How to choose the right adviser

Given the plethora of financial pundits, picking the best person for the job is quite a challenge. We highlight parameters that could make your task easier.

Priya Kapoor & Kamya Jaiswal | Print Edition: August 6, 2009

It’s a problem of plenty. We all know that Indians love to give advice, so it follows that there will be enough and more pundits keen to help you make sense of your finances. Some offer advice on specific investment assets, others take a broad view of your financial matter and assess every aspect of your financial life.

Then there are the fancy tags like investment adviser, wealth manager, income-tax consultant, or the now ubiquitous financial planner. Given this sheer range of choice, how does one decide who is best geared to serve your needs and take care of your money? After all, we are not talking about a seasonal fad here. Your financial adviser should, ideally, stick with you for the long haul. Here’s a checklist of parameters that can help you zero in on the best person for the job.

Experience: You’d think this one was a no-brainer but a surprising number of people just rely on word of mouth, entrusting their money to whoever handles their neighbour’s. Carefully perusing any financial adviser’s work experience is crucial for multiple reasons. It might be far cheaper, but also more dangerous, to avail of the services of a fresher because there are chances that he’ll job hop or opt for a career change, leaving you high and dry and scrambling for a new genie.

Take an insurance agent, for instance. Since insurance is a longterm product, you will require your agent’s services on a continuous basis. Also, if he is a full-time employee, he would take his profession and services more seriously. He would be there when you need him for things like renewal of the policy or a change in your address. “Typically, one should seek advice from a person who has at least three years’ experience,” says Rahul Aggarwal, CEO, Optima Insurance Brokers.

The Cost Of Counsel
Financial advice is perceived to be very expensive but an analysis of the total fees demanded by financial planners in the metros suggests differently.
CityAnnual charges (Rs)* 
KolkataUp to 20,000The revenue model of most planners is a combination of fee and commission.
Delhi12,500-30,000There are different types of plans depending on the portfolio size and the nature of services.
Mumbai5,000-30,000A remarkable variation in the costs of advice, possibly because the city has many advisers.
Chennai2,000-20,000Advice is cheapest here because the fee for formulating a strategy is low while commissions remain same.
*Cost of advice for a portfolio size of Rs 5-10 lakh. The cost is the average of the charges of financial planners

If you need an adviser who can give holistic advice, scout for one who has been through at least one market cycle, typically lasting 4-5 years. Says Vishal Dhawan, a Delhibased financial adviser, “During this period, a financial adviser has seen ups and downs which the client can take advantage of.” Taking advice from someone with less experience could wreak havoc on your financial goals and cause monetary loss. For instance, a greenhorn may put around 80% of your money in equities at one go, just because you hinted that you are okay with risk.

Fee model: What is the point of hiring an adviser if his fee leaves you with a much smaller investible corpus? Typically, advisers work on three types of fee models—a feeonly model, a commission-based model and a combination of the two.

Under the first, you only shell out for the advice rendered. The second model works on a commission basis, so you don’t have to pay any fees. The adviser makes money through the commission received on the products recommended and sold to you. The fee plus commission model combines the two. For instance, if an adviser charges Rs 20,000, you are required to pay just Rs 10,000 as fees. He earns the rest by way of the commission from the products sold to you. Some advisers also have an hour-based plan for specific services.

When choosing an adviser, try and pick one who offers a fee-only model. That’s because you can be sure of receiving unbiased advice that is not coloured by the commission the adviser earns from selling products that might not suit you.

The fees charged will vary depending on the services you require and the work experience of the adviser. “If an individual has accumulated a lot of products in his portfolio over time, all of them need to be checked. That requires lot of time and effort and, hence, more fees. On the other hand, an individual who is just starting out has much less in his portfolio and it is, therefore, easier to handle and rejig his portfolio with the right products,” says Veer Sardesai, a Punebased financial adviser.

What They Are Meant To Do
Different financial advisers offer different services. It’s not only important to approach the right category but also to check their credentials.
CategoryQualification RequiredExpertise
Chartered accountantCertification from Institute of Chartered Accountants of IndiaTax planning to reduce client’s tax burden, filing tax returns and auditing account books.
Financial plannerCertification from the
Financial Planning
Standards Boards, India
Advice on insurance, risk
management, taxation and
retirement planning.
Insurance agent100 hours of insurance
training and a licence
from IRDA*
Selling and advising life and
non-life insurance products of
a single insurer.
Insurance brokerA licence from IRDA* of
insurance broking
Selling insurance products of
various companies keeping the
consumer’s interest in mind.
Relationship managerMBA or post graduation
in the finance stream
Managing portfolios of clients
and selling the bank’s
Real estate agentBasic education and a good knowledge of the property marketIdentifying properties and doing all the related paperwork on behalf of the client.
Mutual fund agentAMFI certificationAdvising on and selling funds of various mutual funds.
This is an illustrative list. *Subject to successful clearing of an exam by the National Insurance Academy

Adds Vikas Vasal, tax partner, KPMG, “The fee also depends on the kind of assignment you are giving to the adviser, and his work experience. If there are large stakes involved, then you need the help of a large advisory institution. But if your issues are not complex and are as simple as filing your return, a tax preparer can do that for a nominal fee.”

