Choosing a Financial Advisor – a critical decision

To understand this better, let us start by analyzing what are the objectives you want to achieve through your Financial Plan. To list them down, in order of priority -

a. Liquidity management

b. Risk management

c. Investment management to beat inflation & generate real returns

d. Tax Planning

In short, wealth creation for a lifetime and beyond (to leave behind an estate for inheritance or philanthropy)!

I come across many individuals and families who save a significant amount of their annual earnings (foregoing the pleasures of the present in order to secure their futures) have bought themselves Life Insurance policies which will damage their future like a 'slow-poison'.

Your advisor's qualifications & experience are important. But, more important is his advisory style. Check if he tries to explain & educate or is busy closing the deal with a sales-pitch that would leave you tongue-tied and afraid to ask questions. If you find an advisor who is e.g. a "Star Insurance Agent" you need to ask him about his strategy for beating inflation. They are likely to start fibbing, for sure!

While many advisors may still fit this mold - LIC or insurance for everything: marriage to death! "Zindagi ke saath and Zindagi ke baad". Some are evolving their practice into a more comprehensive approach. They look at not just insurance, but also investments, budgeting, taxes, retirement, education funding and estate planning.

A sensible advisor will not ask you to get into straight-jacketed solutions - long term products without flexible options for an easy & early termination. These may be considered only if they offer you asssured returns which beat the long term trend line inflation rate. Will you want to invest in a 20 year bond which offers 9% RoI (taxable)? This is not recommended because the post-tax return will surely be less than the rate of inflation. In short they will be "long term value-destructive".

If you'd rather not have someone who struggles to manage his or her own finances, manage your money (or even better someone who is extremely focused on his own financial planning and does not focus on your financial plan!) - Then, you had better do your advisor homework!

Be cautious with wealth managers affiliated to your bank or stockbroker. They are "glorified salesmen" pumped up by terrific incentive structures. They dump you with ULIPs, MFs and proprietary PMS schemes. They manage to get their targets like sharp-eyed eagles. They are continuously 'preying on the next kill' by browsing through your bank and de-mat accounts, sniffing for the smallest opportunity.

You will be better off to keep a check on - whether your advisor follows any benchmarks in measuring portfolio returns? How does he profile client's risk tolerance and allocates assets? Whether the recommendations are 'one-track' - only SIP recommendations or only MFs? Does he analyze your real estate portfolio (investments)? In short, does he have the band-width to put together a comprehensive and cogent analysis of your entire balance sheet (though it is not practical for an individual to have expertise in diverse areas) with the help of a team of experts?

If your advisor is a 'one man show' you can help him get closer to his goals of becoming a 'Star Agent' by being a proposer - you pay the premium, for a life insurance policy with the advisor as the life assured and you as the nominee! Are we not supposed to address the risk of what happens to you if something were to happen to him?

If you want someone to look at your entire financial situation, seek the help of a comprehensive financial planning firm. They will have on their panel an insurance agent, tax professional, estate planner and investment advisor.

Understand all that is on offer and what you are paying for?

* Will it track your investment on a total cost basis for you?

* Can it file your tax return and help you with other tax related questions?

* Does it look at risk management? (i.e. life insurance, long term care etc...)

* Can it help you plan your estate?

* Will it refer you to another professional if the firm cannot provide the service itself?

If the advisor works with a narrow focus of achieving short-term business targets, avoid them like the plague. Visit their office and you will have a clue about the same!

Once you zero-in on a financial advisor that you trust, you'll need to agree on how your advisor will be paid. Will it be a fee-only model, or commissions-only or fee-cum-commssions?

Good financial advisors are akin to 'life coaches'. They will help you tackle the many challenges and complex financial decisions throughout your life. Great financial advisors will help you make money on your investments and also save you money on your insurance premiums. They will help you reach your goals and positively impact major decisions throughout your lifetime.

To get the best results - meet your Financial Advisor regularly. set up meetings with specific agendas to update on the latest developments on the personal finances front, your concerns & goals. allow your advisor to review all of your financial and legal documents. After all, it's all about - his competence & reliability and your trust!

We invite your comments - constructive criticism, sharing of personal experiences, bouquets & brickbats...all of this. Also, if you find this post (or, any of our other posts) informative or helpful, please forward this to people in your network...without this, our efforts will be in-effective in making this platform, informative and interactive towards helping the layman achieve Financial Freedom.

Also participate in the poll - "Does a Financial Planner have an edge over your MF agent or Insurance agent or CA in helping you achieve your financial goals?" click on http://polls.linkedin.com/p/52394/mwkgw