Why is it easier to choose a doctor than an Investment Advisor? Why are people shy, when it comes to asking the right questions when selecting an Investment Advisor? It is obvious that a visit to a doctor cannot be avoided when one is not well. At the same time, people do not proactively seek out appointments with fitness instructors or nutritionists. These are discretionary and proactive. If you are thinking of fitness and nutrition (beyond just getting well after a bout of sickness), then you are perhaps in the top 0.1% of the population! An investment advisor is in many ways like a nutritionist or a health coach.
Let us admit, selecting one is tough. You have to take an inventory of your finances which could be tiring. Many previous investments, especially in those retirement plans and insurance endowment policies would have not earned much return. Facing up to them is not easy. Those were picked up in those days when one just started earning some money and there were enough ‘wolves’ (i.e. incentivized agents and brokers) who would’ve pushed an inexperienced you, to take on some ill-advised policies.
For you to take a fresh look at this is not easy. You also need to find someone who will put only your interests above everything else. One who has the patience to track your financial goals and give you the right advice. One who is not influenced by how much he can make, from you!
To make this process easier, we have listed a few questions that can act as a checklist:
If the advisor is paid by various ‘producers’ (ie Mutual Funds) then rest assured that he will only push products that have higher commissions. What benefit those products give you will be of lesser interest to the advisor.
Tip: Go for an advisor who is paid either a flat fee ONLY by you. Other options are a % of your investment (for High net worth individuals) or even an hourly fee (for special discussions).
If the advisor is paid each time you make an investment, then it is clear that he will only push for more transactions. Even if the markets are overvalued, he will keep pushing you to make more transactions.
Also, commission-based advisors get paid as a % of the money invested (Assets Under Management or AUM). So they have little incentive in advising customers to sell out of poorly performing funds or sell when the markets are really overheated.
If the advisor is registered with an industry body like Securities & Exchange Board of India (SEBI) then it is a positive factor. Other registrations like Association of Mutual Funds of India (AMFI) are also valuable; however one needs to go back to check the responses to the first two questions. SEBI registrations such as Registered Investment Advisor (RIA) are preferable compared to the others. SEBI has strict mandates to ensure that RIAs are paid such that only the client interest is foremost in their minds.
You need to assure yourself that the advisor has dealt with various types of investors. And definitely someone like you. You could be a senior citizen, young professional, housewife or an NRI. It is preferable to have an advisor who has past experience with different investor profiles, age groups, etc. The richness of experience will help identify and solve your problems for the future as well.
Avoid people who are into selling insurance or real estate. These people are like those flies that flock to the next interesting source of income; only to ditch their clients as soon as the sale is made.
Go for someone who has spent his or her time in the investment advisory space. Someone who has a relevant education background, preferably from a reputed institution. Also, check on the professional certifications of the advisor.
If it is a Robo-advisor startup or an app, then check the profiles of the founders. Also, check their intent? Why are they doing this? Do they have the stamina to build their platform or practice over several years? Get in touch with them directly as there are avenues such as linked, email, etc.
You should make sure that all your investment-related information such as holdings, returns are readily available to you. Further, any questions should be answered promptly over email, whatsapp, etc.
If you are paying a premium then the advisor needs to commit to time upfront to review your portfolio regularly and also advise if any changes are required.
Do some research to find out if people have complained against the advisor. You can look up SEBI’s website as well as the internet
The use of the Internet and technology has now made it easier to select an advisor. Many advisors are available online and also allow for easy transaction processing on their technology platforms.
It is important to pick an advisor who is paid such that only your interest is on his mind. The advisor should monitor your portfolio regularly and not be worried if you have to reduce your portfolio for either withdrawing cash or balancing it out.
The right decision can make reduce your stress levels and go a long way to securing your financial future.
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