The relationship between a financial advisor and a client is not a one and done process, as I’ve discovered through numerous interactions with my clients. If you’re going to trust someone with charting out and steering your financial growth, it will require consistent communication and mutual understanding. When choosing an advisor, it’s important to ask the right questions and watch out for red flags. Here are the factors you should consider before you start consulting an advisor.
Verify their qualifications
To start with, you must confirm that the advisor has the qualifications to provide financial advice. It’s necessary for them to be qualified in line with the guidelines outlined by the Securities and Exchange Board of India (SEBI).
Find out how often they will be available
Get clarity on how frequently the advisor will talk to you, if they will be available for immediate guidance during emergencies, and how these consulting sessions will be conducted. Will they happen in person, on call or online? Also, factor in time to regularly review your portfolio and goals. Having this conversation helps you understand if and how the advisor will communicate with you in good and bad times. For instance, if there is a major market crash, will they be available to address your most urgent concerns?
Know the payment framework
As per SEBI regulations, a financial advisor can either have a fee-based or commission-based revenue model. They cannot have both. You need to understand which category your financial advisor falls under. If the financial advisor is charging you in both ways, then they are violating SEBI’s norms, and you end up paying more than what you should.
Define the scope of services
It’s imperative to outline whether your financial advisor will only suggest products for insurance and investments, or also provide solutions for holistic financial planning. Ideally, the advisor should understand your overall financial situation, goals, priorities and then help design a strategy. Their scope of services should comprise goal planning, cash flow management, estate planning, tax planning and insurance advisory, apart from suggesting where to invest.
Check if they will offer advice on products outside this scope
Many investments like Public Provident Fund, Employees’ Provident Fund, National Pension Scheme, etc., do not earn an advisor any commission. If the advisor charges you a fee, it might include advice on these products. However, if the advisor earns commissions through products you invest in, you should ask if they will offer advice on these non-revenue generating products.
Understand how you will track your investments
The financial advisor might have a portal or app where you can view and track all your investments in one place. If not, you should find out if you would need to depend on different entities to monitor the status of your investments. It is always better to have visibility of all your investments on a single platform.
Get an idea of their client base
A financial advisor will have clients across diverse age groups and backgrounds, and locations, who have different financial goals and situations. You should enquire if they have experience in managing the finances of clients whose requirements are similar to yours, instead of relying on trial and error.
Ask what kind of returns you can expect
Investment products have fixed or variable returns. For fixed interest-bearing investments like fixed deposits, bonds, etc., you know what returns to expect. However, investments like equity or real estate do not have guaranteed returns. If you ask your advisor this question and they promise you a big number, that should be a red flag.
An advisor–client relationship is a journey you take together, and while you will keep discovering more about each other along the way, asking these questions at the outset helps you identify if an advisor is right for you, and sets the tone for a fulfilling and productive path towards financial well-being.
Priyanka Ketkar is part of the 1 Finance Advisory Committee of Qualified Financial Advisors — Mumbai Chapter.