Do You Need An Investment Advisor? Ask Yourself These 5 Questions

Do You Need An Investment Advisor? Ask Yourself These 5 Questions.

So you have money to invest, and are wondering if you need an investment advisor or can you do it yourself. The answer varies greatly on who you ask. If you ask an investment advisor, more than likely they will say you need an investment advisor (shocking I know). If you ask your DIY friend who plays the market and has doubled his money in 2 years (according to him), he'll say avoid the fees and do it yourself. As a Chartered Wealth Manager, I have the full authority to give you the absolute correct answer. You ready? The answer is this: It depends. You're welcome.

Ok, if you're looking for a little more clarification, let's start with defining your options:

Hire an investment advisor to manage your money: This is a financial professional who is paid to provide investment advice and management to their clients at a flat fee or % of assets they manage. 

Pros: Expert management of your portfolio, taking into account goals and cash needs. A partner to help you navigate complex financial situations, answer questions as they come up and may provide continuous comprehensive financial planning. Peace of mind knowing a professional is monitoring the market and your portfolio, and making needed changes. 

Cons: They charge a fee, which varies but 1% is a good estimate. And while most are ethical and skilled at what they do, you run the risk of hiring a substandard advisor. *Note: Throughout this article, I use both terms 'financial planner' and 'investment advisor'. There can be differences, but I am referring to an advisor who provides comprehensive financial and investment advice (Not confused enough? See the SEBI guidelines for more). 

Manage your own money: More and more people are doing this because of easy access to financial information, online brokers and low fee market index funds.

Pros: Save on investment advisor fees. Enjoyment of managing money and learning about finance (if you like that sort of thing). Freedom to make your own decisions. 

Cons: More than likely your portfolio will not beat that of a professional.  You may not allocate appropriately, meaning your portfolio isn't prepared for market fluctuations. Or worse, you could make very expensive mistakes, such as pay high hidden fees elsewhere, miss tax savings or make poor investment choices.

Hourly consultation: Meet with a financial planner who charges by the hour, and get a financial plan that includes investment recommendations. You pay them a fee and implement the recommendations. Meet with them once a year to evaluate the portfolio and address any needed changes. 

Pros:Professional advice, with lower fees. 

Cons: You are still responsible for 'managing' your money and making financial decisions in between checkups.

Determining which of these options are best for you depends on your goals, needs, knowledge and current financial situation. I am a Chartered Wealth Manager, so I lean towards comprehensive financial management. But there are certainly people who are well suited to manage their own money. To decide which is right for you, ask yourself these five questions:

1-How complicated are your finances? 

Are you young, single and simply looking for straightforward investment advice for your Investment? Or are you dealing with more complex matters such as inherited stock, Mutual Fund Scheme Selection and retirement distribution strategies? Do you expect your situation to get more complicated with the birth of a child, divorce or illness? The more complex, the more need for a professional investment advisor.

2-How much money do you have to invest? 

With more wealth comes more investment options and complexity, and a greater need for an investment advisor. If you have a small portfolio, you won't want to spread it too thin across multiple assets, and probably won't want to allocate a % to fees; you may be a prime candidate for index fund investing, on your own or with the help of an financial planner.

3-Do you need comprehensive financial Management?  

Need someone you can call from the dealership to talk you out of buying the Range Rover instead of the agreed upon Hyundai? 

Want advice on what type of life insurance you need, or if you should deposit your bonus into your Fixed Deposits or Mutual Funds? 

What about if the market crashes? Can you fight the urge to panic and sell everything if your portfolio lost half it's value? 

This is when a professional is a huge asset. If you need a financial partner who will provide comprehensive financial assistance in all areas and at all times, then the fee is absolutely worth it. If you all you want is to invest a little cash in the Equity and see what happens, then go try it yourself.

4-What are your expectations? 

If an investment advisor tells you they have the secret to beating the market, you will probably be disappointed. The efficient market hypothesis (EMH) is an investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. Few investors, professional or amateur, can consistently outperform the stock market averages. That being said, a good advisor will more than likely get better returns over time than an amateur. Just don't expect your money to double overnight.

5-What's your level of sophistication and interest? 

You have to have a basic understanding of finances and the market to be your own money manager (or be willing to learn). It's also important that you enjoy it, because you will have to spend a lot of time on your portfolio. So be realistic here.

I am an independent investment manager earning fees thru trail from mutual fund Company and Brokerage from Investment Products and Insurance. I am a Chartered Wealth Manager specializing in Investment Management for families. I decided to go into Investment advisory since 1989, In addition to my CWM(R), all of my family Members are committed to Investment management business since 1980. 

Our family's proprietary firm, Tejas Consultancy, has been providing money management and Investment advice since-1980. Our mission as an independent investment manager is to deliver objective and honest advice to our clients and serve as their Family Wealth Guardians. As a financial caretaker, we foster interaction and engagement with our entire client and their family members who seek to secure their wealth for generations. We strive to be recognised by our clients, employee and the communities we serve as a best-in-class investment manager.