The Value of Advice Financial Advisor

What are The Value of Advice Financial Advisor?

We can broadly classify investors into two categories – DIY (do-it-yourself) and those who seek advice from a  professional financial advisor.

A financial advisor helps her/his clients with many aspects of their financial portfolio management:

There are many other services that a financial advisor could offer, which are not per se financial in nature – staying the course in troubled times and saying no to unnecessary risks in the portfolio.

The Value of Advice Financial Advisor

Must Read – Importance of business financial planning

But most people still want to know, do they really need an advisor or The Value of Advice Financial Advisor? This question arises because most are unaware of the value that a financial advisor offers to clients. Many investors also have various doubts when it comes to hiring an advisor.

Most doubts arise because it is not easy to quantify the value that an advisor brings. In market parlance, people are not aware of the alpha that an experienced financial can add to your portfolio.

Let’s see.

Does one need a financial advisor?

With far too many blogs and videos available from everyone who has made some money in the stock markets, there is no dearth of online advisors. Mostly they make stock-specific recommendations with a “NOT-A-RECOMMENDATION” tagline after each one. Or dish out general stuff without knowing anything about their audience.

The basic presumption with DIY investors is that they will take care of all aspects of their financial needs in a manner a qualified advisor would.

In the past two years of online classes, we have seen how learning outcomes have been impaired because of the unavailability of access to a teacher/trainer. Just like that, without a readily available financial advisor, most investors cannot go through their financial journey for long.

There are only a fraction of people who exercise the DIY finance principles by themselves.


There are many reasons:

  1. Lack of proper support.
  2. You get busy with your regular work and life so much that you do not get time to check your financial status until the 11th hour.
  3. If you are not deeply interested in finances, then you can lose the initial motivation very soon.
  4. There is no expert (if you don’t count relatives and friends) to compare notes with and discuss important matters.

In the beginning finances and investments may seem easy, but going forward, you just can’t handle all the nuances by reading a few articles or watching videos.

What are The Value of Advice Financial Advisor

Must Read – Importance of financial planning

Value addition and how to quantify it?

Most people, do not wake up in the morning with the thought that, “I would make investments, buy insurance, or manage taxes & retirement funds today.” That’s the last thing anyone is thinking about.

When you sit with a financial advisor, that’s when the desire to cut the middleman and do something yourselves gets in the way.

Value can be financial or non-financial and is highly subjective. What is of little value to one person, maybe high on the list of another?

Financial value

According to Vanguard’s “Advisor’s Alpha” framework, an advisor can generate up to 3% superior net returns annually. This they can do in a mature market like the USA with the help of tools and best practices including:

  • Financial planning and wealth management
  • Asset allocation
  • Retirement withdrawal sequencing
  • Behavioral coaching
  • Portfolio rebalancing

The recent market volatility in stock prices, interest rates, property prices, and inflation apart from the loss of human lives made people sit up and realize the value a financial advisor brings to the table. Many investors who heeded the advice of their advisors, and continued their goal-based investments, and came out unscathed in the aftermath of the crises.

Moreover, the average fee an advisor charge is much lesser than the average cost of lost returns due to inefficient investments, tax implications, and lost opportunities.

it is estimated that through strategic planning alone an investor could add up to 2.5% to their returns annually.

Non-financial value

The non-financial value can be explained with the help of this somber example.

One of our long-standing clients passed away during the peak of the second wave of COVID, leaving behind a wife a teenage college-going daughter. He was the only person in his family who knew which investments were made, what was the reason behind them, how he wished to pass on his legacy, and so on.

We used to continually nudge him to prepare a will, but as he was in his mid-40s, he was always reluctant. But he did listen to us on a few key important matters – he bought term life cover for a good cover, insured all his loans, and maintained a financial diary with us with all major transactions and investments.

After the family came to terms with his loss, they were almost in a destitute position. However keenly we wanted, we could not come to terms to get the wife to sign some papers for many weeks. But later as we approached her and discussed how he took care of everything in his lifetime.

The only expressions that came on the faces of the wife and her daughter were gratitude, love, pain (from loss), and a sigh of relief. Later, as they came to terms with their emotions, we advised them on how to manage their insurance money. We helped them invest in securities to cover their daily expenses, as well as to provide growth to meet future needs.

This is something, that any financial advisor would always wish that they never have to face. But this is exactly the kind of situation where you need a financial advisor the most.

In addition to handholding, an advisor can:

  • Educate their clients on how to delicately tread the financial battlefield.
  • Help them control their emotions.
  • Help them identify financial goals, which are closely tied to their life goals.
  • Plan on achieving financial independence by smashing the inertia.

Financial Advisor


Quantification of value

Well, now comes the real question. How do we quantify the value an advisor delivers?

The value of an advisor is difficult to quantify. But a majority of professional investors strongly the value the advice financial advisors.

Of course, quantification is a difficult process.

When it is said, this is the ‘best’ strategy, if we do not have a reference, how do we compare it, and with what?

The advisor could add two types of values: alpha and beta.

The alpha value is the additional return on investments compared to the benchmark. Whereas the beta measures the relative risk at which such returns are achieved.

