. Well maybe you do. You surely do not need an Investment manager – at this level you just cannot afford it. You surely do not need a financial planner if you can do portfolio construction, and risk management and that too in an unbiased manner.

I think these thoughts arise from thinking that the job of a financial planner is ‘fund selection’. Sadly that is the conception, and it is completely, completely, wrong. There is no financial planner who knows whether Franklin India Bluechip will perform better than Icici Prudential Focused Bluechip over the next 5, 10, 15 or 20 years. Nor will he able to tell you that in 5 years Franklin has performed better, so shift from Icici to Franklin. In 10 years the answer could be different. So that is NOT something that your IFA / bank RM can do or is capable of doing. If he says something else, he is wrong. Far, far more importantly, it does not matter.

Investors who follow a carefully planned set of rules, processes, and guidelines have a higher success rate than those who act on their emotions or make frequent changes based on media watching. An IFA whose team spends the majority of its time researching and writing about how to use behavioral finance in tandem with the best practices in portfolio management stand a better chance. An Ifa whose team has an investment approach that allows YOU to capitalize on the long-term, while not allowing temporary activity in the markets (read YOU) to interfere with the decision-making process stands a better chance. In fact if your IFA has never lost patience with your idiotic requirements, it is time you asked yourself is your IFA too much of a Yes man? Do not intimidate him, it is expensive for you to be the boss!!

Two of the MOST important tenets of ANY investment process have to be portfolio construction and risk management. I do believe that thinking and acting for the long-term is critical, vital and paramount (I hope you appreciate the choice of words, it is deliberate); this has to be at the heart of the IFA’s client service and portfolio management program. Behavioral counseling, educating about history, removing the childhood ‘money’ baggage, a balanced investment plan,  and consistent communication are the tools that I expect a good IFA to employ to help the clients utilize “own time ” to their advantage.

While the long-term is the only time frame for which to invest, holding the clients hand during volatile times is also a very important requirement, and a good IFA should know that. Of course all this has to come at a price, and the price should be affordable. An IFA should not hope to get paid for mouthing ‘equity is for long term’ or ‘sip is good for you’ – these are being thrown about by everybody. Why even Saina Nehiwal sounded like an investment expert a few weeks ago. With a focus on risk management, a good IFA should always look to balance shorter-term fears with longer-term needs and objectives.

So go to an IFA and see what all he can do for you. If he starts talking about fund selection, tell him you do not need him. If he talks to knowing you for 20 minutes, about risk profiling for 20 minutes, portfolio construction for 15 minutes, and 5 minutes on fund selection, he has earned his fee. Pay him. Whether to use him again, let your wife decide.

If you did not take your wife along, you are not yet ready for financial planning. When the time comes, the Guru will find you.

 

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