What is The Role of a Financial Planner?

A financial planner is a kind of friend, philosopher, and guide who helps you meet your long-term financial goals. The financial planner brings expertise and insights to help you define where you are and creates an actionable plan to help you reach your goals. Let us understand the financial planner role in greater detail. What is the role of a financial planner and what is the value-added contribution made by the financial planner?

Main Role of a Financial Planner

A financial planner is a qualified investment professional but that is just about their technical qualifications. The main role of a financial planner is to help individuals meet their medium-term and long-term financial objectives. Financial planners work closely with the client to crystallize the goals, analyze their goals, assess risk tolerance, and as an end product create a plan of moving from point A to point B. But the role of a financial planner does not end with creating the financial plan. It has to be monitored, reviewed, and restructured where needed.

Financial planners must be professionally qualified and ethically committed to the job. The role of a financial planner entails a fiduciary relationship. That means it is a relationship of trust and therefore integrity of the financial advisor is very important. Normally, the financial planner has a professional degree and also has to pass requisite exams and get certified by SEBI on successful completion of such courses.

Normally, financial planners explicitly provide financial advice and help clients direct their efforts and capital towards long-term goals. Registered Financial planners are obliged to act in a client’s best interests, and they can’t personally benefit from the management of client assets. This fiduciary relationship must always be kept in mind while dealing with clients.

Normally, these financial advisors are fee-only, meaning they can’t work off commission or sell a client any investment products that are not in the best interests of the said client. Fee-only financial planners generally make money by charging an upfront fee, a fee based on the size of the assets under advice as well as an annual recurring fee and compensation for other incidental costs.

Importance of Financial Planning

Financial planning is a very gradual, step-by-step, and iterative approach to meet one's life goals. There are no sure answers in financial planning and the advisor that works best under a certain set of assumptions and conditions. A financial plan designed and executed by the financial planner will act as a guide as you go through life's journey. Essentially, the financial plan will help you be to better control your income, expenses, and investments such that you can manage your money in the best possible way to achieve your goals.

Financial planning becomes critical as there is normally many a slip between the cup and the lip. Your best ideas may come to naught if not backed by an actionable plan with the necessary risk management tools built-in. That is where the expertise and professional integrity of the financial planner come in handy.

What are the Types of Financial Planning?

Having looked at the role of a financial planner and the criticality of financial planning, let us look at the various types of financial planning.

  1. Cash flow planning helps you to crystallize how the cash inflows and outflows will create opportunities to save and how the budget needs to be managed

  2. Investment management or Investment planning is the critical asset allocation decision. How much inequities, how much in debt, how much in gold, etc.

  3. Debt planning is about reducing high-cost debt and consolidating multiple units of debt for simplicity,/p>

  4. You end with Tax planning as you don’t want to end up paying most of your target returns as taxes. Plan your outflows, investments, and withdrawals accordingly.

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Frequently Asked Questions Expand All

Normally financially advisors charge a fixed annual fee and also a percentage of your assets under advice (AUA). The charges are normally specified in the term sheet with compensation of out of pocket expenses.

The financial advisor helps you take an objective approach to your goals and also brings in the expertise to help make the best asset allocation in your journey towards your goals.

Financial advisors are also human, so they have to use their best judgement. You cannot expect them to be always correct. Their job is to bring expertise and objectivity to the process.

All financial planners and advisors have to be licensed under SEBI regulations. You can ask for a copy of the license for your own satisfaction.