Financial Advice – Meaning, Process & Investment Instruments

Financial Advice – Meaning, Process & Investment Instruments Financial Advice is the process of engaging in the business of advising others with respect to the planning and/or execution of advice in respect of selecting, purchasing, or selling financial products to meet investment, risk management, or risk mitigation objectives.

A financial advisor is a professional who provides financial services to clients based on their financial situation. In many countries, financial advisors must complete specific training and be registered with a regulatory body in order to provide advice.

The process of Financial Advice is: 1. Identifying Financial Situation This involves an analysis of the current financial situation of the client to in regards to the current budget, fixed and discretionary expenses, tax strategies and current investments.

2. Determining Financial Goals At this stage, financial goals of individuals are determined. These can be short term goals like immediate capital requirement for any purpose or long-term goals like higher education of children, marriage of children, etc.

3. Identify Alternatives For Investments After the goals have been identified, different alternatives for investment are determined and then evaluated in terms of risk and return to arrive at the ideal combination of asset classes.

4. Designing Financial Plan and Implementing After the ideal mix of assets has been determined, the final financial plan is designed and implemented.

5. Reviewing and Monitoring the Plan This is one of the most important activities when it comes to financial planning. Financial planning is an on-going and dynamic process and therefore needs periodic assessment to assess whether any changes are required.

The different investment schemes and instruments in which one can invest can be: 

Mutual Funds

Mutual funds invest your money in a basket of stocks across Industries. There are various categories of MFs – namely Equity, Debt & Hybrid. 

Unit Linked Insurance Plan (ULIP)

A ULIP is an insurance plan that offers the dual benefit of investment to fulfil your long-term goals, and a life cover to financially protect your family in case of an unfortunate event. These are most helpful when you have a long-term investment horizon. 

Pension Funds

Pension Funds are designed with one motive – to enable you to not worry about money post retirement. Pension funds make sure you can maintain your standard of living when you retire. 

Portfolio Management Services (PMS)

Investors can opt for PMS schemes for a more personal touch. After conducting a Risk Profiling exercise, PMS funds invest the client’s funds in an optimal manner across asset classes. PMS services tend to attract higher returns because a lot of effort is involved in picking quality investment products. 

Stocks and Securities

Investors can also opt to invest in individual stocks and securities. However, a lot of research and analysis is involved in individual stocks and securities picking and therefore this may not be suitable for all investors.