The advisors can achieve superior alpha by actively managing the portfolio, applying optimized financial strategies, planning portfolios to align with goals, more efficient tax planning, planning withdrawal strategy, and doing this taking care of the risk appetite of the investors.

What does the research say?

People want to know whether it is beneficial to hire an advisor or not.

Research by Envestnet PMC, Morningstar, and Vanguard says an advisor can add up to 3% to your annual returns.

Over the long term, an annual 3% additional return can result in significantly higher returns.

Some advice for advisors

Unlike a doctor of a CA, a financial advisor’s relationship with their clients is more fragile and takes longer to build. Therefore, the advisor must be upfront and candid at all times to earn the trust of their clients. Even if it means, saying the not so convenient thing.

A financial advisor also benefits if they understand the client’s psychological framework before pushing them to follow the investment plan.

The quality of service, response time, easy-to-read reports, clear & simple disclosures, and clear understanding of the fee/charges are some other necessary aspects.

How to Invest in Mutual Funds

How to Invest in Mutual Funds – For Beginners Guide in India

Mutual Fund Campaign by AMFI has generated a lot of curiosity in the mind of investors & they are asking – How to Invest in Mutual Funds? This is a detailed post & step by step guide so you can invest in Mutual Funds. It’s divided into 3 parts

  1. Investing in Mutual Funds – Basics
  2. 21 Benefits of Mutual Funds
  3. Investing in Mutual Funds for Beginners
    • 5 step approach
    • Checklist to invest in Mutual Funds
    • Top ways to derive Maximum Benefits

How to Invest in Mutual Funds – Basics

If you are looking to invest your money and are looking at mutual funds as an option, then you would also be looking forward to more information on what are mutual funds? Information related to the basics of mutual funds so as to be able to start investing your own money yourself or with the assistance of a financial planner or an investment advisor. You want this information to be simple and straightforward. If you are looking for this kind of information at one place, then this blog is for you.

How to Invest in Mutual Funds

Mutual Fund Basics

A mutual fund is a collection of money from investors to buy stocks or bonds 

A mutual fund is a pool of money. When many individuals (investors) come together for a common cause or objective and pool their money, it is called a mutual fund. Each mutual fund should have an investment objective. An Asset management company or AMC is appointed to manage these resources. The AMC then selects “fund managers”. The Trustees of the mutual fund monitor the fund’s activities. The AMC takes your money in a particular scheme with a particular objective for example – capital appreciation and then your money is invested in specific stocks and/or bonds as per this objective.

Mutual funds issue units to its investors as per the amount of money invested 

When you invest in a mutual fund, the value of each unit is called NAV (Net Asset Value), which is reflective of the current market value of one unit of the fund’s holdings. If the NAV of the scheme’s unit is Rs. 20 and you invested Rs. 1,00,000/-, then you would be allocated 5000 units on the day of purchase. This NAV varies on day to day basis. As the NAV rises or falls, you either make a profit or loss. The NAV is also equal to the market value of securities of a scheme less the total recurring expenses, divided by the total number of units.

Benefits of Mutual Funds

Mutual funds diversify risk 

Given that there are ups and downs in the market, any stock and/or bond could face a downturn. In order to control loss due to exposure to that particular stock, mutual funds reduce risk of losses, as mutual funds invest in many stocks or industry verticals or in several industries like FMCG, Power, Telecom, IT, Pharma, Steel, Housing. This ensures that if one industry or few stocks are not performing, the other well-performing industries ensure your entire capital is not at risk.

Mutual funds provide professional fund management 

When you purchase a mutual fund, you have invested in a scheme which has in turn invested in stocks and/or bonds. Mutual funds are a basket of investments made basis the investment objective. They are thus beneficial as they allow you to make diversified investments and are professionally managed by financial professionals and investment experts called as fund managers. The fund managers continuously scan various investment opportunities available in equity and debt markets. Instead of buying stocks directly, you invest in mutual funds wherein fund managers managing the scheme, would on your behalf buy shares and bonds as the case may be.

Transparency and availability of data

To find a suitable mutual fund for your investments, you may like to understand the details or may like to analyse the funds. You can choose tools or take the help of a financial planner to identify suitable funds for your goals. You can read the fund prospectus to know details such as past fund performance, fund manager history, fees, charges. Data is available on the AMFI website and also on the AMC (asset management company website).

There is no guarantee of performance of any fund or scheme, but data availability allows you to track various kinds of mutual funds which helps to reduce risk.

Today Indian investors have a choice of mutual funds to choose from ranging from equity, debt or hybrid funds.

Types of Mutual Funds

There are many different types of funds, some of these are

  1. Equity, Debt, Hybrid funds: Equity mutual funds invest 100% of your money in stocks in the equity market. Similarly Debt funds would invest in the debt/fixed income market whereas hybrid would invest in a mix od equity and debt markets.
  2. Open Ended, Close ended: The former is the one wherein you can enter and exit anytime while the latter does not allow exits before specified time period and has a lock-in.
  3. ELSS: Known popularly as Equity Linked Savings Schemes are meant for taking benefits under Section 80 C of the Indian Income Tax Act and have a lock-in period of minimum three years.
  4. Sectoral Funds: These Funds invest in specific sectors like banking, Infrastructure

Read – Arbitrage Funds – Should You Invest

how to invest in mutual fund

You have worked hard and now want to invest your money? You have invested in a savings account, fixed deposits, PPF but have yet not tried mutual funds. At the same time you are seeking investments which will help fulfill your goals while beating inflation. You may also need a professional to advise, select, manage and monitor or may do so yourself.

