Who Do You Trust to Give You Financial Advice?

Illustration by Divya Gupta for 1 Finance Magazine

It appears that everyone is talking about personal finance — watching ads during a cricket game makes you think about growing your wealth, using the ? emoji could mean different things for different people, and of course, there is, across the board, a heightened need for an emergency fund in case, god forbid, there was another pandemic around the corner. Money matters — and it’s clear that thinking about finances and planning for the future, whether distant or imminent, is good for us.

When it comes to financial planning, it would be safe to presume that there are two key starting points: being able to lay down your needs and goals, and being informed of your options. While the former is an exercise in self-discovery and some amount of soul searching, the latter is something with which most of us might feel a little out of our depth. Equity, real estate, fixed income, gold, cash and cash equivalents are some asset classes, and in most cases, there are hundreds of financial instruments within their scope. While it’s great to learn that there are so many options at our disposal to help us save our hard-earned money and make it grow, just the sheer number of these options makes it nearly impossible for us to be sure that we’re choosing the right one on our own. But let’s say you do end up learning which one is truly best for your needs, tracking the performance and making sure the chosen asset consistently performs is just not feasible.

When we do look to others for guidance, many of us heavily rely on our close friends and family members — which is understandable, because they would have our best interests in mind. But is it really fair to burden them with the responsibility of knowing everything out there? Some of us also turn to financial planners to fill the shoes of a trusted family member or friend and help us navigate the crowded market. This seems like the right way to go about this — although does the financial advisor to whom you’ve entrusted your wealth really have the right intentions?

While you are free to choose who you wish to take advice from, there are regulations governing financial advice. The Securities and Exchange Board of India (SEBI), the country’s financial services and market regulator, has in place regulations that govern who can act as an investment advisor and what their fiduciary duties are. These advisors are registered with SEBI as Registered Investment Advisors (RIA). Furthermore, the regulations restrict distributors of financial instruments — i.e., those who benefit directly from the sale of a financial instrument — from offering financial advice for the obvious conflict between your respective interests.

It seems only logical then to assess carefully before choosing your advisor. Do they actually have your best interest in mind? Is their advice unbiased? And once that is ascertained, it’s important to inquire how well informed they are of the market, and if they have the means to understand which instruments best suit your requirements, track your investments and share their analysis.

The internet is inundated with tips and tricks on personal finance, but at the end of the day, between all the lists on how to multiply your wealth and diversify your portfolio, if there’s no mention of finding a trusted, unbiased, and experienced financial advisor, you should probably give them a miss.