CA or Financial Planner ?

Until now, Chartered Accountants were consulted for investments and tax related decisions.

But now, when qualified Financial Planners are available to provide you their service, how prudent it is to take advise from a CA on financial matters ?

CA 's as per their qualifications are experts in taxation and are not in a position to take a holistic view of a person's finances over a lifetime. They may also not be current on their knowledge about the latest financial products available in the market in the ever changing scenario in the financial services industry.

They may be able to guide you on the tax savings possible on purchase of a particular financial product but would be ill-equipped to advise you on how the product will fit into your overall financial plan. It is also doubtful whether CA's have the capacity to advise their clients on financial planning by giving adequate time when they are already overburdened with their auditing and tax planning role. 

Also, buying financial products keeping only tax savings in mind is a very inefficient approach since it may not be compatible with your intentions of achieving your goals based on your investments.

Tax savings should be a by-product of purchasing a financial product and not the main aim.

A Financial planner provides you advise based on your income, cashflows, age, liabilities and goals to be achieved which a CA will not be in a position to do so.

For example, while tax deductions upto Rs.1 lac are available under Sction 80C of Income Tax act, the number of instruments under which such deductions are available vary from PPF or EPF , ELSS , Pension Funds, Infrastructure Bonds upto Insurance policies and Principal repayment of a housing loan. While the tax advantage is the same if you invest your entire amount in any one instrument, each has a different features and benefits in terms of nature, risk attached, lock-in period etc. and will play a different role in achieving your goals. The CA may advise you only from the tax saving purpose to take advantage of the entire amount or to fill the gap. Whereas a Financial Planner will not only advise you on saving tax but will also guide you in your investments taking the overall picture into consideration. A Financial Planner is equipped to advise you on risk management, insurance planning, retirement planning, investment planning and all this in a very tax efficient manner.

In the end it is not a question of investments alone. Investments once made need to be looked into on a regular basis in terms of their performance and utility in light of changed life situations. A bad investment will result in your goal not achieved. To avoid such a scenario, one needs to monitor and evaluate these investments and make course corrections regulary. A CA is not in a position to do so while a Financial planner has sufficient knowledge to take care of the same.

So it is advisable to get your tax planning advise from a CA but for advise on your goal based investments as well as saving tax in the bargain, it is better to take the services of a Financial Planner.

Do I need a Financial Planner ?

Most people spend more time planning their Vacations compared to their Finances.

The similarities do not end there.

For a vacation, you choose a destination, you decide the route, you choose the mode of transport, you decide how many days will you spend and lastly you also have a budget in mind. This is obvious enough.

But what about your finances ?

Do you have a Goal in mind ?

Most of the people will be affirmative : buying a house, car, children's education, their marriage, retirement are all normal goals. These are necessities. What about aspirations beyond that ? 

Have you decided the Route ?

When the rubber meets the road, you are confused as to which route to take : is the shortest route the best choice ? What if it goes through some rough terrain making the journey difficult ? What if it makes you reach the destination before the required time ? What if reverse happens. Reaching early or late are  not the desired outcomes in vacations or in real life. You will have to choose a route which will not only make you reach on time but should also make the journey enjoyable without it being difficult. Similarly, while planning your finances, the route you take should allow you a smooth journey without any difficulty or unwanted surprises along the way !

What about the Mode of Transport ?

You have many choices - from a cab, bus , railways to airlines. Each one of them have their features which provide commensurate benefits in terms of comfort, flexibilty, reach, frequency and of course time taken to reach the destination. Similarly, for finances you have a variety of choices with respect to the solutions / products which will make you reach your goals. It will depend on what goals you have , how much time you have to reach those goals, how much flexibility you want. Also, like vacations it is not necessary to rely on only one mode of transport per goal. Depending upon the goal and the situation, you may decide to choose one mode to take you to a point on the route and then take another to reach the destination. Also if you have to make a choice between multiple destinations, you would not make individual trips for each destination. Financial planning helps you in going from one destination to another sequentially by using multiple modes of transports without the trouble of making such individual trips.

Do you have a Budget in mind ?
Keeping in mind the budget you may choose your destination. Or you may choose your destination first and then decide about which options to choose in terms of route, mode and affordability. Similarly in case of your finances, you will have a goal in mind which will have to be converted into money terms. Here, you will have to decide what amount is required for achieving your financial goal. Keeping in mind your affordability ( investible surplus ), you will choose the asset class and within the asset class the financial instrument and the time duration to reach your goal.

In earlier times, vacations were planned by the family itself because of the limited choices available in terms of places, transports, affordabilty and time availability. Nowadays, people consult travel planners to plan their vacations. Why? Is it because they can't do it themselves ? No, because the planner is a professional who has much greater knowledge and information about his subject and he is aware of all the choices / options available. In short, he is the expert of his field.

But what happens in case of our finances ? Do we consult a Financial Planner ? Doubtful.

A Financial Planner is also an expert in his field who is knowledgeable and has all the information available who can not only help you in reaching your destination but will make the journey interesting too !
High time we spend more time planning our Finances than Vacations ! With the help of a Financial Planner, of course !