Importance of an Investment Expert in the Financial Planning Process

What Is an Investment Expert?

An investment expert is a professional who provides guidance and handholding on financial planning. They can guide you on comprehensive financial planning that covers all its aspects or specific goal(s) like child education planning, retirement planning, etc.

An investment expert can help you navigate through the complex world of personal finance. They can help you identify your goals, invest towards them, and hold on to your investments till the goals are achieved.

Now that we understand who is an investment expert, let us look at the role they play.

The Role of an Investment Expert

For goal planning, the role of an investment expert is to guide you right from inception i.e. identifying the goal to achieving the goal. The role may cover the following.

1.  Identifying the financial goal and making it SMART (specific, measurable, achievable, relevant, time-bound)
2.  Quantifying the goal by identifying the current cost and estimating the future cost considering the impact of inflation
3.  Making a goal plan on how to achieve the financial goal. It involves calculating the regular monthly amount to be invested considering the investment time horizon, the expected rate of return, and the amount to be accumulated.
4. Implementing the goal plan by recommending the financial product(s), guiding the client on setting up the systematic investment plan (SIP) for mutual funds, etc.
5. Regularly review the progress made once every six to twelve months. If the performance is consistently lower than expected, recommend a shift to an appropriate product. If there is a change in taxation, product features, Government policy, etc. then recommendation on whether the same investment should be continued or replaced. If any new financial product has been introduced, then guidance on whether it should be included in the investment portfolio.
6. Handholding the client through the goal-planning journey till the goal is achieved.
   

How an Investment Expert Can Help With Investing

In the above section, we understood how an investment expert can help with goal planning. Apart from goal planning, the investment expert can help with various other activities like:

1) Cash Flow Analysis

Before one can start investing towards their financial goals, an important step is to analyse an individual's cash flows. It involves making a cash flow statement listing all the sources of cash inflows and outflows. It helps in analysing from where the money is coming in and for what it is going out. The investment expert can help make a cash flow statement for the client. If the cash inflows are higher than outflows, it is good.

The investment expert can also help make a net worth statement detailing all assets and liabilities. Assets include what you own, like a house, vehicle, etc. Liabilities are what you owe, like home loan, vehicle loan, and others. If the assets are more than liabilities, it is good.

The investment expert can help make a budget. A budget allocates income towards expenses, savings and investments. The expert can help you with various budgeting methods like 50/30/20 budgeting, Pay Yourself Budgeting, etc., depending on what best suits your requirements.

2)Tax Planning

While choosing financial products for investments towards financial goals, the investment expert can recommend tax-efficient products. They can recommend financial products that can give maximum deduction from taxable income under various sections of the Income Tax Act. For example, under the old tax regime:

1.  Section 80C gives a deduction for various financial products like EPF, PPF, NSC, ELSS, home loan principal repayment, etc.
2.  Section 80D gives a deduction for the health insurance premium for self, spouse, and children. There is a separate deduction for the health insurance premium paid for parents.
3. Section 80CCD gives a deduction for NPS.
4.  Section 24 gives a deduction for the home loan interest payment, etc.

While deduction is important at the time of investment, it is equally important that the maturity/redemption proceeds are either tax-free or minimally taxed. An investment expert can recommend financial products that are tax-free or minimally taxed at maturity/redemption.

Benefits of Working With an Investment Expert

There are many benefits of working with an investment expert. You can get all the personal finance services related to goal planning, insurance planning, tax planning, estate planning, etc., from a single entity.

The presence of an investment expert is important during times of market volatility. Handling the wide market swings along with all the information flow can be overwhelming. During such times, the emotions of greed and fear run high. The investment expert can help the investor in managing their emotions and staying calm. They can help clients by providing the relevant data and asking them to ignore the remaining noise around the news flow.

What to Look for in an Investment Expert

Now, let us understand what to look for in an investment expert. You should look at factors like the investment expert’s track record, experience, client references, etc. Check the experience of the investment expert in terms of the number of years they have been providing investment advisory services. You may ask them how many clients they are handling currently and how many they have handled in the past. Ask for references of some clients and talk to them about how their experience has been.

Investment Expert: One-Stop Solution for Financial Planning

The role of an investment expert is very important throughout your financial planning journey. Right from identifying financial goals till they are achieved, they can handhold you all the way. They can provide customised solutions tailored to your individual needs. Along with guidance on financial matters, they can also help you in handling emotions when markets are volatile. Hence, an investment expert can be your advisor, coach, guide, mentor, etc., all in one.

FAQs

I Am Not Comfortable Sharing My Personal Information Due to Security Concerns. Should I Take the DIY Route Rather Than Availing the Investment Expert Services?

All investment experts keep the client information confidential. Hence, you need not worry about revealing your personal information to an investment expert. Also, an investment expert can provide valuable guidance throughout your financial planning journey. Doing it all by yourself can take a lot of time and effort. Financial mistakes can cost you dearly and push you back in your financial journey by a few months/years. Hence, doing it yourself is not recommended. You should avail the services of an investment expert. It is best to leave this task to an expert rather than DIY.

Can an Investment Expert Provide Advice on All Tax Matters?

Most investment experts have adequate knowledge of how to save tax by investing in various financial products. They can guide you on which financial products provide how much deduction at the time of investment, how your returns are taxed, etc.

However, if you want to get into the details of certain things like filing your income tax returns, tax matters related to real estate, how to structure your succession planning if you have a lot of assets, how to handle your international investments, investments in exotic products, etc., you should consult a tax professional.

How Frequently Should I Meet an Investment Expert to Avail of Their Advisory Services?

If you are starting your financial planning journey, you will initially be required to meet the investment expert to get your financial plan designed and start the investments. The initial discussions/meetings will be frequent till all the SIPs are in place; you have bought term and health insurance and have started setting money aside for the emergency fund.

Once the above requirements are taken care of, you may have review meetings with the investment expert once every six to twelve months. Please note that physical meetings are not required. You can do online meetings through Google Meet, Zoom, etc.

Investment Experts Are for Rich People. I Am a Middle-Class Person With Not Much Money. Do I Need an Investment Expert?

The need for an investment expert is not linked to the amount of money you earn or your financial status. Everybody has financial goals, and hence, everybody needs an investment expert.