How to Choose a Financial Advisor in India

A survey by 1 Finance found that 47% of respondents believed that regular financial planning sessions would be beneficial for their future. This shows that people are starting to understand the importance of financial planning—but many still don’t know where to start.

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For years, financial planning in India has been misunderstood. People often turn to relationship managers (RMs), bank executives, insurance agents, Mutual fund distributors, or even Chartered Accountants (CAs) for advice, assuming they are financial planners.

But the reality is, most of them are focused on selling financial products rather than offering genuine, unbiased financial advice. Most of them are not even educated about the products they are selling.

For instance, 1 Finance Magazine survey tested Bank RMs’ financial knowledge. The results were obnoxious:

• 85.29% didn’t know the difference between direct and regular mutual funds.
• 75.49% preferred ULIPs over direct mutual funds, ignoring costs and returns.
• 98.04% couldn’t differentiate between nominal and real returns.
• 75.00% were unaware of ELSS tax benefits.

If RMs lack basic financial knowledge, can they really offer the right advice?

Most people never get real financial advice.

Worse, they aren’t just misled. They are mis-sold.

A study by 1 Finance Magazine found that 57.56% of Bank RMS agreed that they have mis-sold a financial product at some point.

In such cases, where it is often cited that only 27% of Indian adults are  financially literate, and are also exposed to rampant mis-selling of financial products, where does the average Indian turn for financial advice? How does one identify qualified financial guidance from sales-driven recommendations?

In this blog, we will explore these questions and shed light on how individuals can make informed financial decisions in a landscape filled with misinformation.

First, What is a Personal Finance Advisory?

Personal finance advisory is a professional service that helps individuals manage their finances effectively. It includes all aspects of personal finance.

Who is a Financial Advisor?

A financial advisor is a certified professional who helps individuals manage their finances.
They typically hold credentials like:

• Certified Financial Planner (CFP)
• Chartered Financial Analyst (CFA)
• SEBI Registered Investment Advisor (RIA) [India-specific]
• Fee-Only Financial Planner

Unlike product-selling agents, a true financial advisor works in the client’s best interest rather than earning commissions on product sales.

IN Fact: SEBI has clearly stated this for their advisors that all Registered Investment Advisors (RIAs) must provide conflict-free, fee-only advice to protect investors.

“An IA is also required to disclose to the client any actual or potential conflicts of interest arising from any connection to or association with any issuer of products/ securities, including any material information or facts that might compromise its objectivity or independence in the carrying on of investment advisory services.”

What is the Role of a Financial Advisor?

A financial advisor’s role varies based on a client’s needs, but generally includes:

• Understanding Your Financial Situation
• Building a Customised Plan
• Ongoing Monitoring & Adjustments

How to Choose a Financial Advisor in India?

Check their Credentials and Qualifications:

• Certified Financial Planner (CFP) – Covers investments, taxation, retirement, and estate planning, ensuring a holistic understanding of financial management.
• Chartered Financial Analyst (CFA) – Focuses on investment strategies, risk assessment, and portfolio management.
• SEBI-Registered Investment Advisor (RIA) – Legally obligated to act in the client’s best interest in India.

Assess an Advisor’s Biases and Potential Conflicts of Interest

• Do they push products from a specific financial institution or only suggest investments from their affiliated firms?
• Are they transparent about commissions, trail fees, or incentives they receive for recommending certain products?
• Do they recommend regular (commission-based) mutual funds over direct mutual funds?
• Do they prioritize low-cost index funds or high-fee actively managed mutual funds?

Understand the Fee Structure of Financial Advisor

• Fixed Fee: You pay a set amount upfront or annually for the advisor’s services. This keeps costs clear and reduces conflicts of interest.
• Percentage of Assets Under Management (AUM): The advisor charges a fee based on a percentage of your investment value. This means they benefit when your portfolio grows, which can encourage them to actively manage your investments.
• Commission-Based: The advisor earns money when they sell you financial products. This could lead them to recommend products with higher commissions, which might increase your costs, so it’s important to be cautious.

Recommendation

• Only work with SEBI-registered investment advisor as they are obliged to work in client’s best interest.
• Opting for a fee-only planner is likely to yield more transparent, unbiased, and effective financial guidance.

Differentiating Financial Advisors from Other Professionals

Key Takeaways

• Personal Finance Advisors (RIAs) offer the most unbiased and holistic financial planning.
• Mutual fund brokers and insurance agents earn commissions, which may lead to biased recommendations.
• Bank RMs often have sales targets, meaning their recommendations may not always prioritise your financial well-being.

Final Thoughts

Choosing a financial advisor is a long-term decision that impacts your financial future. 

Financial Planning Standards Board (FPSB) found that 4 in 5 (83%) clients who work with financial advisor feel financially secure, compared to 74% of unadvised consumers.

A great financial advisor doesn’t talk about investments—they align your finances with your life goals.