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Thursday, June 13, 2013

Chartered Accountants are not Financial Planners – Tell your clients/prospects

As I interact with a lot of investors, I find that some investors, particularly the HNI segment, have this habit of referring their Chartered Accountants (CA) for every financial decision including investments. I am not saying that this is completely a wrong practice, but one must also check that, is your Chartered Accountant so efficient that he can advice you on your investments or financial planning matters? By efficiency I am in no way referring to his qualification, but yes I am referring to his area of expertise.
Chartered Financial Planner Your Chartered Accountant is not a Financial Planner / Advisor
I have seen that Chartered Accountants being given god-status in some households. Once I was with an aged investor and he was looking for tax efficient returns without any exposure to equity as this was an investment for around 6 months. The investor was into highest slab bracket hence I recommended him Fixed Maturity Plan from a reputed mutual fund house. But investor insisted that I should explain the product to his Chartered Accountant. Reluctantly (because of my past experiences) I agreed.
The first question that was asked by the CA was pretty basic- “is this an open-ended product or a close-ended product”. If an expert asks a question like this we all know the fate. He insisted investor to go for a Bank FD saying that the mutual funds are not safe and banks are. So invest in a PSU bank. And then he went for the final kill and suggested that since equity market is in bull phase, you should take 2-3 large cap stocks and sit tight. You will make the same money in one month that this FMP would give.
Although this Chartered Accountant had no vested interest and was working in favor of his client but his knowledge limitations ruined investors portfolio.

Chartered Accountant (CA) is not a Financial Advisor

Consider these following points before you refer to your Chartered Accountant (CA) for any of your investments decision or Financial Planning:
  • CA is an expert in accounting and tax practices. He is not an expert on assets like Equity and Debt. Also he is not an expert on tracking or researching factors which are must for any investment decisions you take. These factors can be macro like European Crisis or micro like inflation. He may have view on these as a spectator but he is in no way qualified to analyze these facts to form an investment advice.
  • In case of individual investor, a CAs job ceases after he calculates the amount of tax that investor needs to pay. Investments to save this tax fall under the purview of your Investment Advisor or your Financial Planner. He will help you invest a suitable tax saving instrument taking care of your overall portfolio, asset allocation and other needs.
  • CA has no role in Financial Planning. He is not equipped to assist you in your goal planning or risk assessment. Also since he is not an asset expert he cannot help you in assessing your future finances and portfolio. CAs engaged into advising on investment just does it for the sake of not losing their clients or for some monetary gains. Beware as his advice will never be comprehensive.
  • Your Financial Planner is expected to have detailed knowledge about economy and individual assets. He can also deal with tax related matters if you don’t have too complicated financial life. Also as he is associated with you since the early stages of investments, he has a broad picture of your individual requirements. He is aware of your family needs and you get personalized service.
  • In some cases CAs act like product sellers for your insurance needs or tax savings bonds. This is not a correct practice in fact the Chartered Accountants are prohibited by their practice guidelines to act as commission agents. It is prudent that you take service of professional who is suited for the job. For all financial planning related aspects, your Financial Planner is most suited.
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Roles of different Financial Professionals

If we look at the roles or the expertise, Chartered Accountants are not Financial Planners or even Financial Advisors.
  • Chartered Accountants (CA) work in fields of business and finance, including audit, taxation, financial and general management. (Refer Diagram)
  • Financial Advisor is a professional who renders financial services including investment advice, which may include pension planning, advice on life insurance and other insurances such as income protection insurance, critical illness insurance etc., and advice on mortgages.
  • Certified Financial Planner (CFP) is a practicing professional who helps people deal with various personal financial issues through proper planning, which includes: cash flow management, education planning, retirement planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning (for business owners).
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So next time if you suffer prolonged common cold it is better to show this to a Doctor who is expert in Internal Medicine and not to a Cardiologist, even though the cardiologist is your friend and provides free advice over telephone. For god sake stop worshiping the wrong deity.
Must share your experience with Chartered Accountants for financial advice.

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