What to look for in a Financial Advisor?

August 26, 2020

Investing in the stock market is easy but choosing the right kind of investments becomes difficult. Assuming an investor is looking to invest in mutual funds. We know there are hundreds of mutual funds in the market. But how do we choose the right fund? To take the right decision while investing we require an expert because as investors we might not have time and knowledge to read through each investment in detail. An expert is needed who will guide us in choosing the right type of investment.

So, it's settled that for helping us in choosing the right investment, an advisor is essential who can help us out. But how to pick the right financial advisor?  There are many advisors today providing the same kind of financial service. The task here is not to find a financial advisor. The task is to find a right financial advisor.

In this blog, we will learn how to choose a good financial advisor.

When we go to a financial expert, there are few questions which cross our mind.

  1. Is he/she qualified to give me advice about investment?
  2. I am investing my money with them. Will it be safe?
  3. Is my information protected?
  4. Will there be good relationship? Will I be updated with the market trend? Or i'm being soft-talked to just for the sake of getting business.
  5. What charges am I paying for the service that I am availing?
  6. How transparent are they when it comes to paying charges?
  7. Do they understand my requirement?
  8. Will there be a follow up once I start investing with them?

All these questions can be summed up in fewer than five categories. They are:

  • Qualifications and Certification
  • Confidentiality and trust
  • Communication skills
  • Implication of charges

Let’s go through each of the above in detail

Qualification and certifications- first check is to know how qualified your financial expert is. Do they have any additional certification? How well your advisors know its area of expertise, core, competence and capabilities. Are they complying with all the required guidelines? Is the financial adviser well versed about the market? Knowing all these will help you choose a good advisor and also build confidence in your financial expert. Advisors having an educational background of CA, CFA, etc will be a better pick. Regulators like SEBI have come up with various certifications that the advisor must have. Having a check through all this information is important before choosing an advisor.

Confidentiality and trust- When it comes to money matters, we are always sceptical. In India, we prefer investing with people we already know like our relatives and friends. Trust cannot be built immediately, it only happens overtime. It’s also important for an advisor to maintain confidentiality of their client’s information. Maintaining confidentiality will also help in building trust. In this era of technology, where all the information is easily available, it’s important for an advisor to keep its client’s data secured.

Communication skills and maintaining good relation- Possessing good listening and communication skill is essential. An advisor must understand their client’s expectations from the money that they are investing, purpose of investment, risk tolerance etc. An advisor must be able to communicate why they are recommending a particular product and how will it help the investor. It’s also important for your advisor to be transparent. Transparency is another aspect of building trust. An investor might not know the whereabouts of investments, but he/she will certainly observe how transparent and well informed the advisor is.

Being a financial advisor, he/she must maintain good client relations. Building good rapport with its customers is one of the major roles of a financial advisor. Maintaining proper data about the client, responding to client’s queries at the earliest, approaching the investor when the markets are right for investments, keeping constant touch, communicating the right information etc. these are factors will help maintain good relationship with the client.

Implication of charges- Suggesting investments to investor is also a business, which means there is an income. Suggestions given are not for free. Now, how are they earning? An expert either earns directly by levying upfront fee for managing portfolio or indirectly by commission. Commission is given by the AMCs in which the investments are made. The advisor must be transparent about this to the investor. The investor must know the cost associated with the service that is being availed.

These are few pointers which will help you to choose a right financial advisor.

-Ridhi Sethia


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