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Everyone needs some investment advice. However, investment advisory services come at a cost and hence are recommended for investors who have a sizable investment amount (say >20 lacs) and want to grow it at a rate higher than FD/inflation. This requires them to make investments in asset classes like equity which can earn substantially higher returns but comes with higher risks.

Such investors can benefit from the services of an investment advisor who can help minimise mistakes and avail of opportunities to earn higher returns by managing risks at a level that ensures you stay invested.

The risk profile of an individual indicates their ability and willingness to take risks. The purpose of risk profiling is to ensure a suitable asset allocation that helps the investor stay invested by managing the risk at a level that does not cause them to panic and exit in the event of a market correction.

An investor's ability to take risk depends on his/her income, expenses, age, responsibilities, total net worth, etc. Their willingness to take risks is determined by their temperament, how much risk or loss they are able to handle beyond which they are likely to take irrational decisions out of fear or inability to handle the pain and discomfort.

You can find out your risk profile here.

Asset allocation refers to the process whereby you divide your investable surplus among various types of investments such as stocks, mutual funds, debt funds, gold etc., in specific proportions that are in line with your risk profile, future financial goals, and current financial situation. Ideally, asset allocation should be done in a way that helps you meet your goals with a good balance between earning high returns while managing risks at an acceptable level as indicated by your risk profile.

An investment adviser (IA) works as your consultant, does your financial planning and advises you on what to invest in. An IA being fiduciary cannot earn any commissions on the investments that you make on his advice through brokerage and/or mutual fund commissions. On the other hand, a broker provides you the facility to buy and sell securities and earn a brokerage or commissions on each buy or sell transaction. The key distinction is that advisers provide advice that must always act in their client's best interest, whereas brokers put out research reports etc, which must be used with caution as they earn commissions on transactions that may arise from their recommendations, and there is a conflict of interest.

A Registered Investment Advisor (RIA) is a professional or company that is registered with SEBI and provides investment advice. RIA are required to follow all the regulation set by SEBI.

It is certainly worth paying for investment advice as it enables you to manage your investment with professional help. Your aim is to make your money work harder and grow well to meet your financial goals. This requires investing in assets like stocks and mutual funds which can earn returns that are significantly higher than inflation. However, they come with risks that you need to manage. This requires indepth knowledge, skill, tools and experience which is what you pay for. However, choosing the right RIA and working closely with them is required to get your money’s worth.

RIAs by regulations are not permitted to directly or indirectly promise or create a returns expectation. And returns without understanding accompanying risk is incomplete. The right perspective to working with an RIA is to create a financial plan and manage your investing to achieve it through the power of compounding. The plan and your risk profile determine asset allocation and the rate of compounding required. You should work with your investment adviser to assess what investment strategy is suitable for you and what returns you could expect to earn from it.