‘Do YOU need a financial advisor ?’
If it’s ever occurred to you how complex and vital ‘getting it right’ is when it comes to saving, investing, maximizing the value of your wealth and planning for a safe, comfortable retirement, you’ve probably asked yourself that question.Similarly, if you’ve felt the pressure of deciding on a big investment, such as a home or education – or felt overwhelmed with the financial details after a wedding, and the birth of a child, divorce, death of a spouse or major illness –you’ve probably wondered about finding someone to advise you. But according to at least one survey, over a third of Indians don’t have a good understanding of what a financial advisor actually does. That figure balloons to
57% for Millennials.
So what kind of services do financial advisors provide? Broadly, they can help you manage your financial life using a variety of strategies and products to both manage your wealth and improve your financial habits. That’s the short, easy answer; you’ll have to read on for more detail.
Not all financial advisors are the same: Some specialize in certain practice areas, types of clients, strategies and products. Some work with clients all over the country; others just focus on clients their own town. Some can help you with your taxes or estate planning; others will simply focus on retirement planning. Some focus on younger client; some just on retirees. Some even focus only on widows. As you can see, there’s probably an advisor out there who fits your needs perfectly.
You may need an advisor for many reasons. For example, perhaps you just received a considerable sum of money from a relative who died. Perhaps you just had a baby and want to ensure his or her future in case the worst happened. Perhaps your company is offering a too-good-to-resist early-retirement package, and you want to make sure the money lasts. Any of these events (and many others) could naturally trigger the desire for some professional help in managing your financial affairs.
Choosing a Financial Advisor You Can Trust
Although most of the big retail brokerages offer financial planning services, be cautious with their personnel. While many are highly trained and can be trusted, others may just be glorified stockbrokers hired by large wire houses to
sell proprietary mutual funds and stocks. They are incentivized, sometimes even required, to push these products, which are owned by their firm – and for which they receive top commissions. And with some wire houses, it’s all about quantity, not quality: The more buying and selling that a broker does in an investor’s account, the higher his commission payouts. If you’re looking for someone who will make you feel secure, it may be wise to
hire a Registered Investment Advisor (RIA) or Investment Advisor Representative (IAR). They are held to a higher degree of accountability than most brokers, and you’ll typically find them the most knowledgeable. They are
also required to provide to all potential investors upon request a Form ADV Part II, a uniform submission used by advisors to register with state regulators and the Securities and Exchange Board of India (SEBI). This is your opportunity to learn about your advisor, so make sure you use it.
You can check for any regulatory blemishes on the advisor’s record at SEBI’s web site. One thing to keep in mind, however, is that an isolated complaint or infraction does not necessarily mean that the planner is dishonest or
incompetent. Any charge brought against a broker or planner will go on the person’s record, regardless of whether the planner is in the right. But if the record shows a long-term pattern of violations, customer complaints or charges
of a serious nature, then you should probably find someone else.
Whatever sort of services you need, make sure that advisor is held to fiduciary standards, which charges him or her with the responsibility of acting in the best interests of an investor. In the investment world, RIAs are required to abide by a fiduciary standard; stockbrokers generally just have to abide by the less- rigorous suitability standard. Registered investment advisors are registered with the SEBI; they are regulated under the Investment Advisors Act of 2013. If you can find an independent RIA, you also won’t have to worry about paying high commissions on proprietary products.
Working with a Financial Advisor
It’s also good to ascertain if your situation is typical of the advisor’s client base. For example, if you are a corporate employee looking for help planning for the exercise of your stock options, you should ask the advisor about their
knowledge and experience in dealing with clients like you. A financial advisor who deals primarily with clients at or nearing retirement might not be a good choice for you if you are a 30-year-old professional looking for a financial plan. It’s also important for clients and prospective clients to understand how theirfinancial advisor communicates with clients and the frequency of those communications. How often will you meet to review your portfolio and your
overall situation? Quarterly, semiannually, annually or as needed? Will these meetings be done in person or perhaps over the phone or via a service like Skype? It’s becoming more and more common for clients to work with their
financial advisor remotely.
Additionally, does the advisor typically communicate by phone, email, or perhaps text message? Any or all are fine, and both your preferences and the advisor’s may be based on your age and digital comfort level. A combination of payment methods may also occur. Before you sign on to work with an advisor, you should make sure that the rates, fee structure and commission schedule are clearly laid out (preferably in writing, as RIAs are required to do by law) so there are no surprises later.
The Bottom Line
Good financial advisors are compared to “life coaches” because they can help you with many of your complex financial decisions throughout your life. A financial advisor can offer tips on buying a car, saving for college and
refinancing your home mortgage, just to name a few. They deal with other financial professionals on a daily basis, and they typically know if you’re paying too much for something or not getting a competitive rate. Great financial advisors will not only help you make money on your investments, but will also help you reach your goals and save money on insurance and other major decisions throughout your lifetime. To maximize your experience with your advisor, you should meet with the person regularly, share your concerns and goals, and allow your advisor to review all of your financial and legal documents.
If your advisor only records some transactions from time to time, but never sits down and discusses long-term goals or a financial plan with you, you may want to look for a new advisor. Similarly, if your advisor never writes an investment plan to lay out your goals and assess whether they are being reached, you may be better served elsewhere.
Remember: These folks work for you – not the other way around.