Let me warn you, this is going to be a boring note, but this question brings so much pain and yet is such a fundamental question, I decided it’s time to offer some clarity.

First, the answer to the above question is an unequivocal NO.

I am going to begin by giving an analogy to explain, and then use actual facts. Investments are tools. In an orchestra, musical instruments are tools. It is obvious that the tools necessarily need to be good. But that is not the end of the story. It is the BEGINNING. To do anything with a tool, we need someone who knows how to use it. If we want to really hear a flute, we need to have someone who can play the flute and not just that, but can also play it well!

In the world of finance, THAT is an investment manager, not a financial advisor. If we want to invest in pharma companies, the person who specialises in understanding the industry, the players and valuations, is the investment manager. He is the flautist who knows how to play the flute.

But that doesn’t make a symphony. In an orchestra, we need someone who knows whether the flautist plays or not, and if he does then when he plays and how much does he play. Right? THAT is an equivalent of a financial advisor. The advisor is the person who is supposed to tell you whether to use a tool, or an investment in this case, or not. And if yes, when to use it and how much to use it.

A financial advisor doesnot do investments. She helps you orchestrate your financial life, so that the outcome you get is the very melody you sought to listen to.

And since I am at this, I might as well take the analogy to the next level. All instruments are not melodious but together they are designed to produce beautiful music. If you have heard the Mid Summer Night’s Dream by Mendelssohn, and you have heard the strings which are supposed to be the braying of the donkey, you know what I mean. The braying by no means is music, but without which we would certainly not enjoy A Mid Summer Night’s Dream composition by Mendelssohn!!

The mandate for a personal financial advisor is to advise us on issues that come between our money and what we want to do in life. Investments are only one of those issues, and not always. Often the proof is in the pudding. You would know what a financial advisor (a real one, not the institutional team that sells products) really does, only by asking someone who has had one.

- Devang Shah
July 01, 2021

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