How to choose a good financial advisor
The pandemic has suddenly heightened people’s interest in investing – a great trend – especially in India, where participation in capital markets has been low. Additionally, as more and more investors seek to build wealth, the demand for investment advisory services has increased dramatically.
Many do-it-yourself investors have entered the market; however, self-directed investing is suitable for people who can put in the time and effort. Most people don’t have the time and are probably looking for a great financial advisor. What should they keep in mind before choosing one? Let’s find out
A good financial advisor is not a salesman
A salesperson sells mutual funds, fixed deposits, insurance, and other financial products.
On the other hand, an advisor is someone who thoroughly analyzes the family, their needs, goals and risk appetite and presents investment opportunities accordingly. A good advisor suggests products that are right for you (not for them). In the world of finance, where there are hundreds of mutual funds, stocks, and more, there are countless opportunities for advisors to make a quick buck. A good advisor carefully selects products that maximize the client’s wealth and risk-taking capabilities. Always look for advisors who sell the mutual funds or other products that earn them the most commissions.
A good counselor manages behavior and temperament well
Wealth creation is more about temperament than the product you buy or sell. Some of the most successful investors attribute their success to their good temperament.
A good advisor will reassure investors about their long-term outlook and help clients avoid making bad choices, such as 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 to you when needed
Please stay away from advisors who promise annual returns of 25/30% or more on their investments.
A good advisor promises practical returns and delivers them according to the investor’s risk appetite. For example, for a conservative investor it may be 8-10%, while for an aggressive investor it may be 14-16%. Make sure the advisor tailors the proposal to your ability to take risks. Also, make sure the advisor is available to you when needed.
A good advisor focuses on your life goals, not investment returns. It would focus less on returns, which are mostly market driven, and more on life goals like retirement, raising kids, home and the like.
Another important point is that a good advisor is someone who charges an adequate commission or fee. An adviser who is not well paid will not give good advice. The advisor will also offset the fees by selling products that may not be suitable for the client.
Investors who pay their advisers well are risking their savings on poor investment services.
A good adviser is someone who takes action for the long term. An advisor who advises you to make short-term bets and always seeks to take advantage of market volatility is, in most cases, bad for you. Advisors who take long-term action are, on average, much better advisors.
A good advisor offers advice beyond investments
He will help you with insurance, taxes, estate and will planning. Look for advisors who are knowledgeable about things beyond investing.
In conclusion, the list above is a great starting point for investors looking for help navigating the world of financial investments.