Financial advisor or no financial advisor: How does it make a difference?

Many fail to appreciate the role of a financial advisor in their financial planning journey. They don’t realise that a financial advisor can help them achieve their financial goals in a systematic manner that’s best suited to their risk appetite and market conditions. In this article, you will realise the opportunity cost between making investments with the help of a financial advisor and doing it on your own. You will also understand the scenarios in which you should seek financial advice and the questions you should ask a financial advisor before deciding whether to seek help from them.

In February 2019, Vanguard released the Vanguard Advisor's Alpha Framework, saying they believed implementation of the framework can add about 3% in net returns for clients. If availing of the services of a financial advisor can help an investor earn an additional 3% return, how much of a difference will it make over doing the investing by oneself? Let us see by way of an example.  Suppose an investor sets aside Rs 1,20,000 per year (Rs 10,000 a month) in an asset portfolio. Let’s assume that this portfolio, if designed by the investor, earns a compounded return of 10% p.a. Now, if the portfolio is designed by a qualified and experienced financial advisor, it will earn a compounded return of 13% p.a. Let us see how much of a difference will be there between the two portfolios over ...