One single person cannot be an expert at many things. One may be good at quite a few things but can one call himself as an expert on multiple subject matters? Probably not. Thus, a normal person would need different experts and consultants at different points in time. These experts can be in the form of say, your teachers, gym /yoga instructors, doctors, lawyers, accountants and even your spiritual guide or guru. One such important expert in your life would be your financial advisor but the importance of whom most of us do not fully appreciate.

The financial advisor may come in many different names or designations, irrespective of which their primary concern would be your financial well-being and ensuring that you are financially successful. Thus, choosing and having the right financial advisor is very important as it will have an impact on one thing you value most – your money.

Who is a Financial Advisor:

A financial advisor is one who would be interested in your overall financial well-being. A good advisor would be one who is competent and committed to ensuring financial success for you. The financial advisor should be one who could provide you with advice and access to different financial products as you may need. He should be the one able to not only create and manage portfolios of different financial products but also handle you as a person. The financial advisor would play the critical role of managing your expectations, your emotions, help you build the right habits, attitude and appetite for investments and also help you become more aware of your finances.

Why should he/she be right?

Since we are strictly dealing with your financial well-being here, there is very little scope for compromise. At stake is a huge impact on your wealth – the difference between what a good / decent advisor and the right advisor can make for you. Small decisions, choices of products, timely actions, managing emotions, expectations, etc, everything potentially can end up making a huge difference to your finances especially when we project that over many years or long term.

Why do we need an advisor?

To start with, financial advisory is a huge field in itself. It encompasses different aspects of finance, including financial planning, investment & portfolio management, insurance or risk management, tax planning, retirement planning, cash-flow management, and loan /debt management. I am not sure how many of us would be competent /knowledgeable in each of this aspect. Bringing together all these pieces together is just one part of financial advisor. The real impact a financial advisor would bring would be in effectively managing your emotions and expectations and saying no to you where needed. There is a risk that financial decisions taken by us get affected by > emotions, biases, prejudice, knowledge, understanding, delays and so on. The advisor would help us by bringing professionalism, logic, emotional control, discipline in decision making and bringing all aspects of financial management under one umbrella of strategy or approach.

Who is probably not the right advisor?

Traditional Agents/ Brokers /Accountants:

The role and expertise of a proper financial advisor is an established field in itself. One should not expect a comprehensive assessment and solution to your financial needs from persons handling only specific aspects of your life. This is true for you, unless he/she is also a financial advisor, accountant, banking executive. insurance agent and stock broker. There are many traditional agents in the market who are really not looking at solving your problems or needs but are only interested in pushing the most profitable products to you. One should be more careful of their bank executive selling new ideas, the stock broker frequently churning portfolio and giving tips, and the insurance agent in neighbourhood selling only traditional plans.

Personal relationships:

Having a relationship with an incompetent advisor is not recommended even if you have other reasons for maintaining that relationship. At the end of the day, there is always a chance that you are not satisfied with the advisory part and then that may even ruin the other relationship you are having with that person. It would be advisable to differentiate a personal relationship and a professional relationship and deal / hire the right advisor to manage your finances.

Who is the right advisor for you?

• Competence: Your financial advisor has to be competent. Being competent can be seen as a combination of essentially two things -

• Knowledge: Knowledge is all about knowing everything you expect the advisor to know, including knowledge about assets, products, taxation, etc and also keeping oneself updated on markets and economy.

• Skills: Skills can be seen in two parts – (a) financial advisory skills (c) soft skills. The advisor should be smart enough to your prepare financial plans, do portfolio restructuring, decide upon the right products suitable for you, prepare reports /insights, evaluate products, make decisions based on right inputs, execute plans /transactions and so on. Soft skills would be largely about effective communication and relationship management with you.

• Infrastructure: Knowledge and skills have to be supported by adequate infrastructure. The existing infrastructure should be adequate enough for you to be serviced. The advisor has to be empowered by suitable product basket, technology platform, services, manpower and physical infrastructure. All this will access to the required products, ensure ease of operations, service quality and technology comfort for you too.

• Commitment: The financial advisor should be committed to you. We can interpret this commitment and see it as a combination of the following -

  • Acceptance: the advisor accepts you as a valuable client and is dedicated to serving you. The impact of this acceptance & dedication would reflect on the entire relationship you have with the advisor. Absence of this aspect of relationship would not help you no matter how competent your advisor is.

  • Understanding: another aspect of commitment would be reflected in the extent to which the advisor takes the effort to understand you as a person and your finances. Without a proper understanding of your profile, background, financial status, needs and expectations, it would be difficult for him to give the right advice to you.

