I think we often misunderstand what we should expect from a financial adviser. Ask someone why they hired an adviser, and quite often the answer is: “Tell me which mutual fund I should invest in.” Or: “Which stocks are going to do well?” Or perhaps: “Do you know of any investment that can give me very high returns?”
About the author: Chandan Singh Padiyar is a SEBI-registered investment advisor. You can contact him via his website: padiyars.
I don’t think that is where the real value of a financial adviser lies. Today, finding the names of good mutual funds, stocks or investment products isn’t particularly difficult. There is plenty of information available. You can find rankings, past returns, ratings, opinions and recommendations almost everywhere. The difficult part is something else.
Understanding what these instruments actually do, what risks they carry, and where they fit into your life.
That, in my view, is where you should expect a financial adviser to add value.
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The same investment can be right for one person and wrong for another
Take a simple example. Someone tells you that a particular equity mutual fund has given excellent returns over the last few years. Does that automatically mean you should invest in it? Not really.
The more important questions are: Why are you investing? When will you need the money? How much loss can you tolerate? What other investments do you already have? What happens if the market falls 30% just when you need the money?
These questions have very little to do with finding the “best” mutual fund. They have everything to do with understanding your situation. A fund can be an excellent fund and still be a bad investment for you.
Financial products are tools
I like to think of financial instruments as tools. A hammer isn’t a “better” tool than a screwdriver. They simply have different jobs. The same applies to equity, debt, mutual funds, fixed deposits, bonds, stocks and other investment products.
The question isn’t always: “Which one gives me the highest return?”
The question should be: “What job do I need this money to perform?”
Money that you may need in two years has a different job from money you are investing for retirement 25 years from now. Money kept aside for an emergency has a different job from money that you can afford to leave untouched for decades. Once you look at investments this way, the conversation becomes much more meaningful.
Don’t outsource your understanding
Another reason I believe advisers should focus on education is this.
If an adviser simply tells you: “Buy this fund.” You haven’t really learned anything. What happens six months later when the fund falls 15%?
You may panic and sell. What happens when another fund starts performing better? You may jump to that one. What happens when the stock market crashes? You may start believing that your entire investment strategy was wrong. But if your adviser has helped you understand why you invested in the first place, things can be very different.
You may still be uncomfortable when markets fall. That’s normal. But at least you know what you own, why you own it and what role it plays in your financial plan.
Be suspicious of the search for the “next big thing”
I also think investors sometimes hire advisers for the wrong reason. They want access to something that others don’t know about. A special stock. A unique mutual fund. A new investment product. Something that will supposedly generate very high returns.
But no magic button reliably converts money into extraordinary returns without taking meaningful risk. And if someone tells you otherwise, that’s probably the point at which you should become more curious—not less. A good adviser shouldn’t constantly feed your desire to find the next big investment.
They should sometimes tell you:
“You don’t need this.”
That may actually be one of the most valuable things an adviser can say.
Your life should drive your investments
Ultimately, investing is not an isolated activity. It is connected to your life. You may be planning to buy a house. You may have children whose education you need to fund. You may want to retire at a particular age. You may have ageing parents to support. Your income may change. Your expenses may change. Your ability to take risk may change. Your investments should evolve as these things change.
This is why I would rather have an adviser help me understand how an investment instrument maps to my life situation than simply give me a list of products to buy.
So what should you ask your financial adviser?
Instead of asking: “Which is the best mutual fund?” Ask: “What role should equity play in my financial plan?” Instead of: “Which stock should I buy?” Ask: “How much risk should I be taking in the first place?”
Instead of: “What is the highest-return investment available?” Ask: “What risks am I taking that I may not fully understand?” And perhaps the most important question: “If my life changes, how should my investment strategy change?”
Those are much harder questions. And that’s precisely why professional advice can be valuable.
The real value of an adviser
The names of good investments will keep changing. Today’s best-performing fund may not be tomorrow’s. Stocks will come and go. New products will keep appearing. But the basic principles of investing don’t change nearly as quickly.
Understanding risk. Understanding compounding. Understanding liquidity. Understanding time horizon. Understanding your own behaviour. And most importantly, understanding how all of these things fit into your life.
So, don’t hire a financial adviser just to get the names of the best mutual funds, best stocks or some unique high-return investment.
Hire one to help you understand how these instruments work, what they can and cannot do, and how they should fit into your life.
Because ultimately, investing isn’t about finding the best product.
It is about using the right financial tools for the life you are trying to build.
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