If you want your money to grow in a meaningful way and to beat the ups and downs of the market, then plan to invest in mutual funds. They are safe and are well regulated and therefore less prone to chances of fraud.

So, no matter what your risk appetite is, choose the right kind of mutual fund. For your short term goals invest in debt or liquid funds. For your long-term goals, you may select equity mutual funds or balanced funds. Of course, in equity mutual funds you also get long term tax benefits, if held for greater than one year making it nearly tax-free returns.

Hence, this blog aims to makes it easy for you as a beginner to understand mutual funds.

Our next blog in the series demystifies certain doubts about mutual funds and brings out the detailed benefits about investing in mutual funds.

21 Benefits of Mutual Funds

If you have read our earlier part titled: “How to invest in mutual funds”, you would have got a clear idea about basics of Mutual Funds. This part shall attempt to help you to understand advantages of mutual funds.

How do you make money? The first one is through appreciation of your fund value. The value of the fund goes up or down as the value of the particular stocks go up or down. The second one is through dividends, which come through payouts to unitholders.

You have a variety of funds like equity, debt, index, balanced or with objectives also.

How can you benefit from mutual funds:?

  1. Moving from Fixed deposits and unit-linked policies, you may be looking for beating the inflation or fulfilling your life goals, then mutual funds are the answer.
  2. Mutual funds offer the convenience of easy liquidity like getting back in a day.
  3. They provide the right kind of diversification as mutual funds invest not in one but many asset classes such as stocks, bonds. Best investment for NRI
  4. Are mutual funds for the wealthy only? No. Mutual funds investments are for everyone as you can start investing in small amounts. So, you can choose from a wide variety of funds. There are plans for everyone.
  5. For different kind of goals like your child’s’ education or marriage you could choose diversified equity funds and for liquidity purpose, you could choose short term funds or liquid funds.
  6. Charges for these professionally managed funds. Yes. There are  fund management fees, but these get give you access to professional research and investment management.
  7. You get income tax benefits under Sec 80C for ELSS mutual funds in two ways. One, is a tax deduction while making ELSS investments and help you to optimise your taxation. ELSS is the shortest lockin tax saving option as it can be redeemed after three years and it is also easiest to redeem while making investments from income tax perspective, unlike PPF, FD.
  8. The benefit of investing in mutual funds comes from the fact that a combination of equity and debt brings the growth of equity and stability of debt. Thus making mutual funds more beneficial.
  9. Mutual Funds bring you the benefit of compounding interest. Interest on interest. Albert Einstein said: “Compounding interest is the eighth wonder of the world”. One who earns it gets it.
  10. The units are easily redeemable from the AMC. Thus mutual funds bring easy exit and no hassles of much paperwork or physical presence.
  11. Mutual funds are bringing in the benefit of investing in a lump sum mode or variable mode like weekly, monthly, quarterly. You can set up a monthly systematical investment plan called as SIP.
  12. Mutual funds are for everyone. They are suitable for all classes of people like salaried, professionals, businessman or entrepreneurs.
  13. Affordability: With just Rs. 500/- per month, you can start investing.
  14. Once you have invested, then you should be able to track your investment performance. How do you do it? Well, to know this, every mutual fund has a benchmark, and it could be part of the NIFTY or SENSEX.
  15. Convenience: Now there are online “do-it-yourself” options to start investing within 5 minutes. However, do not jump start to such conclusions! Your best options would be through a SEBI Registered Investment Advisor who can also do your mutual fund implementation and execution online through a direct mutual fund with adequate monitoring.
  16. Flexibility: Mutual funds today are very flexible. Depending on your investible surplus and goal, you can choose from a wide variety of mutual funds and choose how to set up your systematic investment plans or do lump sum. The ease of transaction, investing, execution, managing, and redeeming from mutual funds, makes them one of the easiest ways to invest in India.
  17. Tax Benefits on Mutual Funds: Today, as of July 2017, all mutual funds in India offer tax-free dividends, and all equity funds kept for more than one year become tax exempt. Short term capital gains for equity funds is taxed at 15 % for redemption in less than one year. Long-term capital gains for debt schemes are having two options: Lower of 10% on the capital gains without indexation benefit and 20 % on the capital gains after taking indexation benefit. Furthermore, short-term capital gains is taxed as per your particular tax slab.
  18. Transparency: Various websites, publications and rating agencies continuously monitor and display or publish the performance of most of the mutual fund schemes, thus making it easier and transparent for your to choose your type of mutual fund. From NAV, fund performance, benchmark indices and many ratios help in comparing each fund with the other in the respective category, thus making it possible to predict perhaps which fund would perform better in the future.
  19. So plan to buy mutual funds for their diversification, liquidity, professionally managed and comparatively small charges. You need to have a financial plan to be able to select or rather allow your financial planner to suggest you then, the best bouquet of mutual funds.
  20. Risk Appetite: You should consider doing a risk profiling test.This shall enable you to understand as to how much risk can you take with your money and what to expect based on your risk appetite. Without risk profile, it’s like asking your driver to drive your car at whatever speed he wants! That can put you at risk of an accident. Read – Are debt funds risky?
  21. Wealth Creation:  Time and Money can let you bring vast wonders for you, over an extended period. Say for 15-20 years. If you can be disciplined to stay invested, then diversified equity invested over a long term, can create wealth for you.

