Things to Lookout While Choosing a Financial Advisor

Who doesn't have a desire? You, me and almost every one of us have desires. The desire to build your own home, the desire to spend vacations happily, the desire to live a debt-free life. we can go on and on. To fulfill the desires, it is necessary to manage our budget properly and invest the right amount to achieve the right goal. Financial advisors are the people who support us in making these decisions.

Things to lookout when seeking Financial Advisor

Who is a Financial Advisor?

Financial advisors are people who provide ideas and consultation on how to manage money, how to plan and invest, how to spend. A financial advisor will give you all kinds of ideas right from choosing which investments to focus on to achieve a specific financial goal, advising on tax deductions, planning for investments, planning for retirement.

Each borrower's risk appetite for investing varies according to the situation. Hence, it is important to check whether a financial advisor is recommending us the right investment schemes or is recommending specific investment schemes for their own profit. It is important to periodically check and decide whether our financial advisor is guiding us in the right direction rather than thinking that we have appointed a financial advisor and there are no more problems.

Who is a Certified Financial Advisor?

The course conducted by the National Institute of Securities Management (NISM) has two levels, Level 1 and Level 2. A person who passes these two levels gets the qualification of financial advisor. Those who pass both these stages will be issued a license number. They can put themselves as investment advisors on their websites and visiting cards. These investment advisors are qualified to work with clients for a fee. The SEBI regulation states that if one does not pass the examination conducted by NISM, one can claim to be a financial planner and not to claim to be an investment advisor. So, it is important that you keep this in mind before approaching any financial advisor.

Types of Financial Advisor

There are broadly two types of Financial Advisors. 

  • Fee Only Financial Advisor
  • Commission based Financial Advisors

If your portfolio value spans up to a million, then you can probably choose a Fee only financial advisor as they would charge a flat fee for the advisory service they provide. It is similar to paying a doctor fee.

If your portfolio value is more than few millions and you have different source of income, seeking a commission based Financial Advisor would be an ideal choice. They will charge a flat percentage of the total assets value for which they provide advisory service.

How to find the Right Financial Advisor?

As important as it is for a financial advisor to be knowledgeable about investments, it is equally important that he be trustworthy. Before appointing a financial advisor, we should look at his background, how many years of experience he has and whether he is recommended by a trusted person. It is one way to know these things from those who know him well, but another way is to ask the concerned financial advisor himself. Even talking to some of his clients, we can come to a conclusion about him.

A good financial advisor listens carefully to the clients and gives them solutions accordingly. If he doesn't have extensive knowledge on specific subjects, he will say 'I don't know' or 'I will check them out and let you know' about things he doesn't know. He would recommend consulting with experts in that field on matters outside his area of expertise.

It should be observed whether the financial advisor is recommending the right plan for us or whether he is recommending it with the expectation of future benefits. For example, an advisor may recommend a term insurance plan that offers higher compensation at a lower premium. If someone recommends another insurance plan to leave that insurance plan, we can freely ask the reason behind it.

Unique Solutions for Unique Problems

When it comes to investing, one style doesn't fit for all. The right approach is to invest according to each individual's goals and financial planning. Stock market investing can be intimidating for those who only focus on safe investments. If he doesn't understand this and insists on stock market investing over and over again, he will look for another financial advisor. Therefore, it is better to know the risk that the investor wants to take, to take the risk and what return he will get, and to make him successful.