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  • Writer's pictureAkshay Nayak

When And How Advice Adds Value

Most people constantly toy with the idea of approaching and working with a professional advisor for help with managing their money. But they usually do not follow through on their plans for two main reasons. Firstly, they lack clarity on whether or not they really need to work with a professional advisor. And secondly, they often do not understand how professional advice would make a difference to them, in relation to the fee they would pay a potential advisor. Therefore, in today’s post I’m going to talk about the situations where we can seriously consider working with a professional advisor and how professional advice would make a difference in each such situation.


The first situation where working with a financial advisor would make a material difference to us is when we lack the clarity and confidence to be able to make financial decisions on our own. In such cases we usually either don't act at all or we make decisions based on our instincts or information we gain off the internet, media or other external sources. This is especially true for those who are in the early stages of their careers and/or have recently been introduced to the world of personal finance. It is important for such people to understand that decisions made based on instinct usually tend to be impulsive. Also, information from the internet or media and advice from those around us tends to be highly generalised in nature. But, personal finance is a sphere that is extremely individualistic. What works effectively for some may not work the same way for others. Working with a financial advisor would allow us to work to a fully personalised strategy that has been designed in light of our financial realities, needs and goals. It would also help us avoid making serious financial mistakes in early years of our career which would be hard to reverse in the future. Therefore, the probability of achieving effective long term results is automatically enhanced significantly.


The next situation where working with a professional advisor would be of immense value to us is when we decide to begin planning for our retirement. Planning for retirement is a financial goal that is highly deceptive in nature. During the early years of our career we always feel like we have a number of years ahead of us before we retire. And hence we tend to remain passive and procrastinate the initiation of the retirement planning process. This takes a number of years of growth for our investments out of the equation and leaves us with very little room for error (if any) to plan for our retirement. A competent advisor in such a situation would ensure that we begin planning for retirement at the right time. They would also serve as an ideal sounding board and a guide who would help us chart a course with regard to creating an adequately sized retirement corpus. They would also help us pace the journey through different phases of our lives while also structuring our investments optimally during each phase. Any errors during the process would also be spotted early and be taken care of in timely fashion. All of this would allow us to plan effectively for retirement, which is a common financial goal for most individuals.


Some of us may choose to manage our money ourselves just to try and go around having to bear the cost of working with a professional advisor, in terms of the fee that they charge. But in doing so we invariably end up with a half baked understanding of various aspects of our finances. And this leads to us making serious financial mistakes that significantly compromise our financial security. These mistakes could take the form of not being adequately insured, not having an adequately sized emergency fund, choosing the wrong investment products or constructing our portfolios ineffectively. Making such mistakes and not correcting them within a reasonable period of time would actually end up being just as harmful as not making the right financial decisions. So it is important that we gain a better understanding of our finances so as to be able to make better, more nuanced financial decisions. Working with fee only financial planners who charge a flat annual fee for their services would ensure effective course correction in terms of rectification of any financial errors we may have committed in the past. Also, since most fee only financial planners today offer comprehensive financial planning services, they can help us out with every aspect of our financial lives rather than just our investments. And all of this would be achieved while keeping the associated costs fair and reasonable. This would leave us with a much more holistic understanding of our finances and give us a lot more conviction to make the relevant financial decisions at the most opportune times. And that would ultimately go a long way towards helping us secure financial security and financial independence over the long run.

Working with professional advisors can be immensely helpful during extraordinary situations which only arrive rarely but are critically important to our chances of achieving success with our finances. Two of the best examples of such situations are those where we receive large lumpsum amounts as a one off windfall and situations where the markets crash completely. Let us look at each situation in isolation. Firstly, managing one time lumpsum amounts which may be received as an annual bonus at work or a large inheritance from our legal ascendants effectively is crucial. Our first instinct when we receive such amounts may be to spend and blow them up completely. But managing such amounts effectively requires us to strike an optimal balance between celebrating today and planning for tomorrow. A competent professional advisor would help us chart a plan and achieve that optimal balance between saving and spending any extraordinary lumpsum amounts we may have received. This ensures that we get to enjoy our success today without compromising on our future financial goals. This ensures that we would retain our financial security at all times. During a market crash panic, desperation and fear would seem to be everywhere. This invariably makes us a slave to our own emotions turning us into our own worst enemies. So we may react impulsively and do something that is detrimental to our financial security and stability. Working with a professional advisor to a well conceptualised financial plan would mean that we would know exactly what to do at all times. And with that kind of clarity, we would be a lot less likely to fall prey to our emotions and act irrationally. Also, receiving constant reassurance from our advisors would instill us with adequate amounts of confidence and conviction to face and tide over the scenario facing us. And that can only mean that we improve our chances of achieving our financial goals and financial independence significantly.


As must have been made quite clear by now, working with a professional advisor can add value in a number of ways to us as individuals and prospective clients. And the value that working with professional advisors adds to us goes way beyond just setting up and managing our investments. It clearly extends to helping us understand and get to grips every major area of our finances. And this would automatically improve our sense of financial stability and security, which would ultimately translate into us achieving financial independence. Working with financial advisors who charge a flat annual fee for their services would be our best bet when looking for advisors to work with both in terms of ensuring that our best interests are always served and in terms of keeping associated costs reasonable and affordable. Those who are skeptical about bearing the costs involved must remember that the fee is paid upfront but the service spread out over the entire year. Also, the annual fee would represent a fraction of the amount we invest in a year. And investing is usually a continuous process that happens every month. So over the course of an entire advisory engagement, the value derived from employing the services of a professional advisor easily outstrips the costs involved. Therefore, working with advisors is a highly beneficial proposition that all of us must seriously consider to give ourselves the best chance of achieving financial success.

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