So, no matter what your risk appetite is, choose the right kind of mutual fund for your goals. This blog aims to make it easy for you to start investing in a mutual fund as a beginner.

Investing in Mutual Funds for Beginners

Investing in Mutual Funds for Beginners India

You would have read our earlier parts on this three-part guide:

  1. How to Invest in Mutual Funds- Basic Concept
  2. How can you benefit from mutual funds

In this part, we attempt to explain the doubts and the steps to start investing in mutual funds. With this simplified and easy “do-it-yourself” approach, you would be ready to start investing in mutual funds.

You may have heard from your friends or relatives or colleagues that they are investing in mutual funds. Some may talk well while others may have tried to share their (so called) bad experiences. Well, those good experiences are due to a systematic approach that they may have followed while those bad ones came due to no plan at all. The later ones would have started investing without any financial planning. They should have started with the following plan and would have got not only good but great results.

These steps are the real secrets to investing in mutual funds.

How to Invest in Mutual Funds

The 5 step approach to investing in Mutual Funds

  1. Goals: Having goal-based financial planning ensures that all your investments from now onwards are basis a goal and they are continuously monitored and executed as per a plan.Buying a car within six months can be a short term goal while retiring in 15-25 years can be a long term goal.
  2. Current investments: Map all your current investments, at its present value to each of your goals so that you know if there are some investments done by you which are orphaned ( don’t have any goal or you don’t know what you will get and when!)
  3. Risk profile: Knowing the correlation between your current financial conditions and your understanding of how you react to certain financial situations, determines your risk taking financial ability. So, a young investor could have a high-risk profile while a retired person could have a very conservative profile. Tools like Finametrica help a financial planner understand your risk profile on a very professional level.
  4. Time Horizon: Be sure of your time horizon, for each of your goals. Like for your retirement, 20 years, Buying a house can be five years or purchase a vehicle can be 12 months. Whatever may be the period, Do not change this goal-post. Be sure to write it down and look at it once in a year.
  5. Management: Implementation and Execution: Clear management of your funds brings transparency, review and reallocation. Continuously considering your investments with your financial planner brings commitment and audit of your goals versus your investments also. Looking at options in a review meeting as well as investing surplus money towards specific goals increases your satisfaction also.

Investing in Mutual Funds for Beginners – Checklist 

Despite being simple and easy, Online Mutual Fund Investment can appear to be complicated if you are not aware of where and how to start. Here is the precise step-by-step method:

  1. Bank Account: You must keep one bank account separately for investing and not your normal saving salary account.
  2. KYC and Now CKYC: Be sure to be KYC compliant. Visit or  to register for your KYC. You have to provide a copy of your self-attested address proof, proof of identity and a recent passport size photograph. You can do all of this on any of these sites or through Registrar and Transfer agent or your registered mutual fund distributor at no charge.
  3. PAN: Your permanent account number is essential to invest any amount above Rs. 50,000/- in India.
  4. Aadhaar: AS of July 1st, 2017, you have to link your PAN with your Aadhaar. Do it here:
  5. Understand and define your goals
  6. Set your investment objectives: You need to identify your investment objectives regarding goals to investments. The purpose of investment in mutual funds with time horizons for each goal should be clearly mapped.
  7. Understand and outline your risk, and then the relevant respective expectations from your investment returns over the defined tenure.
  8. Portfolio Mix will be determined from your goals, time horizon, risk profile. Equity or Debt or Balanced. Monthly or lump sum, all such issues get resolved at this stage.
  9. FATCA: Make your simple online FATCA (Foreign account compliance act) declarations.
    1. Fatca Cams Link for new investor:
    2. Fatca KARVY link for new investor:
  10. One cancelled cheque from your bank account is needed to map your bank to your investments.
  11. Choosing your Funds: Go to the four-step approach and then start planning with your financial planner or investment advisor for direct mutual funds with online as an option. Be knowledgeable and confident so that you know where you are going, from where you are today and how you will get there!
  12. Set up, if necessary, SIP and ECS.
  13. Track and monitor your investments: There are various methods, but your investment advisor would know best as he is the right professional. But you have to track still and keep monitoring all your mutual funds to ensure they are in sync with your financial plan.
  14. Buy and Sell: be sure to know how and when to redeem and retrieve your investments into your bank account.

