We all need an expert whose advice you can trust, who will not start pushing products at you and rather help you understand why your wealth is not growing as it should, says Erik Hon.
If you've decided that you want to hire a financial advisor, I’d say you've already done 50 per cent of the hard work.
Investors often go through their fair share of bad experiences with opportunistic agents, pushy bank relationship managers and overwhelming do-it-yourself articles and guides before realising that they’ve had enough.
Or they reach a point in their lives where they realise they have a certain number of earning years left and still quite a few financial goals to be met -- ergo, it’s time to get some serious advice.
We all need an expert whose advice you can trust, who will not start pushing products at you and rather help you understand why your wealth is not growing as it should.
So when you say you are looking for a financial advisor, you are actually saying that you are looking for a financial advisor who meets the following criteria:
S/he must be qualified
A financial advisor who has been licensed by SEBI as a Registered Investment advisor (RIA) and is expected to have professional qualifications in financial planning, capital markets, economics or other related areas, apart from basic graduation.
This is to ensure that they can do more than basic risk profiling for you, take a 360-degree assessment of your financial health, and build portfolios that include more than one product.
Certified Financial Planner (CFPCM), Certified Financial Analyst (CFA) or a National Institute of Securities Markets (NISM) certification are some of the qualifications that you can expect a qualified advisor to have.
S/he must be transparent and unbiased
This is perhaps the crux of your search. You are tired of 'salespeople' who are actually distributors of financial products doubling up as your advisors.
You want someone who will be on your side when choosing investment options.
Fee-only advisors like RIAs earn only from the fees you pay them and, like any other fee-based professional, are directly accountable to you.
They operate under a strict code of conduct as defined by SEBI: they can only offer advice that is in the investors’ best interests and have to disclose any conflict of interest while doing so.
Like I said, you're already 50 per cent there.
The remaining 50%, now that you know what kind of advisor you are looking for, consists of searching online for RIAs in your city, comparing profiles, services, fee models and client references.
Once you have agreed on the above, here are some capabilities that should help you narrow down your search:
1. Multi-asset advisory
No one financial product can meet all of your financial planning needs.
Ask any of your elders whose portfolios comprised largely of insurance products.
Every product brings a certain risk-return profile, and your advisor must be an expert across asset classes and products like equities, bonds/fixed income, mutual funds, ETFs, insurance, etc, to ensure that your portfolio has the right mix of products for both risk management and wealth accumulation.
2. Goal-based planning
The ultimate objective of financial advice should be to help you meet specific, future financial needs.
With this approach, it gives you a framework to stay the course and ignore the short term markets noise, thus ensuring that you can achieve the financial goals.
It also helps to instill discipline to not just chase returns without due consideration to the associated risks.
3. Regular portfolio reviews
The phrase long-term investing is often misunderstood. There is no fill it-shut it-forget it solution when it comes to investments.
Every portfolio, however solid, needs to be reviewed periodically to see whether it is on track to meet the desired goal, and whether individual investments within the portfolio are still working.
You need the advisor to do this regularly, and to guide you on the right action without focusing on whether it means newer investments for them.
4. Active portfolio management
This is an extension of an advisor's portfolio review services.
Based on market movements, advisors need to actively monitor portfolios to ensure that the portfolio risks have not risen beyond acceptable levels.
If needed, the advisor should have the infrastructure and capability to execute changes at the earliest to bring the risk levels back to the target asset allocation.
Be it exiting an investment completely, switching from one fund to another, changing under-performing fund managers or even from one asset type to another, your advisor should ideally be able to execute the strategy quickly in a seamless manner.
Happy investing!
Erik Hon is managing director, iFAST Financial India Pvt Lt, a digital multi-asset advisory platform for investment advisors.
