How to select a good financial advisor | Simply Save

Given the growing influence of financial influencers (finfluencers) and freely available advice on investment propagated on social media, the importance of investment advisors has gained much more relevance today.

To listen to the podcast, click above. To read the podcast conversation, scroll down.

Spurred by several complaints about the mis-selling of products over the years, the Securities and Exchange Board of India issued the Investment Advisor Regulations in 2013 to make them accountable. As per SEBI’s laws, those who give investment advisory services in consideration for a fee are mandated to be registered with SEBI.

Investment advice refers to information related to the buying or selling of stocks, financial planning, investment management, retirement planning, tax planning, and estate planning. Investment advisors are well-qualified to analyse the financial conditions of clients and recommend investment opportunities.

Also read | Will Zerodha’s proposed scheme put the spotlight on Nifty LargeMidcap 250?

However, despite the growth of investors and savers, the number of investment advisors has been falling because of stringent norms on how they should function.

Moneycontrol spoke to Suresh Sadagopan, a SEBI-registered investment advisor and principal officer at Ladder7 Wealth Planners, to discuss the role of an investment advisor. He also talked about how to select a good advisor and the impact of recent regulations on investment advisors.

Also read | Explained: Family pension under EPFO’s Employees’ Pension Scheme (EPS)

Here’s a summary of what Sadagopan said:

• India has come a long way in terms of financial planning. I started in 2004 and often had to explain what financial planning was. Now, clients pretty much know what financial planning is and what questions to ask. They also know they have to share a lot of information and develop a fiduciary relationship with financial advisors.


• The qualifications for registered investment advisors (RIA) are a postgraduate degree in economics, finance, commerce or statistics, five years of experience, and for client-facing advisors working under an RIA, at least two years of appropriate experience.


• To build a holistic financial plan, an RIA enquires details about a client’s income, expenses, loans, assets, and financial goals. A financial plan is prepared in consultation with the client.


• Those with the knowledge, interest, time, and willingness to do the hard work can invest and plan their finances on their own. But not everyone can do this. If decisions get postponed, money is accumulated at various points and there is no time to assess investment options, then a financial advisor is needed.


• You meet different advisors when you scout for one. Make sure your wavelengths match. Look at testimonials, get referrals if you can. Going through the sample plan that the RIA has created is also a good way to judge a financial advisor.


• For a financial plan, the charges can be a fixed fee or a variable asset under advice fee. If a person is looking at pure financial planning and is interested in taking their financial plan forward by themselves, then a fixed fee structure is appropriate. However, for those looking for advice on an ongoing basis, the most probable choice will be asset under advice-based fee.


• Do not talk about expected returns on your portfolio – that’s a very wrong approach. A good financial planner knows investment products in detail and is aware that without returns, a financial plan cannot work. A good financial plan will ensure returns in the long run. If someone obsesses about the returns and doesn’t focus on the long term, that kind of relationship will not last long.


• Twitter, Instagram, Facebook and the media… There is so much information out there. If you want to cut through the clutter, go to a professional advisor. People with a significant amount of wealth just cannot afford to do experiments because even one blunder can set them behind by several years.


• When India itself is becoming more wealthy, you require better advice because the wealth you have needs to be managed properly. The do-it-yourself approach is meant for 2 or 3 percent of the individuals. For most of the rest, a proper financial advisor is required.


• SEBI, though well-intentioned, is coming up with tough regulations for RIAs. We are complying with them, but it is becoming more difficult. That is why many advisors are abandoning the profession.