Categories: BlogFinancial PlanningSavvy

12 Point Checklist To Change or Appoint An Investment Advisor

Choosing a right investment advisor could get stressful, more so if you already have an ‘advisor’ and you need to change for any reason. This applies to most people and hence they prefer to be in the ‘default’ mode.

Beginners, are somewhat lost on whom to approach for advice. So naturally, whoever has access to the person, which happens to be banks or ex-bankers in most cases end up being the investment advisor. And inertia is a powerful force.

Seasoned investors or those who have amassed a reasonable amount of wealth are quite ‘happy’ with the current investment advisor even if they are being charged opaque fees and are saddled with relatively low returns.

The stress of making a decision is significant. “Why bother when things are running somewhat okay?”. But having seen numerous portfolios saddled with sub-par returns, I am talking about just 5% to 6% which is way below the market return of say 12% to 15%.

This is obvious because the distributors not only take a commission but also provide advice that works best for the latter. The commission is just a small cost compared to the much larger cost of buying products like close ended funds, new fund offerings, close ended funds, excessive equity products at the wrong time, funds from a ‘sister fund house’ etc. This list is quite long.

To help ease out this decision, here is a 12 point checklist.

12 Point Checklist For Investment Advisor

1. Is the Investment advisor who speaks to me daily/monthly registered with SEBI?

Having a SEBI Registered Advisor ensures that there is no conflict of interest on the advice you get. Here too, one has to make sure that the advisor has no affiliate (parent company, co-subsidiary) or related party (spouse, sibling, parent, relative) who is a distributor.

2. Is the Investment advisor paid a fee that is not clear or unknown to me?

Go for an Investment advisor who takes a fee upfront. Yes, it is painful to pay something ‘out of your pocket’ but do realise that you are anyway paying several times more ‘from your account’. You are also likely losing out much more by way of poor performance.

3. Can I trust this person with honest advice?

You can review the past three investment advices given to you and apply the test of ‘what was in it’ for the advisor. If anyone of them fails, then you know that you need to look for an alternative.

4. Does the Investment advisor have a track record of performance?

Compare what the distributor or advisor has delivered compared the market returns. Better still, compare with what the portfolio has given compared to have you gone for direct plan mutual funds or zero brokerage platform. You will be surprised to see what you get after costs, commissions, brokerage, and taxes.

5. With a new advisor, won’t I be saddled with too many people I need to talk to?

Yes, having just one person who is a trusted advisor and who performs well is the best thing to have. If trust and performance are both assured then there is no need to have more than one. Sadly that is not the case for most people.

The regulator has made it easy for people to track their portfolio quite easily. The electronic Consolidated Account Statement (e-CAS) provided by NSDL pulls all your folios and demat accounts together for one simple view.

Tip: Get one here if you haven’t one. You can also look up your email because they are auto-emailed to every investor.

For mutual funds, the CAS is provided by all the Registrar and Transfer Agents (RTAs) pull all your folios.

Tip: To pull your mutual fund portfolio in one place click here.

In case of family succession planning and continuity, the CAS is a very handy tool. You need not to be dependent on the bank or wealth manager to just know what is where. This also makes it easy to migrate to a new investment advisor and hence reduces the burden of tracking things.

6. Has the advisor suggested me to buy close ended funds?

If your Investment advisor shows interest in you buying series funds or closed ended funds, then it is a warning sign. Such funds have high front loaded fees which reduce your investment corpus even before the clock starts.

7. Has the advisor suggested me to buy NFOs?

New Fund Offerings are launched by fund houses to show something new and entice clients to invest more in their funds. However, there is no track record to see how they are performing vs the peer group or the benchmark. Besides these are also pushed hard by adding sales incentives that reflect in higher expense ratios.
A trusted advisor would wait to see how a fund performs and once there is clarity on that,  see what kind of portfolio they are investing in and then consider them.

8. Have they advised me to reduce equity exposure when markets are expensive?

A normal investment advisor who goads you into buying more and more equity may be interested in the high commission payout they get. Debt funds pay much less. I actually heard this from a reputed ‘wealth advisor’ whom i will not name:  “End of the day we have to run a business”. Not surprising; these businesses also cost a lot as they have to maintain high bonuses, expensive office space, large sales force etc.

9. Will my advisor change without my knowledge and will I be forced to work with a new/unknown person?

This is the bane of dealing with most banks and larger distributors. The ‘wealth manager’ generally sticks around for an average of 18 months before they move on to a different division or company. This breaks your relationship cadence with them, even if the senior comes in and promises that a new person will be there to take care of things.

10. Does my advisor promote products from the same group?

I have seen portfolios, that had 40% or more mutual funds from a fund house promoted by the bank or institution. While they may make efforts to appear objective, anything above 25% is not in your best interest.

11. Does my advisor have targets and is he or she under pressure to meet targets?

You will get to know if there are calls at the end of a quarter to make some additional investments. They may even appeal to make a favor; after all, he is just an employee.

While one must definitely help a young person climbing the corporate ladder, one must also pause and look at the big picture to see if there is a pattern to the whole thing.

12. Does my advisor or his group ever recommend ULIPs / insurance mixed investment products to anyone?

I can count this from my personal experience. Years ago, a wealth advisor from a large bank’s Securities arm pushed me hard to buy PMS and other products. When I resisted, I was asked to buy a ULIP citing that it is very convenient to switch from debt to equity ‘free of cost’. That was the turning point for me, making me realize how deep this problem really is, and how much of investor wealth is getting diverted.

While savvy investors may not be pushed such products, it is worthwhile to consider if the firm makes any such pitches to other clients. This could reflect on the culture and target setting prevalent there.

13. Bonus Tip: Does the advisor recommend Portfolio Management Service (PMS) products or other exotic products?

While such products may appear ‘differentiated’ or sophisticated, there enough studies to show that in the long run, it is difficult to beat Mr. Market. While some good funds may still manage to do it, how can products that ride on high commissions, a high pass on brokerages really do it?


Ultimately, a portfolio has to be managed professionally and honestly. Better performance on your portfolio will add to your satisfaction, and help allocate money better to society. Even if you really do not need all that money, you can contribute to any number of causes. For example, an extra million rupees gained can help build an old age home vs. lining up bank CEO bonuses.

Do let me know your thoughts, and do share this with friends are evaluating an investment advisor (or may need to do so).

Happy Investing!

Ram Kalyan Medury

Published by
Ram Kalyan Medury
Tags: advisorfiduciary modeltrusted advisor

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