There are hundreds of personal finance advice and recommendations around us. From picking a stock to choosing a sector to invest, selecting a mutual fund and creating a diversified portfolio, there is usually a help at hand for everything on an array of virtual platforms.
What these platforms, perhaps, don’t tell you is how to shortlist a good investment advisor.
Investors usually get their important investment advice from an array of sources, mostly random. SEBI regulations require investment advice to be given only by registered investment advisors, but in practice, investors tend to rely on bank’s relationship managers, insurance or mutual fund agent, or even someone in the family who has read financial economics in college.
Deepesh Raghaw, Founder of Personal Finance Plan, says, “While shortlisting an investment advisor, there are three things which investor can evaluate: cost, competence and commitment. On one hand there will be an advisor who will just take data, make a plan and send you the same, whereas the other person will engage with the client regularly in the decision making. I personally like to have a meaningful discussion with my clients. This is the reason I like to work with a limited number of investors.”
While shortlisting an investment advisor, there are three things which investor can evaluate: cost, competence and commitment. On one hand there will be an advisor who will just take data, make a plan and send you the same, whereas the other person will engage with the client regularly in the decision making.
The right kind of advice
The choice of a good investment advisor can be made on the basis of their overall way of giving advice.
At the outset, a good investment advisor doesn't try to push a financial product. Instead, they try to understand your financial needs in the backdrop of your income and expenses.
Only then one can identify the right financial product that fits the bill. “As a matter of fact, no financial product can be good or bad. It's the individual circumstances that make the financial product ideal or not," says Deepak Aggarwal, chartered accountant and financial advisor.
And interestingly, a good investment advice is not a one-off affair. The good investment advisor will keep tweaking their advice based on change in circumstances such as a new house, bigger family, change of city, etc.
For instance, at the age of 27, wealth advisor may not advice their client to allocate a big portion of salary for retirement scheme, but this might change after, say, the same individual gets married and has two children to look after.
Relook at financial goals
The skill of giving good advice lies in the art of saying 'no'. Let's suppose you plan to buy a resort in Goa after 20 years, while your salary barely allows to make your ends meet with a small allocation for retirement savings, then an ideal investment advisor would be honest enough to tell you that you might want to relook at your financial goals, and not at your investment plan.
Similarly, when you plan to take overseas vacation every two years, while nurturing a dream to retire early, then your ideal investment advisor would tell you to sacrifice one of the two plans - instead of keeping you in a state of delusion.
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When your financial advisor recommends a financial product which offers nil or low commission, this means the financial product as well the advisor recommending them are good. For instance, for retirees, the better investment options are post office senior citizens savings schemes and PM Vaya Vandana Yojana instead of debt funds, but if the advisor dissuades you from going for government-run schemes, you can imagine where does his loyalty lie.
Buy and sell decisions
If your advisor tells you to hold on to cash because there are no good investments, it means the advisor is good. The greedy advisor might want to sell you something or the other regardless of availability of a good opportunity.
It is also equally important to sell the stocks or funds when valuations are sky high. Merely hanging on to an investment or selling to invest immediately doesn't bring cash on the table. A good advisor will not only prevent you from investing at the wrong time, but will also tell you to exit at the right time.
Importantly, a good financial advisor is as good as a good general physician. More likely than not, they would alert you to approach a specialist ‘doctor’ when a specific issue you need help with is beyond their area of expertise.