Different type of finance professionals and What they can do

Selecting the right financial professional who can take your interest on priority is a difficult task for retail investors. Unaware on the kind of professional available in the industry and what they offer, investors are always caught on the wrong side of the table. Also greed and fear play a very big role in advisory services from these professionals.

Here I have highlighted various finance professionals involved in the financial advisory space and how there services helps in making the right financial decisions:

1. Agent: An agent is authorized to distribute a single company product from life and general insurance. However, mutual funds agent can distribute multiple company products. In both, they are required to clear a mandatory examination to obtain the necessary license. For long and now also, agents have been driving force for LIC and other insurance companies. Their source of earning is the commission they receive from the company and hence the advisory offered is more inclined towards the products. A low education requirement along with nil work experience is the major reason for lack of knowledge among these advisors. With various regulators putting breaks on the amount of commission an agent can earn from the products some of them have been finding it difficult to stay in the business.

2. IFAs or Independent Financial Advisors: They are the backbone of Mutual Funds industry and has been the main source of reaching to even the remote areas of the country. An IFA offers basket of financial products which ranges from life, general insurance & mutual funds to much more complex products like structured products catering to various category of investors. To some extent they cover the need of investors who do not wish to deal with different advisors. Agents who upgrade themselves on knowledge and client’s requirement have transformed themselves to become Independent Financial Advisors.

3. Relationship Managers: Would be employee of a bank or any financial services company. Working on a salary, his main objective is to meet the target set by his company and hence the inclination rest on the products which can overachieve his targets. Although banks are considered to be the institutions which have large information on individuals’ cash flows, they do not become the best advisor for them. The frequent change of employees is a deterrent for most investors as no one will like to share their financials with various advisors.

4. Chartered Accountants: Chartered Accountants are professionals engaged in planning for taxation for individual or corporate. Since a CA is well placed to know finances of an individuals, many have been successful in offering valuable financial advice and meeting the requirements of their clients. However, greed has played a major role in luring most of these professionals to put commissions on priority and so instead of becoming financial advisors they have restricted themselves to become part time agents.

4. Certified Financial Planners: CFP is the highest professional course in Financial Planning worldwide and hence these professionals are considered to be good in managing one’s personal finance. In India also we have now good number of Professionals with this qualification. To obtain a CFP license, an individual has to go through a rigorous education program me and a minimum requirement of work experience. They are also bound by the code of conduct laid down by Financial Planning Standard Board, India. Once license is obtained, they have to go through a continuous education program me to renew it every year. A CFPs expertise lies in goal based planning where on the basis of an individual income, expenses, liabilities, assets and life goals, he/she draws a blueprint to achieve financial well- being. Since most CFPs charge a fee for creating a financial plan and other services, they have least interest in earning commission from the products. Even then, the disclosure requirement related to commissions has made sure that client’s interest ss taken on priority.  At present Practicing CFPs in India earn through fee only or fee & commission and one has to do a search to find a good one. Most of the serious players in the industry are writing or appearing in various media for creating awareness on financial planning. Since all CFP professionals are registered with FPSB one can find details on their website.

5. Other Professionals: There are other professionals being added in the industry with various certification program me. One of such certification is CFPA launched by NISM recently. This certification aims to bridge the wide gap in financial advisory services. It however do not covers’ broad areas like CFP and hence is good for finance professionals who would like to transfer themselves from an agent to advisory. We might see many distributors or IFAs adding this qualification in future.

All these professionals have a role to play in financial landscape. A CFP expertise lies in financial planning while a Financial Advisor may be good on investment management. Similarly an agents revenue comes from the products manufacturers and hence will be good in execution.

Hiring a finance professional requires some basic homework. Identify your requirement which will indicate you the kind of professional to search for. Some work on education, work experience and references from existing clients will help you in getting down to the right person whom you can trust for managing your finances.