Expert advice

Jun 20, 2011,14.15 IST

Selecting 'your' financial advisor

By Lovaii Navlakhi, International Money Matters

During my visit to Chennai earlier this week, I met a motley bunch of people as part of my work. One who wanted to understand how a financial plan would help him. There was a couple whose plan was made, but who were contemplating whether the fees for executing and managing their investments would be justified. Then there was a young business owner who wanted to make a quick return on his stocks. And a man who had retired early, at peace with himself and getting set for a long sojourn to the foothills of the Himalayas.

At the end of day, I realized that each one of them was interested in a relationship. They wanted someone they could talk to – who would understand their dreams and help make them a reality; who would reassure them that reaching a future goal was within reach with discipline, no matter how insurmountable the odds.

Financial Planning: An Art or A Science?

I am sometimes asked whether financial planning is an art or a science. The answer – not a diplomatic one – is that it is a bit of both: a science, as it requires the study of financial products and complex calculations; an art, as it requires the understanding of human behavior and financial psychology. The number crunching or competency test becomes the entry gates through which the relationship is started, and is like the compulsory question in your examination: there is no choice other than being upto speed with the latest knowledge in the field. However, the strength of the relationship will be determined by the way you deal with the client, hold his hand during times of uncertainty and help him achieve his goals.

Look for an advisor in the Long Run

For you to get maximum value from your advisor, you should be in a position to share with him your concerns, needs and desires. This can only happen after you develop the trust in him and his advice. But it surely takes time. The competence that the advisor needs to display will extend beyond just understanding and explaining of financial products; it will include understanding of operational procedures especially in resolving issues.

For example, a client may have multiple demat accounts and may be delaying closing them because he has to dispose off the shares that are held in them (possibly at a loss), and he imagines that he may need to physically visit the demat offices to shut these accounts, for which he does not have the time. As an advisor, I must not only recommend whether the share should be held or sold, keeping in mind his total portfolio, but also assist him in the closure of the account.

The Past Experience of the Advisor

Everyone needs a financial advisor. But how do you select the one that fits your needs. Here, then, are a few questions that you can consider before selecting your advisor. How long has the advisor been in business?  How many market cycles has he seen? How many clients does he have? And how many of his clients of 3 or 5 years ago are still continuing with him? Can he give references of a couple of his clients, preferably at the same age and status in society as you? Does he concentrate on a particular segment of clients: only retirees, only IT professionals, etc? What is the organizational back up to ensure that the advisory business will remain a running entity? May be, there should be legislation to define advisors and an audit or rating system in place to ensure that you are not misled by your “advisor” any more.

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