Skip to main content

How to Choose a good financial advisor?


   Gone are the days when one would walk into the neighborhood shop that sells mutual fund units and insurance policies and asked for advice on what to do with one's money. Sure, the shop owner – who may sport disparate titles such as investment consultant, financial advisor, mutual fund advisor, insurance agent and so on -- was always helpful. He always knew the best mutual fund scheme, insurance policy, fixed deposit… everything you were looking for but didn't know where to find them. However, individuals are increasingly abandoning this ancient practice of signing a financial advisor. These days everyone wants a holistic advisor, who would offer wholesome advice that is tailor-made for every individual.


   It is absolutely impossible for anyone to suggest a mutual fund scheme or an insurance plan by just looking at you. The so-called advisor or consultant was purely recommending schemes and policies that fetch him the maximum commission. It was a pure miracle if some of his recommendations really worked for the client. However, it would be foolish to opt for such a generalized advice anymore. The financial world is getting extremely complex and you should pick and choose investments that would suit you the best. It is not competition that draws such derisive remarks. Even customers are waking up to the problem. I wanted someone who would devote a lot a time to my investments. But, I realized only after a year and a half that I have to hire someone better if I want that kind of attention. A smalltime advisor won't have that kind of time or resources.


   Deciding to hire someone qualified just doesn't solve the problem. In fact, hiring an advisor has become a problematic exercise for many investors. This is because depending on your pocket, you can get service of professionals who can offer your solutions that would range from simple to most complex. For example, if you have a mere one or two lakh rupees at your disposal, you can get an advisor who would give you vanilla solutions. However, if your pocket is a little deeper, the expert can offer you products that would range from safeguarding your capital to offer your returns that would be so many times your capital. "It is all about the individual, his wallet and his goals. The advisor or the manager can always design a portfolio to suit his needs," says a wealth manager.


   Sure, one can always argue that not everyone needs such customization of portfolio. Still, there is no denying the fact that if your advisor knows you a little better, he would be in a better position to guide you. That is why the first thing you have to do is to ask yourself whether the advisor knows you at all. This is because if you are one of those people who sauntered into an advisor's office and bought a few products in a span of 15 minutes, chances are that you may have bought a few bad products. To explain, you may think the equity mutual fund scheme you bought is a simple product. But that need not be the case. For example, if you are a conservative equity investor who wants to play safe (yes, there are people who prefer to play it safe even when they invest in equity), your advisor would have given you a scheme that invests predominantly in large cap stocks. Alternatively, he would have given you a small or mid cap scheme if you are ready to take more risk. He would have even suggested a scheme that invests mostly in a sector that is witnessing a lot of action. In short, you need to communicate better.


   Okay, you have started speaking to your investment advisor as if he was your best buddy in school. What next? Obviously, he will start suggesting financial solutions to your problems. Keep your ears open and ask questions whenever you feel he is speaking Greek. Don't be nervous. You are not a financial geek and don't try to hide it. You advisor knows that you are hiring him precisely for that reason. This is an usual problem faced by most people. They don't understand the product but would still sign up for it because they think it is embarrassing to ask for more explanations. The rule of the game is very simple: don't buy it if you don't understand it.


   Need a stick to beat the advisor who is speaking gibberish? Simple. Listen carefully whether he claims the returns are guaranteed, assured and so on when it comes to investing in the stock market. Always remember the stock market just doesn't assure you any returns. So when the advisor is telling you the market has given 50% last year and the performance is going to be repeated this year, look him in the eye and repeat the statutory disclaimer to him that past performance is not an indication of future returns. Another red flag is
when your advisor starts speaking about quick gains. The moment you hear him promising huge returns (that is, substantially higher than the prevailing rates) from mutual funds and insurance plans in a quarter, head to the door. According to experts, these tall claims are used by some advisors to lure customers who wouldn't sign him otherwise. If the advisor gets to know you are not looking to get rich overnight (and lose your shirt in the process), he may offer genuine solutions.


   Always place emphasis on professional qualifications of the advisor, his client base and his performance record for at least five years. Remember, someone is always looking to change his profession and that person could be the advisor you have just spotted. Sadly, most of these wannabes shut shop in no time, leaving their clients in the lurch. So, it is always better to speak to one of his client first before engaging with him. If he is new to the profession, it is always better to look for someone more seasoned. The exception to this rule is if he was previously employed in a solid financial institution and trying to strike it out on his own. Lastly, negotiate the fee with him. There are professionals who give you advice for a fee. Also, there are others who would do it free for you if you buy financial products from them. It is always better to pay for the fee as it would ensure that the person is not trying to push products that would earn him good commission. However, you can opt for mix of both provided you know when to say no to a product.

HOW TO SPOT THE RIGHT ADVISOR?    

Ø       Don't just settle for a neighbourhood mutual fund or insurance sales person as your advisor.

Ø          Look for a qualified professional with good client base and a long track record in the business.

Ø          Always ask questions if you don't follow the advice; don't try to conceal your ignorance about financial products

Ø          If the person assures you returns that are well above the prevailing market rates, you should be extremely careful

Ø          Don't fall for short term performance of schemes, always look at the performance record for at least five years

 

Popular posts from this blog

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

Merger of Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Merger of Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund Tata Mutual Fund has decided to merge Tata Indo-Global Infrastructure Fund with Tata Equity Opportunities Fund, with effect from January 16, 2015.   Investors of Tata Indo-Global Infrastructure Fund can redeem/ switch out units from December 13, 2014 to January 12, 2015 without paying any exit load. For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call Leave a missed Call on 94 8300 8300 Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com --------------------------------------------- Invest Mutual Funds Online Invest Any Mutual Fund Online Download Mutual Fund Application Forms from all AMCs Download Mutual Any Fund A...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now