Key Takeaways
- Financial literacy is necessary to achieve financial stability
- Independent Financial Advisors (IFAs) are the guides and teachers that impart financial education
- IFAs provide independent opinions and recommendations and help in optimising investments
- Financial advisors analyze investment options, evaluate risks and devise an investment plan
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The role of a teacher often remains underappreciated in a successful candidate’s life. But good teachers and advisors have been given an exalted position in Indian society. From Chanakya to Savitribai Phule, Dayanand Saraswati and Dr Sarvepalli Radhakrishnan, teachers have played an important role in shaping the destiny of the country. Similarly, financial teachers play a crucial role in shaping an individual’s future. A financial teacher can be of different types such as financial planners, independent financial advisors, distributors and agents. Lately, independent financial planners have gained prominence among Indian investors.
Who are Independent Financial Advisors?
Independent Financial Advisors are professionals who offer advice on financial matters and recommend investment avenues to meet the financial goals of the client. As the name suggests, these advisors work independently for the client and do not represent any insurance company or bank.
Role of Independent Financial Advisors
A wide variety of financial products have been introduced as the Indian market matured. With relatively simpler financial products, it was easy to prepare a financial plan earlier. But with the introduction of new financial products, taking the help of an independent financial advisor has become a necessity. An independent financial advisor plays many crucial roles to ensure that your financial goals are achieved.
a. Educating investors
When it comes to financial assets, digital literacy or awareness is very important. The primary duty of an independent financial advisor is to educate the investor and chart a financial plan according to his/her financial goal. An efficient advisor has to go beyond just investing on the client’s behalf, but also explain the rationale behind each investment. The education helps the investor make an objective analysis of the financial path recommended by the IFA
b. Analyzing investment options
As a plethora of investment options are available in the market, IFA analyses suitable products for his/her clients. Once the financial goal and requirements are clear, the IFA conducts a thorough analysis and recommends a clear financial path. An IFA may recommend equity funds, debt funds or hybrid funds depending on the financial target of the investor. To offer relevant advice and recommend suitable products, advisors have to remain updated with the latest financial news and developments.
c. Evaluating risks
Every investment comes with certain risks associated with them. Generating returns is not the only aim of an IFA, he has to optimise the investment to manage risk. Depending on the risk tolerance of the investor, IFA recommends investment options. If an investor has a higher risk tolerance, IFA will suggest equity fund, if the risk tolerance is low, the advisor will recommend relatively stable debt funds. The age, investment tenure, income and financial responsibilities of an investor decide his/her risk profile.
d. Devising investment strategy
A financial goal cannot be achieved without an investment strategy. After taking into account all the investment options, the risk profile of the customer and the financial goal, the advisor formulates an investment strategy. It involves diversification of the investment basket to maximise returns and limit the risk.
e. Providing inputs and insights
A financial advisor educates the investor, analyses investment options and charts an investment strategy. After the strategy is put into place, the IFA has to monitor the performance of the investments closely and suggest the required modifications. IFAs handle sensitive financial data which makes confidentiality an important aspect of the job. The insights and inputs provided by advisors are discreet and tailor-made for specific investors.
So, this Teachers Day let's celebrate the teachers of our mutual fund industry and honour their presence and contribution to the industry.
