The Hindu Business Line : Where's the right financial advisor?

AT the end of the day, mutual funds are bought like products, to be used by people as vehicles for savings and investments. Funds houses, just like others who wish to encourage the habit of savings, must underscore its importance in the most appropriate manner, preferably with the help of financial planners.

For the individual investor, finding the right sort of financial advisor may well be critical. The Indian market does not have too many planners who charge fees for their services; many of those who pass off as experts are actually product sellers in disguise. Also, plenty of advisors are tuned to servicing only the well-heeled, people who really do not mind paying. A few advisors are keen on developing the mass market - the market that is made up of ordinary investors, the ones who are probably the most finicky in nature.

For all the changes this country has seen, it is not quite easy to find genuine advisors. But it is fairly easy to come across a member of a growing class of intermediaries. Many small investors most certainly land up at the door of distributors who are simply keen on netting commissions.

For the man on the street, the scenario is not a happy one - especially when you consider his pressing needs and the compulsions under which he has to allocate his hard-earned money.

Is there an alternative? Do investors want only fee-charging consultants? Or, do they want such consultants to also sell them products (by way a completely different service)? Clearly, each individual investor will have his own answers. However, there may be some merit in working out well-defined fee structures, to be backed by adequate disclosures on the part of the planner/distributor concerned.

A client may even be willing to enter into such special arrangements as paying a certain portion of appreciation in his portfolio at the end of each year. For the advisor, this may make great sense; after all, his earnings too will improve if a client's portfolio scales up in terms of value.

In India, we are yet to have financial planners/advisors who charge by the hour. In certain other markets, there are some who assist clients on the basis of hourly fees. You have to `buy', say, two hours of a planner's time in order to get tailor-made assistance. You may wish to get the best opinion on a lot of things - whether your asset allocation strategy needs fine-tuning, whether you are saving enough for your child's college education, whether you need more insurance.

With increase in professionalism, such systems of compensating planners are bound to materialise here as well. Also, additional compensation may be required depending on the nature of assistance provided, the intricacies involved and the kind of handholding that the clients require.

Remember, we are discussing the needs of individual clients here - not of corporates or other institutional investors, not even of affluent folks that run their own family offices for managing large pools of wealth. The latter is mainly the targets of private wealth management groups, the kind that provides tax advisory, real estate planning, estate planning and the like.

Investors always find it tough to take a long-term view, either because they have not historically experienced the benefits or because they find it tough to differentiate a correction from a cyclical change.

Pankaj Razdan, MD, Prudential ICICI

Feedback may be sent to nilanjan@thehindu.co.in

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