How to select a financial advisor? Lovaii Navlakhi explains

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Below is the verbatim transcript of the interview

Q: We normally always discuss ways to plan our finances better, but today we want to actually discuss about how and who we should trust to do that? Give us a sense in terms of how exactly investors can best decide how to select a financial advisor? What are the key things they should be looking out for and any sort of recommendations in terms of prerequisites of experience etc.?

A: I am very glad that you are asking this question because everybody sorts of jumps into investment saying tell me where to invest and get going. The amount of time a person spends in selecting the financial advisor is extremely critical. So, a few things that I would like to lay on the table is that in today's day and age of the internet, people tend to think that they can look up stuff and do stuff on their own which is what I do if I am buying a domestic travel ticket. I go online, I select the best airline that I want to go for, the best price and the timing and I pick that airline. As soon as I want to go abroad and I want to compare multiple airlines for buying a ticket, I have to rely on my travel agent. When you are exposing a financial advisor to multiple assets, it is a similar scenario.

So, when you are selecting, it is important to look at what are the qualifications that the person (financial advisor) has. You should look at some sort of internationally recognized qualification, the one that comes to mind as a financial planner is a Certified Financial Planner or any other equivalent sort of qualification. The other important thing is experience. I know that the market for financial advisory is fairly new. So, there are lot of new people in the marketplace. But even if they as an individual do not have the experience, you should look at the experience of organization they work for and how long they (organisation) have been in business. The most important thing in selecting the financial advisor for any investor would be to meet that advisor first with the objective of should I select him or not, not with the objective of where should I invest my money.

When you meet that advisor, you can figure out whether the vibes right? What is his approach? What is the type of clients that he handles? What is the number of clients? What is his process? What type of reporting does he do? How is he going to communicate to you? Wherever possible, try and see some samples of the type of reporting that the advisor does and then see whether that is matching your requirement. I think if you get sort of sense of all of this then you can possibly get into the issue of pricing. Where does he get his remuneration from? Is he going to charge you a fee? Is he going to earn something from the product he sells you? I think there could be combinations. I think the important thing there to check is not so much as to who is expensive or who is cheap, but what is the transparency level? Is he going to share stuff with you? I think it is very important that you do not get swayed by somebody who has got a limited period offer. Here is an offer where if you do this today, then you will get some benefit. You are getting into a relationship from a really long-term point of view.

Q: Investor's family chartered accountant has been taking care of his finances including investments for nearly 30 years. Till now the returns have been reasonable. But with rising inflation, should the investor take advice from a financial advisor? Can the investor go with the advisor at his bank or is it better to have an objective person who is not attached to any institution?

A: It was very typical for even someone like me till maybe 15-18 years ago when the Indian markets were very insular. There was a whole bunch of tax deductions and benefits available on investments. Most importantly, there was not great amount of money or savings that investors were making. But all that has changed. It is very important for investors to recognize that tax is not the driving force for investments anymore.

If the chartered accountant does not have a method by which he is up-to-date with the latest investment vehicles and the options then it maybe time for the investor to look to a professional financial advisor. I am not saying that all chartered accountants have remained behind and they have not kept pace with the changes. But if the chartered accountant is more focused on tax and returns then it is definitely better for the investor to select a financial advisor.