How to choose a financial advisor?

Yogin SabnisFinancial planner, investment advisor, wealth manager – these are often used as generic terms and proclaimed by many types of professionals in the financial services industry. An insurance agent selling child plans, retirement plans will claim he does goal planning and describe himself as an investment advisor. A broker on his visiting card will describe all financial products he sells under one roof – shares, mutual funds, insurance, etc. and will call himself a financial planner. It is not easy for an average consumer to really distinguish between the financial service providers as these terms are tossed around interchangeably. Besides the complex products to deal with, an array of professional titles just leaves a consumer more confused. The extent of value addition that an expert advisor adds to a client’s financial life goes beyond just suggesting investments towards various financial goals. How an expert financial advisor stands apart in his service offerings can be assessed from the following points:1.    Solution provider, not product seller: A good financial advisor focuses on solutions to your financial issues rather than selling products. He will conduct a need based analysis which will focus on meeting your financial goals and not just on investment returns. Besides preparing you for financial emergencies like job loss, death of earning member, etc., and allocating investments efficiently towards various financial goals, a good advisor addresses the not-so-common questions: •    Should you repay debt or invest the surplus money?•    Can you afford to buy a second home given your financial situation?•    Should you utilise your retirement savings for your children’s higher education, marriage, etc.?•    Should you continue or surrender your endowment plan?•    Do you need a personal medical fund in addition to health insurance?•    What are the financial factors you need to consider before you start a business or plan a second child?•    What are the financial issues you need to address and the formalities to take care of before you decide to permanently settle abroad or send your child abroad for foreign education?•    Should you invest in equities post retirement?The advisory process is thus more qualitative in nature covering all critical aspects of your financial life. Suggesting investment products and executing the action plan is the last leg of the advisory process.2.    Transparency:  A good financial advisor is frank and does not make any false promises of earning guaranteed returns on your investments. At the same time, he also apprises you of the potential risks of investing in products like shares, mutual funds and real estate. A good advisor conducts transparent dealings disclosing the income earned by him in the form of commission and fees on investments recommended to you. 3.    Courage to say ‘NO’: A good advisor will not nod along in agreement on everything you suggest or believe. He will have the courage to point out your mistakes. If you are spending beyond your budget or taking too much exposure to equities, he will not hesitate to tell you so. He not only guides a client on doing the right things but also helps them avoid mistakes that can cost money. These specially include self-decisions based on incomplete knowledge & understanding. For example, buying child insurance plan based on emotions, doing adhoc investments to save on tax, impulsive buying/selling when stock markets go into a tailspin. He would also warn you about taking stock tips from well-wishers and getting carried away by the media frenzy on performance of stock markets.He will protect you from the sales pitch of agents, distributors and bank relationship managers. He would dissuade you to buy an insurance product where you invest Rs.X and are promised Rs.X+Y after a certain period. Rather than focussing on the absolute numbers, he will put the figures in a sheet and show you the sub-optimal returns that certain products earn. He will stick to his stand even if it doesn’t earn him any money because he has your best interest in mind. 4.    Goes through rigorous regulatory process: An investment advisor registered with SEBI has validation and credentials to his identity. For the benefit of his clients, a good financial advisor is willing to comply with all the regulations laid down by SEBI and follow stringent processes. These include •    following a strict code of conduct which are at par with global standards •    maintaining proper records of all client engagements in physical/electronic form which are subject to audit by SEBI. •    disclosing all material information including the terms and conditions of advisory services offered and conflict of interest, if any. Conclusion: When you have a health problem, you consult a doctor first and then buy medicines from a chemist. Similar is the case with your financial life. An expert advisor will take a holistic view of your financial situation first rather than pushing products that you may or may not need. The extent of value addition a good financial advisor provides can turn around your financial life for the better. He will remain consistent in his advice on your long journey of wealth creation and financial stability. In fact, he is able to build a relationship of trust and integrity wherein you would feel the need to consult him first before buying any financial product from a third party. Yogin is a member of The Financial Planners’ Guild , India (FPGI). FPGI is an association of Practicing Certified Financial Planners to create awareness about Financial Planning among the public, promote professional excellence and ensure high quality practice standards.