Choosing the Right Financial Advisor

One single person cannot be an expert at many things. One may be good at quite a few things but can one call himself as an expert on multiple subject matters? Probably not. Thus, a normal person would need different experts and consultants at different points in time. These experts can be in the form of say, your teachers, gym /yoga instructors, doctors, lawyers, accountants and even your spiritual guide or guru. One such important expert in your life would be your financial advisor but the importance of whom most of us do not fully appreciate.

The financial advisor may come in many different names or designations, irrespective of which their primary concern would be your financial well-being and ensuring that you are financially successful. Thus, choosing and having the right financial advisor is very important as it will have an impact on one thing you value most – your money.

Who is a Financial Advisor:

A financial advisor is one who would be interested in your overall financial well-being. A good advisor would be one who is competent and committed to ensuring financial success for you. The financial advisor should be one who could provide you with advice and access to different financial products as you may need. He should be the one able to not only create and manage portfolios of different financial products but also handle you as a person. The financial advisor would play the critical role of managing your expectations, your emotions, help you build the right habits, attitude and appetite for investments and also help you become more aware of your finances.

Why should he/she be right?

Since we are strictly dealing with your financial well-being here, there is very little scope for compromise. At stake is a huge impact on your wealth – the difference between what a good / decent advisor and the right advisor can make for you. Small decisions, choices of products, timely actions, managing emotions, expectations, etc, everything potentially can end up making a huge difference to your finances especially when we project that over many years or long term.

Why do we need an advisor?

To start with, financial advisory is a huge field in itself. It encompasses different aspects of finance, including financial planning, investment & portfolio management, insurance or risk management, tax planning, retirement planning, cash-flow management, and loan /debt management. I am not sure how many of us would be competent /knowledgeable in each of this aspect. Bringing together all these pieces together is just one part of financial advisor. The real impact a financial advisor would bring would be in effectively managing your emotions and expectations and saying no to you where needed. There is a risk that financial decisions taken by us get affected by > emotions, biases, prejudice, knowledge, understanding, delays and so on. The advisor would help us by bringing professionalism, logic, emotional control, discipline in decision making and bringing all aspects of financial management under one umbrella of strategy or approach.

Who is probably not the right advisor?

Traditional Agents/ Brokers /Accountants:

The role and expertise of a proper financial advisor is an established field in itself. One should not expect a comprehensive assessment and solution to your financial needs from persons handling only specific aspects of your life. This is true for you, unless he/she is also a financial advisor, accountant, banking executive. insurance agent and stock broker. There are many traditional agents in the market who are really not looking at solving your problems or needs but are only interested in pushing the most profitable products to you. One should be more careful of their bank executive selling new ideas, the stock broker frequently churning portfolio and giving tips, and the insurance agent in neighbourhood selling only traditional plans.

Personal relationships:

Having a relationship with an incompetent advisor is not recommended even if you have other reasons for maintaining that relationship. At the end of the day, there is always a chance that you are not satisfied with the advisory part and then that may even ruin the other relationship you are having with that person. It would be advisable to differentiate a personal relationship and a professional relationship and deal / hire the right advisor to manage your finances.

Who is the right advisor for you?

• Competence: Your financial advisor has to be competent. Being competent can be seen as a combination of essentially two things -

• Knowledge: Knowledge is all about knowing everything you expect the advisor to know, including knowledge about assets, products, taxation, etc and also keeping oneself updated on markets and economy.

• Skills: Skills can be seen in two parts – (a) financial advisory skills (c) soft skills. The advisor should be smart enough to your prepare financial plans, do portfolio restructuring, decide upon the right products suitable for you, prepare reports /insights, evaluate products, make decisions based on right inputs, execute plans /transactions and so on. Soft skills would be largely about effective communication and relationship management with you.

• Infrastructure: Knowledge and skills have to be supported by adequate infrastructure. The existing infrastructure should be adequate enough for you to be serviced. The advisor has to be empowered by suitable product basket, technology platform, services, manpower and physical infrastructure. All this will access to the required products, ensure ease of operations, service quality and technology comfort for you too.

• Commitment: The financial advisor should be committed to you. We can interpret this commitment and see it as a combination of the following -

  • Acceptance: the advisor accepts you as a valuable client and is dedicated to serving you. The impact of this acceptance & dedication would reflect on the entire relationship you have with the advisor. Absence of this aspect of relationship would not help you no matter how competent your advisor is.

  • Understanding: another aspect of commitment would be reflected in the extent to which the advisor takes the effort to understand you as a person and your finances. Without a proper understanding of your profile, background, financial status, needs and expectations, it would be difficult for him to give the right advice to you.

  • Intent: The last part of commitment is the intent of the advisor. There are many people in the industry, say bank executives or insurance agents promoting traditional plans only, whose true intentions and/or product biases to be understood. The advisor has to act in your best interests only and not be biased for any particular products or services. A good advisor will not be transaction or product oriented but will talk more in terms of problems or needs and solutions for them.