When it comes to managing your finances a DIY (Do It Yourself) approach isn’t always the best idea:
- You don’t have the time to research all your investment options
- There’s no way you can look at your financial situation objectively
- Financial ratios, algorithms, trends and terms might not come naturally to you
- Tax laws can get complicated (and they change often)
A good financial advisor can help turn your hard work into something much much more!
A financial advisor is qualified to give you advice on your investments, income tax preparation and estate planning. For a small fee, he/she will give you guidance on what to do and what not to do.
Note: A portfolio manager manages your fund and makes investments for you. Read our interview with a portfolio manager
Here’s how to start looking
Check online: Go to a website like Financial Wellbeing that enlists financial advisors. The Financial Planning Standards Board of India‘s website has a directory of ‘Certified Financial Planners’. Not everyone on this list may be practicing financial planning but it’s a good place to cross-reference whether the financial planner you’ve selected has this certification.
Ask around: Ask your friends, family, relatives, and colleagues if they go to any financial advisors. Ask them whether they’re happy with the advice they get. Trust is a big factor when it comes to money matters. So even though someone you see help from may not be a certified financial planner, they may have enough knowledge and experience in the finance space to give you good advice. It all depends on what you want, and how you feel.
Selecting a financial advisor is like picking your life partner
1. Do a background check : You don’t want a husband who’s a total psycho, and you don’t want a financial advisor who will drive you mad (or broke!)
Ideally you’re looking for a Certified Financial Planner (CFP) because they’ll have the necessary licenses to sell financial products and be in the financial advisory business. Plus they’ll have taken mandatory classes on different aspects of financial planning. Cross check your CFP’s licenses with their corresponding regulatory bodies. Preferably pick an advisor registered with SEBI (Securities & Exchange Board of India).
2. Make sure they’re experienced : Before settling down, make sure both of you are compatible
Review your prospective advisor’s past experience, are they suited to help you with your financial situation? Stalk them on their website and if they’re in the news, learn about their experience, priorities and thought process. Make sure they have at least 5-10 years of practical work under their belt.
3. Compare all your prospects : Don’t marry the first man you meet, don’t settle down with the first financial planner you hear of
Talk to several financial planners, compare their style, weigh your options. If it helps, zero in on a few and then ask them to provide you a sample of a client’s report or to solve a case study. Best have a one-on-one conversation before selecting the final one.
4. It’s not only about “good looks, good looks and good looks” : Looks are important but personality matters too. Don’t let attractive returns drive you to a particular financial advisor
Don’t believe the advisor who says their firm has consistently “beaten the market”. A good financial advisor talks about the risks involved in your investments and will suggest investments for you based on those risks.
5. Transparency is everything : An advisor who’s only thinking about themselves is like a spouse who cheats
Find out how your advisor is compensated. What are his/her incentives? Where are their conflicts of interest? Advisors work either on a fee paid by you or on a commission paid to them for the investments they recommend to you (e.g. LIC could be paying your financial advisor for recommending LIC investments to you). So be sure that they’re giving you a holistic view of your financial situation and not pushing financial products that don’t work for you.
6. Find someone who’s trustworthy, approachable and responsible : This is the core in every relationship, especially when it involves money
Go with your gut on this one. If they’re interested in getting to know you, if they’re asking you questions, if they take time out to talk to you, and more importantly, if you’re comfortable opening up to them about your financial vulnerabilities and plans, your future is likely to be safe in their hands. A good advisor will not agree with everything you suggest or believe. But they’ll also have the courage to tell you if you’re spending beyond your budget, exposing yourself to too much risk or not taking enough risks at all. They’ll warn you about taking tips from well-wishers, and keep you under check when you’re getting impulsive.
If you’ve met the person that meets these criteria, say “I do!”.