In this second part of Chapter 1, we’ll explore the different types of financial advisors and walk through a real-world example of how an advisor helps a client plan their finances. By the end, you’ll understand what each advisor type does and how the client-advisor relationship works in practice.
1) Types of Financial Advisors
Financial advisors come in many forms, each serving clients differently. Here’s how they compare:
Fee-Based Advisors
Charge clients a fixed fee, hourly rate, or a percentage of assets managed. Under SEBI rules, RIAs can charge up to 2.5% of assets per year or ₹1.25 lakh, whichever is lower, to keep fees fair and transparent.
Commission-Based Advisors
Earn commissions from selling financial products like insurance or mutual funds. While this can be profitable, advice may sometimes be influenced by product incentives rather than client interests.
Hybrid Advisors
Combine both fee and commission models — charging for advice while earning product-linked income.
Robo-Advisors
Automated platforms that invest using algorithms. They’re low-cost and efficient but lack personal engagement and nuanced financial understanding.
Registered Investment Advisors (RIAs)
RIAs offer unbiased, fiduciary advice that serves the client’s best interests. As an RIA, you’ll earn fees — not commissions — and carry a legal duty to act solely in your client’s favor.
2) Example: The Financial Planning Process
Let’s walk through how a financial advisor works with a client, Ramesh, a 35-year-old IT professional earning ₹1.5 lakh per month. Ramesh wants to save for his children’s education and retirement. Here’s how the advisor guides him:
Step 1: Establish the Relationship
The advisor explains their services and fees, sets expectations, and builds trust.
Step 2: Gather Data
Ramesh shares income, expenses, investments, and debts. He saves ₹40,000 per month, has FDs and mutual funds.
Step 3: Analyze the Data
The advisor identifies that Ramesh’s portfolio is too conservative and his family’s health insurance is inadequate.
Step 4: Develop a Plan
They recommend SIPs — ₹12,000/month for education (target ₹20 lakh in 10 years, 12% return) and ₹10,000/month for retirement (target ₹1 crore by age 60). They also suggest increasing insurance to ₹25 lakh and creating a ₹5 lakh emergency fund.
Step 5: Implement the Plan
The advisor helps Ramesh set up SIPs, update insurance, and begin the emergency fund, ensuring smooth execution.
Step 6: Monitor the Plan
They review investments periodically, adjusting for market changes and Ramesh’s evolving goals.
3) Why This Process Matters
Ramesh’s case shows how advisors bring structure and accountability to financial decision-making. By following this step-by-step process, you’ll help clients stay disciplined, plan for key life goals, and protect against uncertainty.
4) Summary & Call to Action
- Advisors come in various forms — fee-based, commission-based, hybrid, robo, and fiduciary RIAs.
- SEBI limits RIA fees to keep services transparent and affordable.
- The six-step process ensures every plan is personalized and goal-oriented.
- Financial advisors help clients balance education, retirement, insurance, and emergency goals effectively.
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