Top ways to derive maximum benefits from Mutual funds in India are: (some Myths and Facts)

  1. Past track record: Don’t go by past performance!
  2. Low Entry and Exit load: do make sure to take open-ended funds to avoid exit load charges.
  3. Expense Ratio: More for direct fund comparisons, do look for lowest when you have done other comparisons like ratios.
  4. Ratings: Five-star ratings can mean a lot but don’t go by only ratings.
  5. Switch: Don’t switch frequently and avoid charges.
  6. Study the fund managers reports and his consistency
  7. Analyse the ratios like alpha, beta, Mean, Standard deviation, Sharpe.

Now that you have got the steps right, and with all your necessary documents are ready to get started. Take the services of a Certified Financial Planner or a

SEBI Registered Investment Advisor while investing! Making a plan with the help of a financial planner in stage one gets you in the right direction. Furthermore, taking the help of a SEBI (Securities Exchange Board of India) Registered investment advisor (RIA) to invest in direct mutual funds shall give you the professional approach for execution and monitoring of your mutual funds as well.

With this approach and periodical review, you have begun your journey to accomplish your goals. Have patience and faith in your advisor and the planning process to reap the best benefits.

If you still have questions on How to Invest in Mutual Funds – add that in the comment section.

Happy Mutual Fund Investing!


Making The Advisory Regulation Work In India

Investment Advisory regulation in India is in its infancy. This is unchartered territory and hence there is no readily available tried and tested template for use here.

Idealism and good intent marked the birth of the IA Regulations in 2013. Predictably, the wheels bearing the regulatory chariot were not perfectly smooth. That started a series of consultation papers, each exhibiting its own singular thought process that resulted in a lot of confusion as to the regulatory direction.

IA Regulation had put together disparate participants under the same umbrella. Stock tip providers came under Advisory Regulation when they were actually not giving any “advice” as much as they were assisting in speculation. There were lots of malpractices and thousands of complaints against them.


Check – Financial planning process that Indian planners follow

The new IA Regulations of 2020 attempts to overhaul the regulation while at the same time cutting these stock tip providers to size and their capacity to create problems. Also, the new avatar is boxing in true advisors in various ways and has the potential to stunt the advisory profession itself, while not exactly being able to rein in the stock tippers, considering how well funded they are. It is like the chemotherapy to weed out the cancerous cells. It is certainly killing a whole lot of healthy cells as well!

They should have been under a regulation for Stock market participants like Stock broking. But they are not.

IA Regulation Pros

Admittedly, there are good points in the regulation. SEBI has solved the problem of conflict of interest in advisory & distribution by the same entity, by bringing in client-level segregation. Similarly, enforcing the engagement agreement between advisor and client and insisting on various points and provisions there, is positive. There are some others as well.

IA Regulation

Read –  Importance of financial planning

IA Regulation Cons

But, the regulation has spawned a litany of woes for the advisory community. Chief among them is the outlawing of Continuing Education credits to renew professional certifications for the purposes of Complying with IA Regulations. IAs will now have to keep writing a gatekeeper exam from time to time, which does not serve any purpose. This is unprecedented & unheard of anywhere in the world in respect of any professional certification. This also poses a business continuity risk for IAs.

A better implementation would simply have been a refresher module on new developments in the profession, like for MF distributors.

Also, this diktat brings in conflict of interest in that it seems to favour NISM ( a SEBI arm ), whose exams are to be taken every three years as opposed to every year for other certifications.


Check- Investment is not financial planning!

The post-graduation education prerequisite, along with five years’ experience for IAs ( along with the certification requirements ) is going to exclude many who want to embrace the profession. Also, the advisors under them will have to comply with these norms, with a minimum experience requirement of two years. Recruiting such people is a huge challenge and raises costs enormously.

Compulsory corporatisation clause when one reaches 150 clients is troublesome. It assumes that individual advisors would not be able to handle more than 150 clients when the regulation explicitly permits Persons associated with investment advice (PAA) to assist them. This allows them to handle any number of clients provided they have enough advisors to handle the load.

Along with the above, the second condition of Rs.50 Lakhs Networth for the corporate entity is the killer. How can an individual advisor who is a few years old have the heft to invest Rs.50 Lakhs in a corporate entity?

The other contentious point is about fees – fee capping in fixed fee, diktat on using one type of fee charging for a year, how much can be collected as advance etc. bring in unnecessary rigidities and hamper advisors’ ability to appropriately charge for their services.

How to make IA regulation work?

How to make IA regulation work?

A sledgehammer approach would forever stunt the industry. Small changes to the IA Regulation would make the regulation supportive of genuine IAs who have chosen to embrace it.

Firstly, allow IAs to renew certification after going through a refresher module and not write the same exam again and again.

Secondly, Compulsory corporatisation should be based on Turnover and not number of clients. A Rs.10 Crore turnover is a feasible level if compulsory corporatisation is to be enforced.

Thirdly, reduce experience requirements for IAs to two years and for PAAs to nil. Also, for PAAs, the compulsory education level should be graduation, not PG. This will help new people get into the industry and IAs will be able to recruit talent & groom them to be good advisors over time.

Lastly, the stipulation on fees should be done away with as it is tantamount to micro-management. The fee charged should be left to market forces. An upper cap of 2.5% at the AUA level is fine. It is not as if the client will pay any fee that an advisor wants to charge.

