Two years ago, Vineet Singh (name changed), who is working with an MNC and residing in Pune, hired a financial advisor to prepare a plan for achieving his family goals. Singh said, “In the first year of hiring a financial advisor things were going smooth. But, in the second year, I started having doubts whether I have hired the right advisor for the job. Because he was just trying to sell some or the other investment products in each meetings.”
He didn’t do any background check nor took any feedback from existing clients of that financial advisor. There are several people around making similar mistake of handing over their hard-earned savings to a financial advisor without doing any background check.
In India, it is common for agents, financial distributors and bank relationship managers to double up as financial advisors.
Amar Pandit, CFA, Founder & Chief Happyness Officer at HappynessFactory.in said: “Such people generously use the term financial planning/wealth management as and when it pleases them. Engaging with the wrong advisor can do more harm than good and at the collective level, it destroys faith in the system.”
Here are a few warning signs that your financial advisor is not the right person and it’s time to tell them, “You’re Fired:
1. Your advisor is not credible
Is your financial advisor SEBI-Registered Investment Adviser (RIA) or just a sales person pushing insurance / investment products? In case, he / she is just selling investment products and earning income from commission / distribution of this products. Then you need to evaluate his advices and services given till now. This could be one of the warning signs to fire him / her.
Shilpa Wagh, Chief Financial Coach, Wagh Financials said, “Generally, this SEBI-RIAs are licensed by SEBI to advice clients based on fee. They are not allowed to sell any investment products and hence can be unbiased in giving advice. Their advice is more client centric than product centric.”
2. There’s mismatch between your risk tolerance and advisor’s investment recommendations
Dinesh Rohira, Founder and CEO, 5nance.com said, “The preference of risk tolerance will differ among different investors, and there is no universal for all. At times, in lieu for a hefty commission from specific product, your advisor may recommend you investment product which may not be suitable for you in terms of your risk tolerance or even for your goal.” In this case there is clearly a conflict of interest, and it will be advisable to replace your advisor.
3. Your advisor refuses quarterly financial counselling / reviews
Financial planning process requires regular financial counselling / reviews. It’s recommended to have at least one review meeting in a quarter. But, there are advisors who skip this review meetings with existing clients and focuses only on acquiring new clients.
Financial planner Bhakti Rasal said, “As the financial advisor’s first role is to make financial life simple for the client. He has to address behavioural bias in this review meetings. Client should evaluate advisors performance not by following investment returns but they should make an assessment at the time of reviewing plan.”
4. Differences in opinion
Gurleen Kaur, CEO at financial advisory firm Hareepatti added, “If you feel, there is a difference in opinion for you and your financial advisor and if you are not convinced with his thought process with regards to your personal finance , it’s time that you move on to someone who may be able to restate what you think and feel.” If the financial advisor can’t think by stepping into your shoes, by keeping himself at your place, he should be replaced.
5. Hiding facts while advising
There are advisors who prefers to hide facts while reviewing the investments and while recommending investment products. They are cheating with you since it’s your right to know why to invest in particular recommended schemes as well as poor performance of any invested schemes.
Wagh said, “A good financial advisor would educate the investor of all pros and cons of potential investment from risk and reward perspective. He will give investors a rationale with facts and figures as how the investment goes well as per risk profile and investment time horizon.”
6. Your advisor doesn’t give periodical update on major events
A timely communication between you and your financial advisor is key to understand the dynamic of financial planning. Rohira said, “Your advisor should be available, responsive and proactive and develop a personal relationship over a period of time. He should contact regularly especially during important investment related events or even to explain basic financial terminology which you don’t understand.”
7. Trust is compromised
Kaur said, “Trust is the most important aspect for any relationship and it is more vital in this relationship as it involves money. There is no room for any ambiguity. The money matters are confidential and should remain within the boundaries of the room where meeting is taking place.” At any point of time if you feel trust is being compromised it’s better to discuss with your advisor and decide to move on.
Lastly, all financial advisor should give details of fee structure and how they manage their relationships with clients, etc. In nutshell financial advisor should be transparent, reliable and efficient.\