How to select a good financial advisor

The pandemic has suddenly increased people’s interest in investing - an excellent trend - especially in India, where participation in capital markets has been low. Moreover, as more and more investors look to create wealth - the demand for investment advisory services has increased tremendously.

Many self-driven investors have entered the market; however, self-driven investing is suitable for people who can give time and effort. Most people don’t have the time and probably look for an excellent financial advisor. What should they keep in mind before selecting one? Let’s find out

A good financial advisor is not a salesman

A salesman sells mutual funds, fixed deposits, insurance and other financial products.

On the other hand, an advisor is someone who does a deep dive on the family, their needs, goals, and risk appetite and accordingly presents investment opportunities. A good advisor pitches products which are suitable for you (not them). In the world of finance, where there are hundreds of mutual funds, stocks etc. - there are countless quick money-making opportunities out there for advisors. A good advisor carefully chooses products that maximise the client’s wealth and risk-taking abilities. Always look out for advisors selling the mutual funds or other products which give them the most commission.

A good advisor manages behaviour and temperament well

Wealth creation is more to do with temperament and less with which product you buy or sell. Some of the most successful investors attribute their success to good temperaments.

A good advisor will re-assure investors on having a long-term outlook and help clients from making poor choices like selling when markets are down and buying too much when markets are up. A good advisor is more of a psychologist and less of a financial advisor

A good advisor sells low expectations and is available for you when in need

Please stay away from advisors who promise 25/30%+ yearly returns on their investments.

A good advisor promises practical returns and delivers them according to the investor’s risk appetite. E.g., for a conservative investor - that may be 8-10%, whereas, for an aggressive investor, it may be 14-16%. Ensure that the advisor is tailoring the proposal to your risk-taking ability. Also, ensure the advisor is available for you when needed.

A good advisor focuses on your life goals, not investment returns. He would focus less on returns, primarily market-dependent, and more on life goals like retirement, child’s education, home, and others.

Another important point is that a good advisor is someone who charges adequate commission or fees. An advisor that is not compensated well will not provide sound advice. The advisor will also make up the fees by selling products that may not suit the client.

Investors paying their advisors well are risking their life savings in poor investment services.

A good advisor is someone who practises long-term actions. An advisor advising you to make short-term bets and is always looking to take advantage of market volatility is, in most cases, bad for you. Advisors who take long-term actions are, on average, much better advisors.

A good advisor offers advice beyond investments

He will help you with insurance, tax, estate and will planning. Look out for advisors who are knowledgeable in things beyond investing.

In conclusion - the above list is a great starting point for investors looking for help navigating the financial investments world.