Suresh Sadagopan
Today there are lots of distributors of products masquerading as advisors. Many call themselves by fancy names like wealth managers, financial counsellors, financial coaches. It is difficult to make out as to who is a real advisor & who is merely a distributor of products, whose agenda is to just sell products that they have on offer. It is hence very important that investors first understand who is an advisor & what are the qualities they need to look for in them before deciding to go with them.
What do you need to look for in an advisor
1) Find out whether the advisor is SEBI registered investment advisor (RIA), who will charge a fee and offer advice. Such a person should not distribute products. If they also distribute products, there is no point in dealing with them as they are not supposed to advise. Even if they do have a distribution arm or relationship with another entity, they should offer a choice to the investor to choose to implement where ever they want and not coerce them into doing the investments with their entity.
2) Ask them about their qualifications. Ask them about who are there in the team and their qualifications too. Lots of times those who offer advice are just not qualified at all.
3) Find out about their process, who will be the interface, how will the service delivery happen, what are the key deliverables etc. Find out if it is a one person outfit or there is a proper & professional team to support the operation. This is important as a team ensures better & specialised delivery of services and there is no over-dependancy on one person to do everything.
4) Ask them if they have any relationships that will pay them directly/ indirectly. Ask them specifically if there are indirect remuneration/ benefits accruing to them, apart from any direct commissions/ brokerages.
5) A simple rule of thumb - If the “advisor” starts talking about products & starts putting brochures and forms on the table within the first 15 minutes - beware! This person may mostly be a product seller & is there to sell his products.
6) Ask the “advisor” if they are fee-only. To clarify ask them if you could implement their investment recommendations wherever you want. If the advisor says yes to both, then they would be a proper advisor.
7) Find out about their experience in the field. The experienced ones will be better from the investor point of view, though such advisors may come at a premium.
8) Ask for references and talk to a few. Find out from them about how long they have been with them & their experience. There may be “references” who are planted to offer good reviews. Ask searching questions. More often than not, you would be able to find out if the “advisor” is worth considering or not.
9) Find out the standing of the advisor in their field. Search for their articles, references, quotes, peer reviews etc., which will offer you a peek into the kind of person you are going to deal with. Why should you pay a fee?
1) A true advisor does not earn through commissions. They act in the investors’ best interests & advice what is good for the investor. To get such unbiased advice one needs to pay a fee.
2) A true advisor ensures that the costs to the clients are minimised by choosing the right products that are efficient in every way, including costs.
3) Products put together are truly aligned to the investor needs and are not subservient to the need of the “Advisor” to meet their targets
4) You should pay a fee to a true advisor who acts in a fiduciary capacity. This means they put your interests ahead of everything else, including their own. This of course is priceless & is a dream come true for an investor who otherwise only find people who want to sell them something or other.
5) All costs considered, including the fee which is paid to the advisor, it would be cheaper to the investor, as a good advisor suggests products that are fully aligned with their needs, are low cost & tax efficient, with better fund management strategies.
6) Good advisors save their clients from various investment blunders that they would commit otherwise. Just this alone would save so much money for the investor that would otherwise have gone down the drain.
7) The investor would have a trusted source & a confidante to turn to whenever they need proper advice regarding any financial matter.
Most people are not used to the concept of paying a fee. They wrongly think that by paying a fee they are in fact losing money.
In personal finance area, free advice has been the mainstay. But free advice can hardly ever be unbiased & truly in the client’s interest. It is foolish to believe that product sellers (irrespective of whatever fancy names they give themselves like wealth manager, financial coach etc.) would offer unbiased advice. Conflict of interest is inherent in a distribution model. That gets eliminated when an advisor is just fee-only & does not receive any remuneration from any source.
Look at the gift horse in it’s mouth… It may not be pretty - just like how free advice is actually a money losing proposition.
The writer is founder of Ladder7 Financial Advisories
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