Also, advisers with more experience tend to command a premium. “Our annual financial planning fee for individuals in the Rs 10 lakh category is Rs 25,000. For a basic financial plan, however, we charge Rs 5,000,” says Sardesai. If this sounds like a lot, and you simply want guidance on which direction to head, consider paying a planner who charges by the hour.

Ethics: A good financial adviser should have integrity and ethics. Transparency is the key. You should be able to ask him to disclose the commission on various products recommended by him. If he is transparent, he will disclose the money he is making on it and the rationale behind recommending a particular product. Otherwise, you might end up with duds in your portfolio.

Rakesh Ahulya, a Mumbaibased public relations manager, found that his insurance agent underinsured him by selling him high-commission but low cover plans. Luckily for him, he did some reading and also approached a planner, who suggested ways in which he could get adequate insurance. “I was underinsured to a large extent. While my financial adviser explained the rationale behind a particular investment and let me decide, my earlier agent was interested only in earning commission,” says Ahulya.

Reputation and references: Before signing on with an adviser, check his reputation in the market. The simplest way is to ask him for references from some clients. “Speak to at least 3-4 people and get their feedback before entrusting the adviser with your portfolio,” says Dhawan. It’s best to talk to clients and find out how far they have reached in meeting their short-term or long-term goals by following the road-map prescribed by their adviser. It will tell you about the adviser’s effectiveness in achieving results. If the adviser is affiliated to an institution, make sure that it is not involved in any scandal. Also insist upon a non-disclosure agreement from the adviser.

Stability: Experts recommend choosing an adviser who runs his own practice, instead of one employed by a bank or brokerage. Assume you opt for the latter and develop a rapport with him; the adviser, on his part, understands your needs and works towards them. If he leaves the institution, chances are you will have to start from scratch with a new person. That’s what happened to Ankit Aggarwal, who opened an account with a brokerage house. He was happy with the relationship executive he was dealing with. Problems cropped up when the executive left and Aggarwal was assigned a new one, who was not as understanding. “It was the time when the markets started tanking and I wanted to buy some stocks. But the new person didn’t offer any advice. So I approached my previous broker for some tips,” says Aggarwal.

Research and support services: The right advice is backed by the right research. It’s important for a prospective client to understand the adviser’s research capabilities. Failure to do so would result in wrong product selection for meeting one’s financial goals. A financial adviser should take into account quantitative as well as qualitative research. For instance, in recommending a mutual fund to a client who wants high returns, an adviser should also examine the stocks the fund manager is concentrating on in his portfolio. An adviser’s work doesn’t end with doling out advice. His work is to guide a client through his entire financial plan. For this, it’s important to be accessible and let the client reach him easily.

Flexibility: Your investment philosophy may differ from your adviser’s, but he should be patient enough to listen and accommodate some of your preferences. “An adviser shouldn’t be too rigid in his approach,” says Jaideep Lunial, director, Wealth Gyan Financial Planners. For instance, if you want to buy a house in two years time and also want to take 100% exposure to equities in a shaky market, the adviser may not agree with you as it clashes with your goal. If, however, the goal is distant, he might go with your choice considering your overall risk-appetite and other criteria. “If we think the client’s choice is harmful for his own goals, we will refrain from giving unethical advice,” says Zankhana Shah, a Mumbai-based financial planner.

Rakesh Ahulya

Rakesh Ahulya, 35 (PR manager with an IT service firm)

Why he picked an adviser over an agent: “The new adviser explained the rationale of all investments and let me compare the products myself, unlike my previous insurance agent.”

What went wrong with the earlier adviser: He wanted an investment adviser for his insurance portfolio after he realised that he was underinsured despite having three life plans.

Samir Bhatia

Samir Bhatia, 48 (Mumbai-based entrepreneur)

What he seeks in an adviser: “I am looking for trustworthiness, competence, track record, unbiased opinion and a justified performance-linked cost of service.”

How he’s going about getting the right advice: He spoke to fund managers and other members of the investment and research teams of some mutual funds before investing in their schemes.

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