What is suggested are small tweaks without changing the thrust of the regulation. But it will go a long way in making the profession viable and vibrant.

vital of investing

The Three Vital Ps of Investing

In this fast-paced technological world, investing has been made relatively easy. You have many ways to invest like doing paperwork, going online, and even using your mobile phone by sending a short message. This is a change that has to be applauded. But that alone does not help you to become a successful investor. To recall a famous saying, “Investing is not a 100m dash; It is a marathon”.

To be successful in the world of investing, Every Investor should Know the  three vital Ps of investing

a)      Need to stay prepared

b)      Need to be process-oriented and

c)       Need to be patient

vital of investing

vital of investing


Read – Focus on portfolio returns, not individual investments

Prepare –

A couple of years back, Andy Murray, the No.1 Tennis Player for Britain was having a crack at Wimbledon title during which he attempted a brave shot in vain. A TV commentator immediately said that “These kinds of shots have to be executed only with adequate practice, otherwise, you cannot execute with precision”. In this case, practice is nothing but preparation. Similarly, a very good attentive student cannot come out in flying colors in the examination if there is not adequate preparation. Preparation is the key to any task and investing is definitely not an exception.

How do you prepare yourself before investing?  The answer is ask the right questions!

  1. Why am I investing? (This puts a lot of emphasis on goal-based investing. Always ensure that you invest for a need or a goal.  This will eliminate indecisiveness & confusions)
  2. What should be my asset allocation? (Equity: Debt, I am not including real estate here just to avoid further complications, as there is a lack of transparency and regulation). This is not an easy question to answer as no single rule fits all individuals. In general, allocate more towards equity for long-term goals and avoid equity for short-term goals. Sticking to a 70:30 Equity: Debt for medium to long-term goals is a safe bet.
  3. How and when I should review the performance of chosen instruments? Review once a year and actions once in 3 years can be a general guide.

If you are taking the services of a Financial Advisor he/she is well equipped to answer all these questions. The onus is on you to ask these questions and get clarified.

Process –

The next important step is adopting a process or applying filters. As said earlier, if you have a Financial Advisor, then he/she has a process of identifying your goals, risk tolerance & filter out instruments to match your goals and risk appetite.

With preparation, you have a list of your goals & asset allocation model. The next step is to adopting a process, applying filters rather, to choose the right instruments.

The Three Vital Ps of investing

The three vital Ps of investing

Must-Read- Financial freedom always comes with discipline!!!

If you are choosing bonds, NCD, or fixed deposits, choose credible brands than going for an extra 25 or 50 bps. There are rating agencies providing information to all these instruments. Understand the ratings and take a decision.

If you are choosing a mutual fund scheme, choose schemes that are following their objectives and delivering consistent performance across different market cycles. Consistency in returns is the most important ingredient to successful investing, rather than outperformance in bull cycles and pathetic performance in bear cycles. Stick to brands that have a history and are trusted by many investors. There are a lot of online portals available to check this information. Do not get carried away by the ratings awarded. Find out the objectives of the schemes, study the portfolio and analyze past performance. Then check whether the scheme is suitable to any of your goals and then decide to buy. Always choose systematic investing when it comes to equity or balanced schemes. If you have a lump sum then invest in a liquid fund and do a systematic transfer to equity or balanced schemes. Systematic investing is a time-tested method that does not require further research.

If you are choosing any other instrument, then ensure that there is a regulator in place. There are lots of unrecognized instruments available in the market that can make or break your life. Stay away from instruments that lack a regulatory body.

Patience –

Wikipedia describes patience in the following words . . .

Patience is the state of endurance under difficult circumstances, which can mean persevering in the face of delay or provocation without acting on annoyance/anger in a negative way; or exhibiting forbearance when under strain, especially when faced with longer-term difficulties”

Once you are prepared and ready with the process of choosing instruments the next obvious step is to invest or act.  Once you have acted upon your ideas, it is of utmost importance to be patient with your beliefs. Inaction is the best action most of the time. Hence, churning your portfolios too often or jettisoning your investment mid-way through will not help you in any form. One of my friends recently highlighted this in a simple way – “When you are inside a lift, you have to be patient; jumping inside will not take you to the next floor”. So ignore the noise that keeps knocking your doors regularly, be clear on your goals, adopt a strategy and stay with the strategy to reap the benefits.

With these three vital Ps, I am sure you will have a successful investing journey.

personal finance advice

You can access high quality personal finance advice now

For most areas in the world, there is someone we can turn to for advice. Doctors, Lawyers, Architects offer counsel in their respective fields. In personal finances, there was no one until now, to offer client-centric advice.

personal finance advice

You can access high quality personal finance advice now

High-quality advice 

SEBI has created a new class of Advisors – Registered Investment Advisors ( RIAs ) – who are to act in Fiduciary capacity & offer client-centric advice. Fiduciaries are those who put the client’s interest ahead of everything else, including their own interest. Conflict of interest will be minimised or non-existent in this model. Investors can now access advice truly in their best interests.

