Handling all aspects of finance effectively requires time and expertise. One way to do it is to do-it-yourself (DIY), which is possible with available internet searches but when we talk about our actual hard-earned money, it is too important to take a risk on. Most of us lack both in-depth knowledge of finance and time to invest in creating the most suitable financial portfolio to meet our financial needs.
In such a case, a guide can help in handling your financial needs from budgeting, saving, investing, tax planning to creating a diversified financial portfolio. These guides or expert financial professionals who understand the financial world are known as financial advisors. Their job is to manage your finances and help you plan your finances in alignment with your goals.
Some of the important aspects financial advisors can help in are your immediate and long-term priorities such as:
- Retirement planning
- Marriage or children goals
- House or large corpus for a future investment
- Security corpus building
- Leisure travels or vacations
- Tax savings
- Children education
Before choosing the right advisor for this journey, here are five things that you should consider.
1. Experience
The first thing that you should consider, when choosing a financial advisor, is the experience and professional background of the prospective advisor. Adequate experience in the financial markets and dealing with clients is of the utmost importance. Since you would be handing over your finances to the advisor, she/he must be well-qualified. Ask for references to discuss the way your prospective advisor deals with clients.
Tip: Look for advisors who have worked through multiple cycles of the economy. Reacting to both exuberance and fear is a learning experience that greatly helps an advisor guide clients. Having a formal education degree, diploma, or the latest certifications related to financial planning is an added advantage.
2. Proper Licenses
In some cases, financial advisors are licensed in a particular category of financial instruments allowing them to sell those instruments to you. For example, advisors selling insurance products should be licensed by the Insurance Regulatory and Development Authority of India.
Similarly, if you are looking for advisors to invest in mutual funds, a certification by the Association of Mutual Funds in India is needed. There are Certified Financial Planners (CFPs) or Chartered Accountants (CAs) who are licensed professionals and can help you manage your finances well.
Tip: Check the licenses of prospective financial advisors to ensure that you are dealing with certified experts.
3. Profile of Clients Managed by Your Advisor
Just like you have specialization in medicine, an advisor too specializes on the type of clients who they are best suited for. The best advisors carve a niche for themselves and have solutions customized for their needs.
An advisor specializing in salaried professionals would understand their needs better, have frameworks for guidance, and would understand the cash flows. Similarly, someone who specializes in looking after clients who may have retired would understand the need to have a steady cash flow within their client’s portfolio.
Tip: Check if they are dealing with people you know or are in a similar life cycle as you are. One way to ensure the experience of a financial advisor is referrals or word of mouth recommendations. Check the advisor’s old track record, his/her existing and previous clients, and their experience in working with the advisor.
4. Communication skills
The financial world seems complicated and the use of jargon makes comprehension difficult. A good financial advisor should be a bridge of trust, and for that, their ability to communicate in a language that explains things simply, with specific action and steps required, is important. The advisor should be able to explain your finances to you in a simple manner and also help you get over your preconceived notions in the most unbiased way.
A good advisor should also be patient in understanding the financial pain points that you have so that they can recommend the corrective measures.
Tip: To check the communication skills of a prospective financial advisor, check their objection handling strategies. Objection handling is like an acid-test for advisors. If an advisor can handle your objections effectively, half the battle is won.
5. Professional Fee
There are many aspects to this including the amount of time that you expect the advisor to spend with you. It’s not only at the beginning of a relationship, when everyone is at their best behavior, but more importantly, how they are with you over a long period of time. The fee also varies across advisors depending on their:
● Expertise
● Experience
● Service quality
It’s good to understand the fee structure of the advisor. Most importantly, on how this is aligned to your goals, as your portfolio grows. Every advisor charging a high fee might not be your best bet. Similarly, low-fee charging advisors may not offer you the service quality you may have hoped for.
Tip: Having a clear discussion at the beginning will help you understand the relationship with your advisor better. This will include expectations set from both sides and a written deliverable from the advisor on aspects like the frequency of a detailed review of the portfolio, alerts that will be put in place for your portfolio statements and access, among other things.
Bottom Line
Handling your finances is important, especially since it determines your financial wellness. If you are trusting another individual with your finance, you should ensure that the individual is aligned with your expectations.
Though financial advisors provide you with the much-needed financial expertise in handling your money, they should be selected with care.