  • Intent: The last part of commitment is the intent of the advisor. There are many people in the industry, say bank executives or insurance agents promoting traditional plans only, whose true intentions and/or product biases to be understood. The advisor has to act in your best interests only and not be biased for any particular products or services. A good advisor will not be transaction or product oriented but will talk more in terms of problems or needs and solutions for them.

Time for Tax Planning

In life, two things are certain – death and taxes! 31st March is less than Four months away and you surely now have adequate time to focus on one very important task for the financial year. Tax Planning! You have just about enough time to assess your financial records and plan investments for tax saving purposes. But don't get too comfortable just yet. Time is of the essence when it comes to tax planning and the remaining months will fly away soon. We don't want to end up in the middle of a lot of unfinished work, forced to make last-minute investments in sub-optimal instruments just to save tax. You may end up saving tax but will this investment align with your overall investment goals?

Let us not wait for March month and be done with all tax planning as early as possible. Last minute tax planning decisions, taken in haste often are not the ones most suitable for you. We would suggest it is time to start tax planning right away. The question now is how do we start?

Step one: Assessment of gross income

The IT department has identified five specific heads of income under which all income is classified. These are (a) Income from Salary (b) Income from House Property (c) Profits & gains from Business/Profession (d) Capital Gains & (e) Income from Other sources.

The first step is a fair assessment of the gross income for the financial year. You already have crossed over nine months and we believe you will have a fair bit of idea for income accruing in the remaining months. There is no need to arrive at an exact figure. An approximate figure is enough to know the income for the fiscal year. While arriving at the gross income, please do consider all incomes including things like interest on bank savings, interest earnings from investments made, rental income, etc.

Step two: Assessment of taxable liability

The next step is the computation of the net taxable income. For this, we will be taking into account the exemptions /deductions provided by the government for the above-mentioned income source. We will be also considering the tax saving avenues already used /invested in by us during this financial year. Just to highlight, the following things will have to be considered, subject to the taxation rules,

1. Investments made in tax saving instruments u/s 80C

2. Rent paid for residence

3. Insurance premiums paid

4. Home loan – interest and the capital amount repaid

5. Medical expenses for disease treatments

6. Expenditure on handicapped relatives

7. Other allowed deductions like tuition fees, donations, etc.

After arriving the net taxable income, depending on our income level and our personal profile (age + gender + tax entity type) a particular taxation slab will be applicable to us. This will help us arrive at the tax liability for the year.

Step three: Planning for tax saving

You now have a fair idea of the amount of taxable income and tax liability applicable as per tax slab to you. The next step starts with you deciding how much tax savings you want to do? The idea is to reduce your taxable income so that the tax liability decreases. Thus you will have to work out the right amount of investments to be made in approved instruments which are allowed as deductions...

Note that not every decision is driven by tax saving purpose. For example, taking insurance in itself is very crucial and the decision on it should be taken independently, irrespective of tax saving benefit available or not. Tax saving in insurance products must always be a secondary consideration, as a by-product. As such insurance requirements have to be discussed with your advisor, the sooner the better. Certain insurance premiums are allowed for deduction u/s 80D, 80DD and 80DDB.

We have finally arrived at the stage where we have to select the investment product(s) with the primary objective of tax saving. The most important section here is of 80C which has many approved investment avenues which collectively allow deduction of up to Rs.1,50,000/- from taxable income. The most popular investment instruments available here are...

• Mutual Fund Equity Linked Savings Scheme (ELSS)

• Contribution to Public Provident Fund (PPF) and Employee Provident Fund (EPF)

• Tax saving Fixed Deposits (5 years & above)

• National Savings Certificate (NSC)

• Pension Plans

• Others Investments like Sukanya Samriddhi Yojana (SSY), ULIPs, Senior Citizens' Savings Schemes (SCSS).

There are also some payments eligible for tax saving deductions u/s 80C which have to be considered, if any.

• Life Insurance premiums

• Home loan repayment (principal amount)

• Children's tuition fees

Further, there is also an additional deduction of Rs.50,000 available for investments made into NPS u/s 80CCD which is over and above the 80C limits.

The question now is what you will choose?

To decide we must see the advantages and disadvantages of our preferred products and also our own financial objectives. Parameters like liquidity (lock-in period), risks, returns potential and your existing investment asset allocation, can be considered to decide on the right investment instrument. Please note that even interest rates on government saving instruments are revised from time to time. How much net real returns over inflation can I expect from my returns? is something that you must question yourself.

