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Go for an investment advisor

B. VENKATESH
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B. VENKATESH
B. VENKATESH

Most of you prefer to take your own investment decisions. And, indeed, you should. So, is there a need for an investment advisor, especially in a world where information is freely available?

In this article, we will show you why you may want to take the help of an investment advisor even if you manage your investments. We also provide a basic checklist that you can use when you seek assistance from your advisor.

Advisor help

Suppose you are an orthopaedist and suffering from a back problem! Will you perform your own diagnosis or will you visit another orthopaedist? You may have an opinion about your back problem but there are two reasons why you will visit another doctor. One, you are busy diagnosing patients and do not have time for yourself.

Going to another orthopaedist will help you recognise the fact that you are also a patient in need of treatment immediately! And two, a fellow orthopaedist may have a different opinion about your back problem. It pays to listen to another point of view, especially if it can help you resolve your problem.

Why should managing your investments be any different? In fact, you should seek a second opinion on your personal investment decisions even if you are an investment professional yourself!

And the reasons are even more compelling if you are not an investment professional. For one, do you really have the time to kick-start the investment process? And for another, are you confident that the investment products you want to buy will help you reach your investment objectives? Besides, do you have an alternative if your investments do not perform as expected?

Now, if you believe that getting a second opinion will improve your chances of achieving your financial goals, the next question is: What should you expect from an investment advisor?

Advisor who?

The following is a basic checklist that you should use when you seek assistance from an advisor:

One, prefer an advisor who maps investment products to your future liabilities, not one who recommends investments that beat the market!

In this context, future liability refers to your future consumption requirement such as buying a house or meeting your monthly expenses, post-retirement. Remember, your objective is to meet your financial goals, not beat the market!

Two, choose an advisor who offers advice on all asset classes — stocks, bonds, real estate and commodities, to say the least. Each asset class has different characteristics. So, ensure that your advisor carefully maps the asset classes to your financial goals.

Three, does the advisor offer fee-based services or commission-based services? Typically, those who offer commission-based services have the incentive to recommend products that earn them higher commission. So, beware.

Four, use an advisor whose investment process is easily understandable and implementable. You do not want dozens of pages of report explaining your investment choices. You need a simple road-map to help you reach your investment objectives. Importantly, the process should require you to spend less time monitoring your investments.

And five, your investment costs should be lower. Clarify with your advisor about her mix of active and passive products. If your advisor recommends active funds or direct investment in stocks, insist on understanding the fund selection or the security selection process.

Second opinion

Many of you want to take responsibility for your investment decisions and, indeed, you should. But seek a second opinion from an investment advisor, if you can.

You should regard an investment advisor as your behavioural investment coach, someone who maps investment products to your financial goals in the context of your behavioural biases. And remember this if nothing else: If you cannot take care of your investments, nobody else will! So, empower yourself with enough knowledge to self-manage investments.


Use an advisor whose investment process is easily understandable and implementable.


(This article was published in the Business Line print edition dated September 23, 2012)
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