In recent years, the role of an investment advisor has become more crucial than ever. Investors are increasingly recognizing the importance of professional guidance in navigating complex financial decisions annualised rate of 8%, compared to just 5% for self-managed ones.
If we talk about India, according to the Securities and Exchange Board of India (SEBI), there were over 1,428 registered investment advisors as of November 2024.
To grow funds and build wealth, an investment portfolio has to be handled carefully and in a constructive way. In this article, we will cover what is the role of an investment advisor and why it is important to build a long-term relationship with your advisor.
Importance of Investment Advisor for Managing Portfolio
An investment advisor is a registered professional who has been accredited by SEBI in India and also offers specific advice to clients based on their financial situations. Some of their key duties include:
Assessing clients' financial goals, risk tolerance, and investment horizon.
Developing tailored investment strategies aligned with clients' objectives.
Monitoring and adjusting portfolios in response to market changes.
Ensuring compliance with regulatory standards and ethical practices.
Opting for an investment advisor offers several long-term benefits:
Personalized Financial Planning: Strategies are designed according to the goals and risk levels of individual clients.
Expert Market Navigation: They provide insights to help clients make informed decisions amidst market volatility.
Regulatory Compliance: Advisors make sure all the SEBI directives are followed and the interests of the clients are protected.
Behavioural Guidance: They assist in managing emotional responses to market fluctuations, promoting disciplined investing.
Continuous Portfolio Optimization: Regular reviews and adjustments help in achieving optimal returns over time.
By establishing a stable, long-term investment advisor-investor dynamic, investors will not only be able to take care of their finances but also work towards their goals.
Why Maintaining Long-term Relationships with Your Investment Advisor Adds Value?
Establishing and nurturing a long-term relationship with your investment advisor is pivotal in enhancing your financial strategy. This continuity offers several key advantages:
1. Deep Understanding of the Client's Financial Situation
A sustained relationship allows your advisor to gain comprehensive insights into your financial landscape, including income, expenses, assets, liabilities, and long-term goals. This depth of understanding enables the formulation of strategies that are precisely aligned with your unique circumstances.
According to a 2024 report from the U.S. Financial Advisor Satisfaction Study by J.D. Power, clients who maintained long-term relationships with their advisors experienced an 8-point increase in satisfaction with their financial plans on a 1,000-point scale, year-over-year.
2. Personalized Investment Strategy
With an in-depth understanding of your financial situation, your advisor can craft a personalised investment strategy that aligns with your risk tolerance, time horizon, and financial objectives. This tailored approach ensures that your portfolio is optimised to meet your specific needs.
Personalised approaches are particularly beneficial in India, where diverse financial goals like saving for children's education, building a retirement corpus, and managing tax liabilities coexist.
3. Ease of Navigating Market Volatility
Long-term relationships with advisors provide stability during market fluctuations. Advisors offer informed perspectives and strategies to manage volatility, helping clients avoid impulsive decisions that could jeopardise their portfolios.
For example, when the Nifty 50 index dropped by over 35% during the 2020 market crash, investors who had stable advisory relationships were less likely to panic and sell their investments at a loss.
4. Stable Investment Approach for Long-Term Gains
Consistency in advisory relationships promotes adherence to disciplined investment practices, which is crucial for long-term wealth accumulation. Advisors help clients stay focused on their financial plans, even amid short-term market noise.
The Capital Group's 2024 analysis demonstrated that investors who maintained a stable investment approach, guided by their advisors, achieved superior returns over a 10-year period compared to those who frequently altered their strategies.
Furthermore, in India, where there is a growing focus on long-term wealth creation through instruments like mutual funds and SIPs (Systematic Investment Plans), this stability becomes even more crucial.
5. Long-Term Trust and Security
Building a long-term relationship with an advisor fosters trust, which is essential for open communication and effective financial planning.
According to a 2023 Financial Resolutions Study by Fidelity Investments, the vast majority (80%) of people with advisors were able to stick to their financial resolution, compared to just over half (55%) of those without an advisor. This trust ensures that clients feel secure in sharing sensitive information, enabling advisors to provide more accurate and beneficial advice.
Tips to Maintain a Long-term Relationship with Investment Advisor
Here are ways to ensure the longevity and effectiveness of this crucial relationship:
1. Regular Check-ins and Portfolio Reviews
Scheduling periodic meetings with your advisor ensures that your investment strategy remains aligned with your financial objectives. These reviews allow you and your advisor to reassess asset allocation, identify underperforming investments, and rebalance your portfolio.
2. Open Communication About Changing Financial Situations or Goals
Like many aspects of life, your finances also change with time, and your goals may also change as a consequence of these changes. For example, you may have more income than before or have a new family member, which affects your income, or your tolerance to risk has changed.
In all these cases, your advisor should know how to update your strategies. This preventative action ensures that the investment plan does not become obsolete.
3. Periodic Reassessment of the Advisor’s Performance and Fit
While maintaining continuity is important, it’s equally essential to periodically evaluate your investment advisor’s performance and suitability.
A review of the advisor’s past performance, their ability to meet your financial goals, and whether their strategies align with your values should be conducted periodically.
In India, where financial advisory services are growing rapidly, it’s crucial to ensure that your advisor remains well-suited to your evolving financial goals and market conditions.
Conclusion
Maintaining a continuous relationship with your investment advisor offers you benefits such as stability of portfolio, expert curation of investment instruments, and long-term wealth creation. You can also shed yourself from panic-selling during market volatility, and adopt disciplined investment practices for long-term gains.
