Should your Chartered Accountant be your Financial Advisor as well?

Some investors have this habit of referring their Chartered Accountants (CA) for every financial decision including investments. With all due respect to CA, we are not saying that this is not appropriate, but one must also conduct due diligence if the Chartered Accountant is sufficiently efficient to advice on the aspects of investments or financial planning matters? By efficiency we are in no way referring to CA’s qualification, but instead, we are referring to CA’s area of expertise.

I have seen that Chartered Accountant being given god-status in some households. Once I was with an aged investor and he was looking for tax efficient returns higher than Fixed Deposits without any exposure to equity as this was a short term investment, probably for about 2 years. The investor was into highest tax bracket hence I recommended him a zero-sales-charge Fixed Income Fund from a reputed mutual fund house. But investor insisted that I should explain the product to his Chartered Accountant. 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 ask question like this we all know the fate. He insisted investor to just leave 70% of the money in FDs saying that the mutual funds are not safe and banks are. And then he went for the final kill and suggested that since equity market is in bull phase, you should take part  2-3 blue chip stocks and sit tight. This move, according to him, will make the same money in one month – this clearly contradicts the investor’s initial wish of not having any exposure to equities.

Although this Chartered Accountant had no vested interest and was working in favor of his client but his knowledge bias and limitations ruined investors portfolio.

Chartered Accountant (CA) is not a Financial Advisor, unless he is also a CFP. Still, this also depends if he is a practitioner in the works of financial planning or not. There is only some much work scope a professional can cover – for instance,  a brain surgeon is unlikely to be a cardiologist as well, although he knows the functions and diseases of the heart as a medical practitioner. Make sense, yes?

chartered accountant vs financial planner

Consider these following points before you refer to your Chartered Accountant (CA) for any of your investments decision or Financial Planning:

Chartered Accountant 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 opinions 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.

Chartered Accountant 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 holistic.

Your Financial Planner is expected to have detail knowledge about economy and individual assets. He can also deal with tax related matters if it is not too complicated (as an employee). Also as he is associated with you since the early stages of investments, he has a broad picture of your individual requirements by conducting Know-Your-Client exercise. He must be aware of your family needs and helps you structure personalization.

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.

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).

So next time if you suffer prolonged chest pain it is better to go to a cardiologist and not a brain surgeon, even though the brain surgeon is your friend and provides free advice over telephone.

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