Hiring an Adviser? Here are 4 Capabilities They MUST Have…

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By Licensed Adviser


If you’ve decided that you want to hire a financial adviser, I’d say you’ve already done 50% 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. They are now ready to look for an expert whose advice they can trust, who will not start pushing products at them instead of helping them understand why their wealth is not growing as it should.

So, when you say you are looking for a financial adviser, you are actually saying that you are looking for a financial adviser who is:

Qualified: A financial adviser who has been licensed by SEBI as a Registered Investment Adviser (RIA), 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 an NISM certification are some of the qualifications that you can expect a qualified adviser to have.

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 advisers, and want someone who will be on your side when choosing investment options. Fee-only advisers 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. (The complete SEBI regulation and its standards for RIAs can be found here.)

Like I said, you’re already 50% there.

The remaining 50%, now that you know what kind of adviser you are looking for, consists of searching online for RIAs in your city, comparing profiles, services, fee models and client references. Here is a list of 4 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 adviser 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 adviser 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 adviser’s portfolio review services. Based on market movements, advisers need to actively monitor portfolios to ensure that the portfolio risks have not risen beyond acceptable levels. If needed, the adviser 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 underperforming fund managers or even from one asset type to another, your adviser should ideally be able to execute the strategy quickly in a seamless manner.

Happy investing!

Source: Previously published on Rediff.com in June, 2019

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