We don't wanna push you towards any particular product, though we believe in ELSS as the ideal tax saving instrument u/s 80C. However, overall tax planning is a wide subject and we would suggest that you take the opportunity to sit with your financial advisor and make a fair assessment of the needs and then select the right instruments. It is also an opportunity to take an independent look at your insurance coverage, just in time before the end of the year.

You must have recently read news about Boris Becker actioning his trophies and other memorabilia. It was indeed sad that one of the greatest stars of tennis had to sell his most prized possessions to fund his bankruptcy and pay money to creditors. Back home too we often see well-off persons falling into financial crisis. Today, even Mr Anil Ambani is facing a financial crisis in his business group and was even at the verge of being arrested.

No one can guarantee that a financial crisis can never come in one's life. It may be due to wrong financial decisions, setbacks or unseen developments affecting your industry, loss of a job, any unexpected medical costs at home or even falling victim to any fraud. It is quite possible that even a single mistake or event can wipe out your years of hand work and the wealth that you have created. Not making big financial mistakes or blunders is at the cornerstone of your wealth creation journey.

What is also important that you are always careful to avoid any such scenario in future. Prevention is better than cure – this has to be practised. Being always prepared to avoid and even to deal with any financial crisis in important. Here are a few ways in which you can be prepared...

1. Separate business from personal finances: One of the most prudent decisions is to separate your business /profession with your personal finances if you are into any business. It is also important that you do not put at stake your personal wealth to meet your business needs and vice versa. Doing this may leave you without any financial backup in future. If the business is not doing good, it is better to find solutions within the resources available for business. Once personal assets are put at stake and business fails, you are left nowhere to go.

2. Prepare to be frugal: Being frugal does not mean compromising on your quality of life. Being frugal is all about avoiding unnecessary things in life and making the most of the resources already available. Whether be it business or personal life, being frugal helps in keeping your expenses down, reducing risks of any crisis and also making you better prepared for any crisis should it occur.

3. Do not leverage too much: Leveraging would mean taking too much credit or loan to finance anything. Leveraging to create assets which will increase in value in future is always better than investing in assets that depreciate. Even while taking credit to finance investments in income or wealth-creating assets or business, one should never go over-board.

1. Do not spread yourself thin: Quite often we have seen that people commit or deploy all their funds in business or different assets. A reserve or an emergency fund is what you must first aim for to create to finance any temporary setbacks or dull periods of business or profession. A good backup goes a long way in avoiding any crisis.

2. Do not put all eggs in one basket: Be it investing or in business or profession, it is always better to not risk everyone on one venture or investment. One of the most common things found in millionaires is that they have multiple sources of income so even if one is compromised, they are not likely to be affected much.

3. Take only justified risks: While taking risks is a part of business, it is not justified that any undue risk is taken, especially when it comes to unknown persons or any unexplored opportunity. Any risk, whether be it business or investment or any income opportunity has to be well-researched. If there is a promise of huge returns by someone, an offer too good to be true, it is not going to be true. Being in control, listening to your instincts, consulting your advisors and not falling prey to greed are some of the things you must practice.

4. Be adequately insured: It would be foolish if you are at a big financial loss which could have been avoided had you taken adequate insurance for a small cost. That small cost is the cost of peace of mind that you must pay but unfortunately, even that is seen as big till the time tragedy strikes. At a personal level, health, personal accident, critical illness, life, travel and home are some of the insurance policies available to you to avoid any likely financial risks arising from any unfortunate event. For your business/profession too there are many policies available to avoid damages by theft, accident, fire, legal claims, etc.

Being big in life:

There are many things that a person can create without huge financial investments. And these things will surely make you better prepared than anything else in life which can be counted. So what are these things?

1. A strong team: Building in a strong team in your business or profession can make you very grounded and stable in business. Being a good leader and investing in good people and helping them develop will always make you win as a team. At a personal level, having a team of a good banker, accountant or even a lawyer will help you in avoiding and managing your crisis better.

2. A strong brand: A strong goodwill and brand for your business or at a personal level also go a long way. Even at a personal level, if you are seen as a trustworthy and dependable person in your family and friend circle, it should help you a lot. This though comes over time when you also are helpful and supportive of those around you.

3. A strong network: A well-networked man is much more likely to be successful. Again, one of the most common things among millionaires is the strong network that they enjoy. A good social or business network brings opportunities and solutions too to the problems you may have. Do actively spend your time and resources in building a proper network in life.