There is an allegation that RIAs are doing pretty much what distributors are doing. SEBI regulations allow those transitioning, a dual role. There are corporate advisors who have both advisory & distribution divisions. There are individual advisors who have relatives/ friends doing distribution. But then, there is segregation of activity, arms-length dealing, full disclosures of any conflicts of interest & options to the client to source products from anywhere. There is a legal Fiduciary responsibility, annual process/compliance audits & possible inspections. So, it is not really the same.

Advantage Investor 

There are also many fully fee-only RIAs too, which is the ultimate destination for RIAs. RIAs are registered with SEBI as Fiduciaries & hence customers can fully expect them to put their interest first. RIAs represent only their clients, their advice is aligned to the client’s specific situation & are well qualified as per regulatory requirements.

Paying an advisory fee separately for the advice provided ensures that investors get back control over what services they get and what they pay for it. In a product distribution situation, the commission is collected and paid to the agent by the principal, irrespective of the service quality – which is a problem for an investor.

Remuneration & services

RIAs collect fees for advice rendered. The important fact to remember is that RIAs also suggest commission-free products, which lowers the cost to investors. For instance, Direct Plans of equity MFs & Debt MFs are on an average 1%pa & 0.5%pa lower in cost as compared to Regular plans ( where commissions are embedded ). Likewise, many RIAs are offering commission-free products in various categories – PMS, AIF, P2P lending, Debt products, etc. All these together significantly lowers the cost to clients.

RIAs offer a range of services to clients like Financial Planning, Plan reviews & Portfolio reviews, Quarterly client engagements, Estate Planning services, Life Planning services, etc. Such services would typically be available to clients who have engaged them for a fee. After taking into account the savings, the client would overall pay the same or lower outgoing amounts and would also get a range of advisory services from the RIAs.

Fee charge mechanisms 

There are different fee charge mechanisms which RIAs use. Some charge a lumpsum fee while some others charge as a percentage of profits & yet others a percentage of Assets under Advice. There are many other hybrid models which use flat-fee to an extent & variable fees beyond that.

Firstly, the fee-charging mechanism is a matter of which model works well between the client & the advisor. Many clients want to pay based on what they earn – it is a psychological thing. They are willing to pay more when they earn more & many times they insist on such an arrangement. For some advisors, this works well as there is participation in any upsides which the clients enjoy, especially in a profit-sharing model.

In the AUM-based model, they get paid a higher amount when the Corpus they manage goes higher. They are paid more for the work and the responsibility that goes with it. The analogy is that of a CEO of a company who spends the same 8-10 hours a day but may earn multiple crores, which is far higher than what even a senior management person may be paid. He is paid more for the responsibility he is shouldering – that of giving a vision and moving the company itself in a particular direction to achieve certain agreed objectives.  These advisors fashion themselves like the Personal CFOs of their clients & offer a range of services for their clients. So, in these two mechanisms, the fee is a percentage of either the profits or assets.

There are also those who work on a flat-fee model of engagement. In this model, it is mostly based on the amount of work and the time spent for doing that work.  This is a transactional kind of model, which again works well for people who are looking for specific services/ engagements.  In a hybrid model, there are a certain set of services which are offered for a flat fee & further services offered for which a variable fee is charged.

The fee & service arrangement are usually discussed & decided upfront by the investor & the advisor.  The important point is that the advisor would work in their best interests as a Fiduciary, irrespective of the fee arrangement chosen.  The client has the option to decide the advisor, the services, and the fee charge model that works best for them.


The financial landscape has undergone a transformation. Life has become far more complex now. The goals and aspirations are many. We are living longer than ever before & hence our corpus needs to be much bigger. The stakes today have become much higher. A true advisor can help in effortlessly navigating finances & life itself. Such advisors are available for providing counsel. It’s advantage for investors now.

Suresh Sadagopan

Founder   |  Ladder7 Financial Advisories

financial planning client

Delivering what the Financial Planning Clients don’t even ask for

Many times clients don’t know what they really want. What they think they want, may not be the right thing for them. These statements are somewhat puzzling. Let me explain.

Let us first talk in terms of events that have happened. When mobile telephony was introduced, it was thought that there will not be any market for that. It was thought that there will be a tiny market for it predominantly among truck drivers, who constantly keep travelling. Today, India alone has about one billion mobile connections!

Apple launched the Iphone in 2007. Then, we had phones which were covered with buttons. Phone makers were falling over themselves to launch phones that had more fuctionality and for that they were bringing in more buttons, front & back. Iphone was launched with just one button & a touch screen. It evoked a lot of curiosity & the market for such phones exploded.

The customer did not know that such phones were good for them. The interface and the user experience was superlative. The product itself was well engineered ( like all other Apple products ).

Manufacturers then did not know that the customer would accept a phone sans buttons. They made functional products which were often clunky. I have wondered a lot of times how some of the Nokia phones of the day, ever got into mass manufacturing!

financial planning client

Steve Jobs was able to anticipate what the customer may be expecting before they even know! His products were sublime pieces of engineering… they were almost works of art.  He delivered a user experience that the customers did not know was even possible. That was his genius. He used the same philosophy while launching Ipod, Ipad, Macbook etc.

In our industry too, we can benefit greatly by taking a leaf off what Steve Jobs did. But, how many of us are anticipating what the clients may need & deliver that even before the clients ask for it?

