How to pick a financial advisor?

Good Financial advisor is very important for your financial health just like you need a Doctor or Physician. Recently I read one article about it, which mentioned that choosing right financial adviser is as important as choosing right Husband or wife and I am completely agree. It is very important to choose it very wisely. But what is reality? Going to link some tweets for showing what is reality.

Interesting. Isn’t it?

Very Bad and Shocking reality in our society. Now this one Will shock you little more and then I will start it.

Rajat Sharma, Financial Attorney, analyst also mentioned one more point which was not shocking for me. He started work in capital markets directly or indirectly from 2004. From that point till today, the situation is not different in fact worst. Many market manipulator are trying to make money by manipulating stocks which are penny worth. Still today, its difficult for many retail investors to educate themselves. Anyone can come to you and may sell you Mutual Fund which may be bad. From Harshad Mehta to Sahara To MCX To Chit Fund. At the same time I am watching Banker and Brokers are playing role of Financial Adviser. Is it really Good?
So How to Pick Financial Advisor is a big question. What He need to know and what not. I am going to write it.

With age, our needs and expenditures and income are changing. Our priorities are also changing. Like Need of 20 year old and 40 year old is different. After Marriage, your priorities are different. Plus you need to take care for your future self as retirement will defiantly going to change many things. Plus some Religion need to make some provision for their last rituals. Some Religions like Islam make it mandatory to make provision for their travel to their pilgrimage, which is Makkah.

Though most of the time I am trying to write How to make anything DIY. But it is not advisable to make your financial planning all by your self. You need one Financial Advisor. So how to choose one ? what question to ask him? What to expect from him?

When you need to talk financial Adviser?

Many people believe that you only need to talk to financial adviser when you are taking Investment decision. OK. Let’s accept it. But here I want to introduced larger view to the word Investing. Just like when any company buying their competitor or buying land is also investment. Just like that marriage decision is also Investment. While taking decision about your current job is also investment as there may be good option to invest your time rather then current. Maybe starting Business is the right. Buying home, Taking some decision about Family, Like when I was in college, ET Wealth, one financial magazine famous for educating investors, makes story about marriages and financial decision. In which one lady, told that while in emotional distress, She give everything to her husband as he give her the custody of their child. Defiantly not a good decision. That child need some education, That Lady need one house or some Money till she find some other source of income. Their you can understand need to talk with your financial adviser.

There you may thinking while reading this, what about Investment? Yes you need to talk to FINANCIAL ADVISER. Some people take it from their broker or Dealer. Not bad in some cases. But I will tell you A BIG NO. He don’t know bits and part of your financial life. He may advice you which is helpful to him like selling or pushing some products. If you are trying to do it as cost benefit, then I frankly tell you to be bold. Spent money.

How and where to search one?

There are very easy ways to search. One is Google. You can search on internet. Best thing is many financial advisers now keeping their website. A website will give you information about his or her performance and you can underground many more things. One more plus point for searching on Google is, Nowadays, it shows the rating and reviews on the search also. It makes whole process easy. The rating and Reviews on websites may be wrong, but how can one manipulate ratios on Google.

Another way is asking your friend or family member. Most of the time you may get information. Ask them weather they like the service or not.

Here I want to discuss one thing, which I partly discussed with you, that is Talk to your broker or Bank Branch manager. Let it be in India or US, Banks are nowadays doing so many things. Now they are not only holding your money. Maybe your manager will tell you about money management service offered by bank. But still I believe that giving your money decision to your Bank, is not right decision. Once again. Conflict of Interest. Interestingly I found something on Twitter. Credit to Ron Beaubian

What criteria or Filters you need to use while searching Financial Adviser? (In short, Questions to Potential Financial Adviser)

There are many key differences between Financial adviser and ‘Good’ Financial adviser.

  1. Good Financial adviser is listed and recognized. He is known by Authority. So if you need to take any legal action, it’s possible.
  2. Educational Background. At least in India, its Graduation from Commerce and also needed the knowledge about economics.
  3. Financial Planning Designation, credentials. CFA, CFP are the one which preferred by many regulators if I am not wrong.
  4. How long have you been offering services? Longer the better.
  5. Soft Dollar practices if any? In asset management industry, Soft Dollars are the benefits provided to an asset manager by broker – dealer as a result of commissions generated from financial transactions executed by the broker -dealer for client accounts or funds managed by the asset manager. Sometimes, Financial advisers received such perks for Selling specific service or product. As a student of CFA institute, I believe that this is unethical as it is conflicting with the profession. One need to make integrity with his clients, which is also highlighted by Rajat Sharma. Here I want to mentioned Bharat Phatak, Wealth Managers Pune. There was an offer to him if he sold product worth ₹1 Cr, he will receive package for 2 people to Dubai. He sold worth ₹250+ cr and still he denied as it is not something which is ethical. Great example to follow.
  6. Is there any minimum fee? Important to ask. While I am reading article like Go for free, there are some jokes also available about financial adviser.
  7. Will you or your assistant work with me? Sometimes its not him but his assistant.
  8. What personal financial issues you can handle for me in future. Sometimes they may give you limited service.
  9. Will you attend me? Financial adviser is the one whom you need to contact sometimes regularly. He may be in his own work. But will he giving you the right way of behavior or is he ‘Form Filler IFA’ only? My own experience is when I was planning interview of Rajat Sharma, Sana Securities, He was busy. But he told me that at what time he will talk with me. Big thing.
  10. Good Financial Adviser will take time to educate you. An adviser is supposed to teach you what is happening with your money. In Market turmoil, good financial adviser is that one which tell you what to do. Its important how. Some financial adviser, I saw, having beautiful presentations, Some short films. Or some of them are good as teacher. Form Filler IFA will not even think about it. In fact Form Filler IFA is not IFA. Dave Ramsay once mentioned  that Search that Financial Adviser who is having heart of teacher. Agreed. But it will happened when he takes time to ask your needs. You will stop the meeting if you don’t understand anything and ask it.
  11. How do you get paid. No I am not repeating anything. There are some hidden payment to your adviser which you may not know. There may be some contracts which are helping him reducing his costs.
  12. How and where you are investing your own money? Is your financial adviser having Skin in the game? Warren Buffett, Since his Partnership days keeping all his money invested in his own company.
  13. Client category? An adviser maybe giving service to retail investors and institutions also. Are retail investors more than institutions in his clients? Because both need different service. More retail investors as his clients means he know how to educate them and maybe know what they need. More clients like you also mean that he can understand what you need.
  14. How are you going to communicate with me? E-mail, Call, WhatsApp, Facebook, Twitter or anything else? Very important because there are some of adviser don’t even communicate with clients. If client need then he will talk. Its wrong. Because there are some clients who may not understand this. They will just ignored everything.
  15. Frequency of Formal meeting? Though Investment and financial decisions are for long-term, but one need to check the performance of investment. Also need to check weather what we are doing is going in the same direction.
  16. One more factor which Rajat Sharma highlighted is very important. When Fundamental guy start talk Support, resistance, chart pattern, volume, Candle or Technical analyst start talking about Valuation, Overvalued, Undervalued, PE, Book value, Understand something is not going Good. Being technical analyst or fundamentalist or anything other is not bad. It will become bad if one switch. I am completely agree.
  17. Any other question you want to ask.

So I am going to close it with saying

Financial Adviser is one to whom you are showing faith about your hard earned money. Choose wisely, Live well.

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About Ashutosh Tilak

Tracking Indian Capital Market since 2010. Finance Student, On this blog I am writing about finance and Investing. You can contact me or @androidashu & @InsideFinanc on twitter