The Hindu Business Line : Choosing the right advisor

Why do we visit the doctor when we fall ill? Or meet an architect before we construct our house? Because they are specialists in their fields. We can trust their knowledge, benefit from their experience and bank on their reputation.

Unfortunately, not many of us seek professional advice on investments. Of the few who do, only a handful take the pains to choose the right advisor. Selecting the right advisor is critical because it can make a huge difference to your wealth and financial well-being.

Need for Advisors

There was a time not so long ago when life trundled along smoothly. There were a handful of investment options, offering little risk and a small, but mostly secure, reward. No one complained about skyrocketing costs. No one ever imagined that school education — let alone higher education — would become as expensive as it is today. Life was simple indeed.

Things have changed dramatically over the past decade. Investible surplus has grown. So have our needs. Suddenly, our salary is not enough to fulfil all our financial needs. Then, there's a mind-blowing growth in the number of investment options, each vying with the other in complexity.

It is not surprising, therefore, that many investors are now turning to investment advisors. The number of `advisors' too has swollen, making it difficult for the average investor to differentiate between the grain and the chaff.

Individuals vs companies

The market is crowded with many individual players as well as quite a few companies. It is advisable to go for the organised investment advisory companies for the following reasons:

More experts, experience

Investment advisory is serious business. It requires the expertise of several specialists. A good company that invests in its people will be able to offer you the services of various experts, such as financial planners, tax planners, and insurance experts.

Value-added services

A professional company can offer value-added services such as access to a wide range of products, periodic updates, portfolio reviews and door-to-door service. As you can well imagine, it is difficult for an individual to provide these services.

Research capabilities

It is not possible for the average investor (whose livelihood does not depend solely on his investments) to keep track of the market, and emerging investment opportunities.

Large companies, on the other hand, have the resources to hire teams of specialised analysts and researchers, and publish their findings.

Multi-location advantage

In this age of high mobility, it pays to choose an advisory company with offices in major cities across the country.

So even if you shift to a new city you can enjoy the same quality and standard of service.

Under direct control of regulators

Investment advisory companies are monitored by regulatory bodies such as the Securities and Exchange Board of India (SEBI), Association of Mutual Funds in India (AMFI) and Insurance Regulatory and Development Authority (IRDA). This makes dealing with them relatively safer for the average investor.

Selecting the right company

All said and done, selecting the right investment advisory company is a tough task indeed. Yet it is too important to be ignored. Here are a few guidelines that you should consider before making your choice.

Service standards

Look for companies that are truly unbiased and independent. Advisory companies that have asset management companies as stakeholders may be biased towards their products.

Approach to sales

Choose an investment advisory company that offers a holistic approach to investments. There are companies that require their advisors to understand the client's needs through financial planning before recommending solutions.

Transparency

A good investment advisory company will share all relevant information with you.

Such companies depend on good relations with their clients for their survival. Fly-by-night agents, on the other hand, are happy with a one-time sale.

Regular Communication

Regular communication in the form of newsletters, portfolio updates, investment alerts, etc, indicates that the company hasn't forgotten you after you've given it business.

Quality of Manpower

A company that hires qualified and experienced staff certainly scores over those who hire mere sales people. In addition, the company's work culture also matters.

Look for a company whose representatives are ready to explain product benefits in a jargon-free language, and help you decide what is best for you.

Clientele

Talk to the company representative and find out the types of clients the company deals with.

If a description matches your profile, you can rest assured that the company would understand your needs and requirements better.

Credibility

Above all, do cross check to ensure that the company you choose to put your trust in has a clean record.

The company should be established and should have a good reputation in the market.

The final word

Trust is the emotional cord that ties a client to an investment advisory organisation. Do exercise due diligence before you put your trust in a company.

Do ask questions. Seek clarifications. And once you find the right company that suits your needs, give your advisor reasonable time to perform.

Investing is not about chasing high returns. It is about ensuring that all your financial goals are met.

(The author is CEO, Bajaj Capital.)

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