The routine stuff of performance reports, portfolio reviews, once in a while client meetings etc. are done by most of us. The customer is also largely accustomed to this and is not expecting anything over this – atleast for the moment.

Therein lies the opportunity. There have been lots of changes in the lives of the client – the technology & social environment has changed significantly over time. The expectations from life themselves has undergone a sea change. For instance, today, there is a premium on experiencing things rather than buying & accumulating stuff. That’s precisely why travel, adventure sports, gourmet restaurants etc. are doing well. People are willing to spend serious money in these areas. The other area which has gained traction is physical & mental well being. We see more people focused on living healthy lives. People have taken to exercises/ gymming, running, aerobics, dance, martial arts, lean food etc. to stay in good shape. Hence, we see a lot of Gyms, dance studios, martial arts teaching centres etc., these days.

Life has become far more complicated. We have huge amount of stress and tension in our lives.  In view of the stressful lives we are leading, we are searching for ways to calm down the jangling nerves. Yoga, meditation, detox & destress courses, ayurveda therapies for rejuvenation etc. have become mainstream.

We don’t have time. Life has become easy and tough at the same time. It is easy because we can accomplish a lot of things with just our computers and mobile phones. We can book tickets, pay bills, pay taxes, order stuff etc. without as much as moving a single step. But the options and choices have exploded. That information overload is leading to decision paralysis, as even the thought of analysing all the information and taking a decision is daunting. Financial area has become extremely complicated. That is exactly where we come in.

We need to recognise the magnitude of changes that have happened in our client’s lives. As advisors, we need to come up with offerings to fulfil what the clients may require today. What is easy today is the transactional aspect. Even our clients can buy or sell using a platform. All manner of reports are available on tap. What is tough is the way finances themselves need to be managed. In their complicated lives, where they are already overwhelmed, they will welcome the idea of someone helping them with their finances.

Clients of course have limited expectations – for they don’t know what to expect!

They are just looking for the basics – someone who can tell them where to invest the money, help in monitoring their investments, a chat once in a while & some reports which will keep them informed as to where they stand. These are precisely what most financial intermediaries do. But, the client’s unstated requirements are much more than just these.

Ideally clients would need all these – they need someone to comprehensively examine their situation, analyse their investments, understand their goals & needs, assess the risks they are exposed to, come up with a suitable asset mix based on their specific needs and risk bearing capacity & then suggest all that they need to do. This is Financial Planning. Very few come and ask for financial planning; but once we explain about it, everyone wants it!

Clients want meaningful engagements with their advisors. They are expecting more than courtesy calls, from their advisors. This is largely lost on the intermediation community which thinks that a courtesy call from time to time and a discussion on portfolio performance is more than sufficient to engage clients. Clients don’t attach much value to courtesy calls. Nor are they thrilled at portfolio performance discussions, which often adds to their stress. Anyway, advisors are expected to take care of portfolios and their returns – right? So, why make that the centre piece of the discussions.

What can add meaning to clients would be special scheduled discussions about their plan, update on the happenings in their lives, changes in their personal/ professional lives, qualitative discussions about truly important things like their children, parents, their career etc. Seeking to know these would help the advisor to understand their client in a much deeper way. This will enhance the quality of advice & help in keeping the plan meaningfully updated. The clients also will truly value this as we are trying to find out/ understand all there is to know before we dole out advice.

There is an even more fundamental area, where the clients can be helped. Mos of our clients go through life, without really thinking about the kind of life they would be most happy about. We all have one life and living that life to the fullest should be the motto. People get that wrong and think that aggressive financial goals is what counts for a worthy life. That’s why we see many clients leveraging themselves and buying many properties, expensive cars, bring on a lavish lifestyle, world tours etc. While these may be enjoyable & may even offer a high, they come at a price. They chain the client to keep earning at a high level. They also crowd out the truly important & valuable goals in life. We have seen cases who are stressed out & want to quit, even though they seem to be doing quite well for people from the outside.

Can we advisors help there? Sure, we can.

We can help them understand what is that they truly really want to do in life, what is that which will excite them, what is the quality they would want to bring to their lives which will make their lives well lived & worth looking forward to. What will give them back the wonderful feeling of freedom, the vigour, vitality & the sense of fulfillment? Once the clients understand this, it is easy to help them financially to create a life of meaning. This is Life Planning.

Are clients going to ask for this? No. Is it valuable & useful to them? Absolutely yes!

There are many more such services – Estate planning is an important area. If advisors are able to understand the client situation and are able to advice clients professionally here, it will be a huge help. Coaching client’s children on money matters is an important area, where we can help. Helping clients through life transitions, assisting/ advising them while their children want to go abroad for studies, assisting/ advising them on emigration to third countries etc. are things advisors can do for their clients.

Clients won’t expect their advisors to do so many things for them. But, if their advisor can do all these things, they become invaluable for them. They become their CFOs, their confidants & mentors.

To get there, the advisors will have to upskill themselves. But once we get here, would our remuneration be questioned?  It’s a rhetorical question for which the answer is self evident. I don’t have to answer that!

Suresh Sadagopan

Founder  |  Ladder7 Financial Advisories