Investing in the wrong financial products can be more costly than paying for professional advice on where to put your money. The people who are wealthy (or in simple words, rich) understand it quite well and hence, do have their own set of advisors (even if they don’t call them that) to help make money decisions.
A vast majority in the country hesitate to pay for any kind of investment advice, thinking that it should be free, like the suggestions they get from insurance agents and other product sellers. However, this type of free advice often isn’t thorough or suitable for everyone.
Here’s an example to explain this better:
A friend has been paying Rs 90,000 premium every year for a traditional insurance policy that will last for 28 years. He has already completed 7 years. I pointed out that this type of insurance isn’t a great investment because it only grows by about 4-5% annually. I explained that if he chooses his investments correctly, even a conservative assumption for equity funds leads to a potential average return of 10-11% annually over the same period.
However, my relative didn’t see the need to consult a paid investment advisor, doubting whether the advice would be worth the cost. To show him what he was missing out on, I did some quick math: his annual Rs 90,000 in the insurance plan would eventually add up to about Rs 55-60 lakh. But if he invested the same amount in equity funds, he could end up with Rs 1.3-1.5 crore, which is a much bigger sum.
This example shows how paying a small fee for good investment advice could lead someone to make better choices early on and end up with more money later on.
To be fair, not everyone needs to hire an investment advisor. Some people can manage their own finances well. However, many don’t know how to choose the right financial products, how much to invest, or how much insurance they need. Getting help from a professional can make a big difference in achieving their financial goals.
The cost of staying in the wrong financial products can be extremely high. Investing poorly can significantly harm your financial goals. While good advisors charge fees, the expense is worth it compared to the losses from poor investment choices.
In many western countries, there is a lot of importance given to getting objective financial advice. In fact, they go to the extent of understanding the distinctions between qualified purchasers and accredited investors which at times and for many large investors, might be of paramount importance to navigate the in the intricate world of investments.
Like in the US, The Securities and Exchange Commission (SEC) establishes regulations and guidelines governing qualified purchasers and accredited investors, ensuring compliance with securities laws, investor protection, and market integrity. Qualified purchasers may be subject to additional different regulatory oversight or exemptions than accredited investors, depending on the investment vehicle or offering in their areas of operation. So, understanding the distinctions between qualified purchasers vs accredited investors is essential for investors, financial professionals, and regulatory authorities. This helps investors make informed decisions, manage risks effectively, and pursue investment opportunities aligned with their financial goals and risk tolerance.
After discussing whether advice should be free or paid, there’s another important point many people miss:
The difference between genuinely good advice and advice that just sounds good.
Real good advice works. It helps you make changes and inspires you to act. If advice doesn’t motivate you to do something, it’s not useful.
But let’s be honest, telling the difference between effective advice and just talk can be hard and takes time. You need to learn to distinguish useful advice from mere noise. After all, it’s your money, and you’re responsible for using it wisely.
To start, remember good financial advice doesn’t need to be complex or sound impressive. It should clearly show you how to move forward, not just focus on the final goal. A truly good investment advisor will prioritize your needs and goals and provide practical advice, rather than just selling you products. That’s what separates a good advisor from a bad one.
A common myth is that only the wealthy need professional financial advice. In reality, good financial advice is like using Google Maps. You set your destination, and it guides you, rerouting as needed to get you there efficiently and safely. That’s what a reliable financial advisor does – they help you navigate your financial journey, adjusting as necessary to keep you on track.