When do you need a financial adviser?

Pratap has just completed 20 years of his working life. While he is happy with his career, money matters make him anxious. He has been an avid saver and has money tucked away in a variety of instruments, from PPF to direct equity to structured products. However, he has no time to organise his finances. He wants to know what he should do.

Pratap represents a large segment of well-paid professionals who are unable to manage their money. Paperwork and time are the biggest challenges. At this juncture, he needs a financial adviser. Before he engages someone to take care of his finances, he needs to be clear about his mandate and the terms on which he wants his money to be managed.

To start with, Pratap must collect details regarding all his savings and investments. Since he has not been able to give due attention, his investments may be scattered. He should get his financial adviser to draft a letter to all mutual funds, banks, registrars, brokers and depository participants, seeking information about his holdings. The adviser should be instructed to follow up and enable processing his service request for information, providing additional data as required to complete the process.

Once the information is in place, a portfolio consolidation and review should be done. The adviser should tabulate all the information that has been sought, and plug in all the required details. The current value of the portfolio must be arrived at, return on investment earned must be computed and hence, a summary of how each one of the investments is doing will be clearly evident. A portfolio review should enable deciding what to keep, what to close, and what should be consolidated.

Lastly, having estimated the current value of the investment portfolio and brought all details together, he should sit with the adviser to decide how the portfolio will be managed going forward. The adviser can take a detailed financial planning approach. Or he may simple choose a wealth creation approach that is based on an agreed return at an acceptable level of risk, for a given time period.

The payment to the adviser should be based on mutually accepted terms, and subject to completing the paperwork and the due processes. Pratap should also play fair with his adviser by not dropping him after all the initial work is completed. Else, he may then find himself in the same mess yet again.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)
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