 "Challenges in having multiple advisors")
Investment planning or personal wealth management is quite different from portfolio management. By hiring a financial advisor, you seek to ensure that your financial goals and long-term targets for wealth creation are met.
A common error that investors make is to believe that they can manage their investments on their own. Instead, they should focus all their energies on earning funds, and then place those funds in the hands of a professional who can manage it competently.
Some investors even believe that they can manage their wealth by taking tips from the internet. But the quality of advice available on the Internet can vary a lot. An internet search for 'client profiling' provides a range of questionnaires - from the very brief to the very detailed. The weights for each parameter too varies widely. Hence, the conclusions that you draw about your risk profile based on such questionnaires may not be accurate. The wealth management style of the anonymous internet advisor may also be different from what is suitable for you.
So, what should you seek from a financial advisor? For one, the ability to have a consolidated view of your wealth and income streams that will enable him to prepare a realistic investment plan. His plan should incorporate the risk you are willing to take, which needs to be set off against the risk already prevalent in your basket of investments.
From your side, a certain level of transparency is necessary as without a complete view, the financial planner will be handicapped. That is why, having multiple financial advisors creates a serious problem. When clients provide only a portion of their portfolio to one wealth manager, the advice is suitable only for that portion of the portfolio, leading to skewed risk exposure.
Also, a manager may strive to show better short-term results to grab a bigger share of your investments. He may thereby put your long-term objectives at risk. There could be another who may have a greater focus on his own revenues and commissions. He may fill your portfolio with unsuitable products. An investor with multiple advisors will also have difficulty in monitoring their performances and bringing errant advisors to book.
Choosing the right advisor: Picking the ideal financial advisor can be a daunting task. When you are deciding to choose a wealth manager, many exciting presentations and dynamic power points will be displayed to you. Every manager will tout his abilities and competence to manage your wealth.
It is best to avoid managers who base their income on commissions from financial product manufacturers, such as mutual funds, insurers or NBFCs. Several advisors, including multi-national banks and big domestic names, peddle products with an eye on the commissions they receive, and not the suitability of the product and its relevance to your portfolio.
Fiduciary relationship: The move in India towards a 'fiduciary' relationship between the wealth manager and the investor puts the onus on the manager to provide the best and most suitable investment products to the client without any regard to commissions. Investors stand to gain as these norms get more widely enforced in India. Protect yourself, therefore, by choosing an advisor who will be transparent. Verify the ethics of the advisor by asking around - not by asking him for a list of happy clients. No advisor will give you referrals of unhappy clients.
Maintain a file of all your correspondence with the advisor. This will help you nail the advisor if he cheats you at some stage. While most will give priority to your interests, it is quite possible that you may end up with a dishonest or incompetent advisor. Trust your advisor, but do not ignore the need to keep him honest ,which you can do by maintaining records. Help yourself by being transparent about your current positions, and goals for the future, with the one honest advisor you contract to work with.
When should you change your advisor? When a sense of discomfort arises. Trust your instincts. Keep asking the advisor questions about his advice and actions. When you ask for information and data, do not accept delays beyond a couple of days. And the day you find your advisor being evasive, or using jargon that you do not follow, take your money away. Freeze all actions on your portfolio while you seek another advisor you can trust. Ultimately, not losing money is more important than losing it while trying to earn more.
