Are you a do-it-yourself type of person when it comes to money management?
If not, then choosing a good financial advisor is one of the most important decisions that you will ever make.
In India whether we call the chosen person a financial advisor or a financial planner is not that important. What you need to understand instead is that you are choosing your personal money guide.
This is all the more important for a working professional like you since you are already pressed for time and busy at your job.
Just like a good tourist guide, a financial guide can make sure that you understand what your financial wellness to financial wellbeing journey will involve. You will get advice on the preparations you need to make and what you can expect to see once you reach your destination.
Must Haves When Choosing a Financial Advisor
With the development of financial industry in India, the role of the advisor is also becoming more regulated. There are now clear guidelines from the government (SEBI) on who can be considered a professional financial advisor.
Therefore, the first thing you need to ask/check is if the person has the required certification to act as a financial adviser in India. The other thing to check is how long has the person been working as a financial advisor.
A common mistake that most people make is that they end the selection process once the above must have conditions have been satisfied.
After all once you have found someone with the right certification and experience then you should be good to go right?
Proper certification and experience is only the starting point of your decision. The next stage of the choosing process is where things gets more interesting.
(I have used him/her interchangeably in this article to avoid any stereotypes)
5 Things to Look for in a Financial Advisor
These are the 5 things that you should look for when choosing a financial advisor. This can help you figure out someone who may turn out to be a great choice rather than just being good enough.
Listening is one of the most important qualities that a financial advisor should possess. She should ideally spend the majority of the time at your first meeting listening to you (rather than talking herself).
Is she asking insightful questions about your money goals, your fears, your family situation, your current financial preparedness?
Just think of the last time you visited your doctor.
Did the doctor spend some time asking about your symptoms and if you had any allergies etc.? How would you have felt if he had prescribed a medicine as soon as he saw you?
That too without asking you any questions or hearing you out.
In the same way if the person you are meeting to help you with your money is spending more time talking to you (instead of listening to you) it should get you thinking.
Even more worryingly if the advisor at your first meeting is already recommending which specific mutual funds or insurance schemes to buy then it should definitely be a red alert.
Conviction to Speak Up
While you are looking to find someone to act as your financial partner, at the same time he is also looking to expand his business by getting you as a customer.
Normally in order to close a sale a salesperson is unlikely to risk offending a customer by openly disagreeing with his views. The salesperson’s focus is primarily to make the customer buy from him.
However a financial advisor should be willing to openly disagree with you on things that may cause financial harm to you in the long term.
A person who does not display the conviction (backed by a good explanation) to disagree with your views may not be in your long term interest.
So how do you test this? That should be relatively easy.
Come up with a statement that you know is not true and see if he has the conviction to disagree with you on your face.
For example – Tell him that you believe the best way to save for your new born daughter’s college education is to put the money in a bank fixed deposit.
Now even a not-so-great advisor would know that this is obviously not the best way to save for college. So you should expect him to disagree with you about your belief.
This is just one example but you could try to throw in 2-3 statements like this during your initial meeting. See if you get a well explained push-back on any of those statements.
However, if the financial advisor is happy to go along with your suggestions just to be nice then you should be concerned. You definitely don’t want a “yes-man” as your financial advisor.
A good financial planner would always put your long term financial interests ahead of his short term business requirements.
Similar to any other profession in India, financial advisory is also a profession. Someone who is making a living as a financial advisor needs to make money from it to support himself (and perhaps his family).
Therefore just like a doctor, lawyer or architect it is normal for the advisor to charge you a fee for his services. On your part too, you should be prepared and willing to offer a reasonable fee for his services.
This fee could either be charged directly to you or be received by the financial planner through some sort of a commercial agreement.
Whatever the arrangement, he should be honest and open about the fee that you are paying for his planning service. If he claims that he is not earning anything from providing you his services then it should be a red flag.
Just think about it – You don’t offer work for free for your employer, so why would another working professional do so?
Someone who believes in working in an honest and transparent manner will be a much better long term partner for your financial journey.
What If You Leave
We have come a long way from the times when your neighbourhood LIC agent also acted as your financial counsellor.
We now have banks, online portals, smartphone apps as well as qualified individuals taking on the role of financial advisors. It will continue to evolve and further mature in the next 5-10 years.
Some new people will enter the field while some current players might exit it. That is how most businesses work.
But how do you make sure that your financial journey over the next 10-20 years will not be impacted by any of these changes? You are busy as it is and would want your financial plan to continue without any disruptions.
So ask the person you are evaluating about the future of your financial journey.
If she works in a bank as an employee ask what happens if she leaves the bank.
If it is a start-up company, ask what happens if the company shuts down.
And if it is a single person set-up ask about her back-up plan to service you when she is out of town or on vacation.
The advisor should be able to clearly demonstrate to you that your financial journey will continue as usual no matter what happens to the advisor or their business.
It shows you that she has a plan for your long term financial welfare and is not just focussed on the short term.
This is by far the most important factor when picking a financial advisor.
Once you make the decision, you are placing your financial future in their hand. Given the nature of financial planning, the impact of the decisions you make today will only be known 10-15 years from now.
Therefore you need to have full trust that he or she will do the right thing.
Amongst all the things mentioned above, trust is also probably the most difficult to figure out.
While there is no standard rule on how to accept someone as being trustworthy, there are a few things that can help:
Ask for details of other customers that the advisor currently has. A good advisor should be happy to share details of her existing clients since she is confident that they would have good things to say about her.
Talk to those existing customers about how long they have been with the advisor, what is her working style and if it would align with your own requirements.
Take It in Small Steps
Instead of moving your whole financial journey into the hands of the new advisor take a step by step approach. Take a small part of your money and let the advisor help you plan for that part.
You will be able to see the outcome of this plan over a period of time. It will also allow you to have multiple meetings with your financial advisor and assess if she is the right long term partner for your financial journey.
Moreover it will also help to limit the damage if you later realise that you made a wrong choice when picking this particular financial advisor.
Do Your Homework
Guess who is the best person to protect your interests? Of course, it is you yourself.
Therefore, the more work you can put in from your own side, the more likely it is that you will make the right decision when choosing a financial advisor. Get onto Google, talk to your co-workers and friends so that you can make a better choice about the person you are planning to pick.
Plus all of us have that one special power – The Gut Feel.
A lot of times something or someone just does not feel right. You are not getting a good vibe. We may not be able to explain why that is but it is a signalling system our body has.
There may be no logical reason for it but if the person that you are close to choosing does not give a good vibe then don’t do it.
He or she may be a very qualified person but if you are not mentally at ease about your choice, then it will continue to trouble you. The last thing you need is a bad vibe each time you see your financial advisor.
The choice of a financial advisor is a decision that will have a huge impact on your financial health for many years to come.
The best way to make sure that you are picking the right person for the job is to look beyond the usual things like certificates and experience. It is not too different from hiring someone to join your team at work.
Having a certificate and experience can make someone a GOOD financial advisor.
However if you are looking for a GREAT financial advisor then look for these 5 additional things:
Listening Skills, Transparency, Conviction to Speak Up, What If You Leave and Trust.