We got talking. Adhvaryu wanted us to cut to the chase and suggest what he needs to do with all the money lying in his bank account. However, he just did not understand why we were meandering about his personal situation, family, about his goals, the past investments, risk appetite etc.
Adhvaryu was getting frustrated. He asked me point blank, “Are you not interested in taking this money and investing it? After all it is not a small sum, it is Rs 50 lakh.”
We had to tell him that we will eventually get there after doing the due diligence. We also had to tell him that we are not money managers out to gather assets but are advisors who would create a financial architecture to help our clients achieve their goals and objectives, throughout their lives.
Like Adhvaryu, there are many who are confused by who their financial advisor is and what role they play.
All of us have become quite busy with our work and are racing against time to complete them. There are even more claims on our time, at a personal level. No wonder people tend to postpone most other things, due to which one’s own finances becomes a casualty, in most cases.
This piece is an attempt to offer some clarity on who a financial advisor is and how they are different from money managers.
Money managers: Using a product-centric approach
Most think that investing money for the best returns is what is important. Hence, they are looking for people who will invest their money for them and deliver good returns. The product manufacturers are precisely doing that job.
They create a product as per a broad mandate and manage the money they can garner. They are money managers. Their focus is on offering the maximum returns within the broad parameters of their product. They will offer their product to whoever wants to buy it. This is a product-centric approach.
Such money managers or their sales agents are not going to engage with the clients to check whether it is suitable for them in terms of risk-reward sought, liquidity needs, tenure, taxation etc.
When the investor acquires such products, even they focus on just returns, to the exclusion of everything else. Hence, by just investing in such products, one’s specific needs may not be met.
There are hundreds of products and scores of money managers of all hues, which makes the life of an investor rather difficult. To compound matters, most investors are not financially aware enough to make intelligent and suitable choices.
Financial advisor: Creating a financial architecture
A financial advisor, in contrast, is focused on their client and their needs. They are intimately aware of the clients, their life situation, goals, their aspirations etc. They need to come up with a plan/ advice to provide for and meet all their needs. A financial advisor would craft a financial architecture as per the client’s specific situation.
Hence, the approach that a financial advisor takes is a client centric approach. As per the financial architecture, the financial adviser would choose the products to build the required financial edifice. The various products are like bricks to build an appropriate financial edifice which would be chosen as per the needs of the client, after taking into account their unique situation.
A financial advisor need not manage the money directly by, say, investing in stocks, real estate, commodities etc. It can very well be done using products already available, like mutual funds, REITs, Gold ETFs or other such from money managers.
Hence, the approaches of a money manager and a financial advisor are diametrically opposite to each other.
How to identify a financial advisor
Most times, public at large meet product sellers or money managers and confuse them to be financial advisors. That is why they expect advisors to talk about returns, rather than exploring what they need.
Many times, product sellers call themselves financial advisors, which adds to the confusion. To distinguish a bonafide financial advisor, one needs to just find out if they first want to understand one’s situation well, before suggesting a product.
If that is true, they would be financial advisors. For a good financial advisor, the product is not the focus; the client is at the focus around which everything is designed.
Knowledge is power. It makes sense to understand who a money manager is and who is a financial advisor. And then approach the one who is right for one’s situation.
(The author is founder, Ladder7 Financial Advisories, a SEBI Registered Investment Advisor.)
(Views expressed are personal.)