The humble individual investors are in a fix. They just can't decide if they have to hire a financial advisor. Their plight is caused by the problem of plenty.
They were considering hiring an agent, the ubiquitous species you would find in your neighbourhood, who would call in on their clients at their home, fill the forms, collect the cheque to be submitted to a mutual fund house, insurance company, etc. Then someone asked them to check out the virtual world, where you have umpteen number of dedicated sites helping you research and transact. Some others wanted them to hire an advisor, who would advise them on investments for a fee. Some advisors would even help the investor with investments for an additional fee.
There are a wide range of service providers available and you have to choose the one who can cater to your requirement.
So, whom should you hire: small independent financial advisors? Certified financial planners? Advisors from banks and brokerage firms?
IDENTIFY YOUR NEEDS
The starting point is to ask yourself if you are capable of tracking the markets all by yourself or if you need hand-holding and advice on what to buy or sell? Make no mistake, the Indian markets are globalised and affected by the vagaries of the global financial markets. A development in a far-off country like Greece or Spain, cross-border currency movements, floods, politics… almost anything could affect financial markets. In short, ask yourself if you have the time and inclination to keep track of everything that is happening around the world and its impact on the Indian markets and your portfolio.
Remember, it is not just the stock market. You should also keep track of the debt segment or gold as an ideal portfolio should be spread across diverse asset classes. Are you familiar with these asset classes and the plethora of products available to invest in? Would you be able to draw up an asset allocation plan — that is, decide on the percentage of money that should go into each asset class? If the answer to all these questions is yes, then you can do it on your own. All you need is the small-time advisor who would help you with the formality, or some website that would offer you research material and let you transact online. Otherwise, you are back into the game of choosing the ideal financial consultant for you.
COMFORT, TIME FACTOR
You want someone to collect the forms and cheques and physically deposit them with a fund house or brokerage? Then you should think of hiring an agent or advisor who would do it for you. However, as mentioned earlier, hire an agent only if you follow a little bit of investments.
While smaller agents may be prompt in collecting a cheque and depositing it, they may be poor on research capabilities. Otherwise, think of hiring an advisor. Here you have two choice: one, hire someone purely for his opinions. Two, hire someone who would give you gyan and also take care of your investments.
The choice is yours, depending on what suits you the best. If time and inclination is a problem, then opt for someone who would give you advice, help you take decisions and do periodic review of your investments.
Alternatively, if you want a mix of both physical and online world, check brokerages such as ICICIdirect, Sharekhan, Geojit BNP Paribas and so on. So, if you are travelling and want to use the internet to execute your transactions, an online account would work well. Another aspect you need to consider in terms of servicing is the quality of advice you get to fine tune your portfolio.
THE FINAL CHOICE
Now, the sad truth. It really doesn't matter what you have decided, it would be the money in your hand that would determine the kind of advisor you can hire. For example, if you are investing a small amount, say . 20,000 to . 50,000 in a year, it is unlikely that certified financial planners, big banks or private bankers would be interested in serving you. Financial planners could charge upward of . 5,000 per annum. It won't be a viable option for those with a small corpus, as the charges would itself be about 10% of the corpus. In such a scenario, it would be best for investors to do the research themselves and use an internet provider or an agent to execute his transaction. The other option is to settle for the neighbourhood agent or advisor.
On the other hand, if you have a sizeable amount to invest, say . 3-5 lakh per year, you could then look at professional advisors to advise you on your investments. If you have upwards of . 25 lakh per annum to invest, then you could even consider a relationship manager of a bank or a brokerage house to manage your investments. However, here's a word of caution. Many a time, relationship managers, to meet their targets, end up churning portfolios or selling exotic structures, which are difficult for the lay man to understand.
Choose advisors for the quality of advice they provide based on their track record or referrals. You could check their past track record and experience and even ask for references. You should check the pedigree of the organisations they come from. Choose an advisor who adds value and increases your knowledge over a period of time.
Just like you pay a doctor or a lawyer for their services, it makes sense to pay a financial advisor to get high quality advice and service. This is better than losing a portion of your wealth due to incompetent and poor advice.
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Also, know how to buy mutual funds online:
Invest in DSP BlackRock Mutual Funds Online
Invest in Reliance Mutual Funds Online
Invest in HDFC Mutual Funds Online
Invest in Sundaram Mutual Funds Online
Invest in Birla Sunlife Mutual Funds Online
Invest in UTI Mutual Funds Online
Invest in SBI Mutual Funds Online
Invest in Edelweiss Mutual Funds Online
