Financial Advisor is a much-known word today. Be it agent, advisors or distributors each of them call themselves a Financial Advisor. As an investor, it’s difficult for you then to differentiate and judge who is the right choice for you. Although SEBI Investment Adviser Regulations 2013 have changed many aspect of it easing out the selection for you, still there are large number of advisors who are unregulated. You can even find quite well-known names there who have chosen to stay so.Now if a financial advisor stay mum on his noncompliance then it is not an action on your best interest. How then you should decide whether you have approached the right financial advisor.
Ideally the first line of discussions with a financial advisor should reveal whether he/she is going to work towards your interest. During this discussion, you should be asking questions which should result for you in knowing the interest of advisor in managing your financial well being.
Here are 6 questions which you should ask a financial advisor during your search-
1. Is Advisor A Fiduciary?
The term fiduciary is not understood by investors but financial advisors know it very well. For the know-how of investors in simple words, a fiduciary is one who keeps your interest on priority. Advisors who work with this concept disclose their fees, compensations and any potential conflict of interest which might influence an individual decision to avail his/her services. Contrary to this any advisor who is a non-fiduciary may choose not to disclose any commission they would receive in exchange for you by selling a particular investments which might not be best for you. There are situations now in India where a regulated financial advisor may be working for a fund that allows him to sell its proprietary products. If acting as a fiduciary then he/she should be disclosing compensation received from such products along with any potential conflict of interest. SEBI Registered Investment Advisers or CFPs have to abide by code of conduct of fiduciaries wherein they have to define their businesses, compensations, conflict of interest etc.. In general they give details on what services they are offering and should offer advice where they are competent. That’s not the case with any unregulated intermediary as they are not bound by any fiduciary code of conduct.
2. Licenses, Credentials and Certifications
The licensee are many but what your advior possess should be a great interest for you. Many license are not for a complete financial planning. SEBI Registered Investment Adviser is a license now without which no financial advisor can offer you a complete financial planning. There is a basic level of education and experience defined for obtaining this license. Also, Certified Financial Planners goes through a rigorous 5 module exams and then obtain the licensee which too is renewed yearly based on the level of continuing equation the licensee is achieving. Even before that what education the advisor have achieved and what certification he/she has obtained should give you a good idea on the credentials of person who is going to manage your financial wellbeing.
3. The Fees
In general a financial advisor website should carry the information on the fee structures. You should seek more details on it as to how much you will be charged and how. If there are any services where the advisor is not charging anything then you should seek details – Why? Many advisors who earn commissions also waive of certain fee or do not charge you on certain services since they get compensated by the products. If they do charge you then you end up paying from your pocket and from your investments. This details discussion on fee structures should tell you whether the advisor has any incentive to sell you anything.
4. Scope of Services
The discussion on scope of services should be detailed enough to give you a clear picture on what advice the planner will be delivering you. It can be just an investment advice which some of them cover. Financial Planners practicing comprehensive financial planning will generally deliver advice related to different aspects like retirement, insurance estate planning, tax planning and other. Your choice should match your requirement of advice you wish to seek from the advisor.
5. The Investment Philosophy
You would have built some investment philosophy of your own. Knowing your financial advisor Investment Philosophy helps you tremendously. For instance for investments in mutual funds will the advisor recommend direct plans or he will advise only on regular plans. What is the basis of his regular plan advice?. Secondly Is investment advice based on your risk tolerance, and goals or only on your investible surplus. Discussion on these aspects will give you enough indication of what you should expect from the advisor. If there is any difference in the investment philosophy then it should be discussed in detail and advisor should have the rationale behind his/her advice.
6. How Often Will You See The Advisor?
In many situations, a financial advisor may hold an initial meeting and then you don’t see him/her for a year. You should be very clear on how often your advisor is going to contact you. Many do quarterly meetings with their clients to ensure they can address their concerns right through the year and they can also maintain a level of involvement. You may be interacting with the advisor once and then the team remains in touch for your needs. Whatever is the case, you should have a clear picture on the engagement with the advisor before you hire him/her.
The choice of a right financial advisor hinges on the right questions you ask. The more details discussion you hold initially the more clarity it brings on your table and more wiser engagement you have with your advisor. So if you are searching for one then get involved in discussion with these questions!!!!
Did you had initial discussions with your financial advisor? Are you clear what level of advice you are receiving?
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