‘Close your home loan early and re-invest’

Not too many financial advisers have chosen to register with SEBI, after it invited the community to obtain its certification. To be a certified advisor, you need to meet the education, experience, net worth, disclosure and record-keeping requirements set out by the new guidelines. Investment advisers cannot accept commission for the products from vendors either.

Among those who have a certification is Sridevi Ganesh, Chamomile Investment Consultants. We talked to her about what clients can expect from a certified financial advisor.

Over to her money mantras.

Why did you choose to become a SEBI-certified financial advisor?

In 2002, I started providing insurance solutions and later included mutual funds. I became a Certified Financial Planner (CFP) in 2008 and offered fee-based financial planning to clients since 2008. I opted for SEBI-registration for a few reasons. So far, there was no differentiation between fee-based advisors and those who offered free advice, but received product commissions. The SEBI certification makes this distinction clearer to clients.

Plus, earlier, everyone claimed they were advisors. Now, SEBI requires that an advisor should have clearly defined educational qualification, work experience as an advisor, a set of processes to be followed, disclosures on commissions and client records that must be maintained.

This is good for advisors as the entry barrier is raised and good for clients as they are sure of the unbiased advice they can get.

Is financial planning so complex that one needs such a high bar on education and experience?

Financial planning is not rocket-science. If you have enough time, discipline and knowledge, you can do it yourself. But having an advisor helps in three ways. First, if you do not have the time or discipline, an advisor can add value.

Second, an advisor has more experience about the financial instruments available in the market and can pick suitable products. Third, they can offer an objective second opinion on your investments.

Basically, an advisor does not do any magic, but travels with you to reach your goals.

What are the common concerns new clients have?

Clients usually seek advice on a few aspects. One, they have five or six insurance policies, mostly ULIPs, and a similar number of mutual funds. They would like to know if those investments are suitable and when to exit. Second, they are also interesting in finding out what to do with their home loan — whether to pay it off or not.

What are some common mistakes investors make?

In many cases, clients have many insurance schemes, but yet are usually under-insured without enough life cover or health insurance.

People also wrongly want to keep their home loans going due to tax-saving on interest payments.

Yet another issue is not doing any estate planning. If you have a physical asset such as a home or gold, having a written Will can avoid a lot of hassles.

The financial year-end is nearing and tax planning is on everyone’s mind. What is the role of tax planning when making financial decisions?

Thinking only from a tax angle may lead to sub-optimal decisions. For example, when you have a home loan, you may feel paying it off may deprive you of the tax deduction on the interest paid.

But, actually, by closing the home loan in five to seven years and investing the interest saved in PPF or tax-free bonds, can get you huge gains in the 20-year term of the home loan.

How are you advising your clients to allocate their portfolio this year?

I don’t take a call on the market. I emphasise more on right asset allocation. When everyone chases a product, I advise clients to avoid it. So, given that there is general aversion to equity, it may be a good time to consider that.

Fixed-income products are always a must in any portfolio. Even for individuals with high risk appetite, fixed-income portion has to be at least 25-30 per cent of the total portfolio.

If you had bought gold at lower levels, you may want to book profits. Also, beyond the first home, consider a second home for investment only if you can pay off the loan in five to seven years.

What are the three most important investment tenets you would tweet?

Have a contingency fund, document your investments properly and do not mix insurance and investment just because someone asks you to buy a product.

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