Investment or Insurance Advisor is Not Your Financial Planner

My friend’s mother-in-law is a widow; she is 75 years old. She sold one of her properties and put Rs. 67 Lakhs in Bank Fixed Deposit in Sr. Citizen Account, she used to run her expenses with the interest.  A share sub-broker wrongly advised her to invest in shares; she was told that she can earn more than Bank Interest. She initially invested Rs. 20 Lakhs and made profits within 3 months and she was enticed to pour more Rs. 40 Lakhs. Unfortunately, one year later, she realized that she had lost Rs. 35 Lakhs. Then she asked for my help. I could not help her but I suggested to stop unscrupulous trading and to withdraw the reaming amount.Advisor

She was advised by a wrong person.  There is confusion between financial planners and financial advisers  both are not same. The majority of financial planners may be financial advisers whereas all financial advisers are not financial planners. An insurance agent may be called as an insurance adviser  income tax consultant is an income tax adviser  and a mutual fund ARN holder is a mutual fund adviser and so on.

Your investment is followed by your financial plan. You (Indians) give more importance to personalized relationship in personal finance also. Sometimes you ignore professional advice. If you are asked to sign on a paper, you may not go through the paper but shall sign it. You prefer personalized relationship than contractual relationship.

While you think to engage a financial professional, you should clear yourself about the services you need.

What is the basic difference between a financial planner and an investment adviser?

A financial planner and an investment adviser are not same. Personal finance is very subjective in nature, so people engage a financial planner for the following reasons:-

People need financial security and want to reach their financial goals. People are impulse buyer; they can’t differentiate between needs and wants, they need direction. They want to know about their financial map, where they are standing and where they want to stand.

A financial planner writes plan by assessing ins and outs of your financial life which includes investment, insurance, retirement, income tax and estate planning. A financial planner develops and makes strategies to achieve your goals with the help of periodical reviews.

Your investment adviser specifically advises you about your investments on stocks, mutual fund, bonds and other investments. Your insurance adviser advises you about insurance. Your financial planner may deal with stocks, mutual fund, debt or insurance apart from financial plan, but if he is not an expert in share, mutual fund,  insurance or income tax he may refer you to an adviser who deals with the same. A financial planner works for you so that you can accomplish your goal. They are like your financial coach. Financial plan is based on behavioral science, i.e. financial aspects.

While your financial planner recommends you any investment, asks following 6 basic questions:-

What’s your objective of  investment? What’s your investment time horizon (when do you need money)? How much money (inflated) do you need? Your desired return on investment (depending upon your risk appetite/the level of risk you are comfortable to take)? How much you can invest at a regular interval/lump sum? What are the investment vehicles (Debt/equity/real assets etc) or schemes are available for you?

While you look for an investment adviser you look for investment and while you look for a financial planner you look for financial plan. An investment adviser is different from a financial planner. An investment adviser may call him as a financial consultant, financial adviser etc. From the above discussion it’s clear that your investment adviser may specifically advise you on stocks, bonds, mutual funds, insurance and other financial products available in the market. But your financial planner writes comprehensive plan considering your financial map to achieve your goals. As per your requirement a financial planner recommends you.

Mostly investment advisers may offer you a plan which is free of cost, as they earn commission by selling their products.

A financial planner suggests you unbiased plan and charges you fees. A financial planner may manage your investment portfolio and charge fees separately. You hire a financial planner and pay directly for making plan for you; an insurance adviser receives commission for placing your money into their selective company’s products. An insurance agent may give you advice free of cost but he is compensated through commission.

You just keep in mind that a  good financial planners are not always working with wealthy people, are affordable, they are not at all biased by commissions, they are not necessarily famous sales person. They are benefited by benefiting you. While your journey is towards financial security you must know the basic difference.

About Uttam Kumar Sen

Uttam Kumar Sen has written 2 articles for FPG India..

He's one of the four directors of Step Ahead Investment Advisors Pvt. Ltd. (SEBI Registered Investment Adviser) . A faculty of CFP^CM & CWM at ICICI Direct Center for Financial Learning. He has been in financial services industry since February, 1986.