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  • Writer's pictureSahastha

Important Questions to ask a financial advisor

Updated: Oct 4, 2023

Finding a right financial advisor who helps you in achieving your financial goals and gives you appropriate financial advice is quite a difficult task. Here I have come up with a set of questions you must ask your financial advisor before entrusting your hard earned money.

  1. Are you fiduciary?

A fiduciary is a Registered Investment Advisor (RIA) in India, who is mandated by law (SEBI) to put the client’s interest first. Registered Investment Advisors are required by law to adhere to a fiduciary standard. SEBI has tried to ensure this, by making it mandatory for all financial advisors to register under the SEBI Investment Advisor Regulation 2013, and further mandated that no individual or corporate can use the word like advisor, consultant, Planner, etc. if they are not registered with SEBI.

  1. What services do you offer?

It is important that you should be clear on what kind of services you are looking for. Some financial advisors provide selected services like plan-only service i.e. they prepare financial plans and provide only recommendations. Whereas others address all areas of financial planning e.g., tax planning, estate planning, insurance planning, etc.

  1. What credentials do you hold?

SEBI Registration itself takes care of the basic qualification and regular updation by the advisor, nonetheless it’s imperative to know what qualification your financial advisor holds.

  1. What are the total costs I will pay to work with you?

Fee arrangements vary widely. Ask how fees are calculated and how your advisor is compensated.  Fee-only advisors are compensated directly by the client. Depending upon the service offerings, the fee structure may vary. If he is offering plan only service then it could be a flat fee and if investment management service is also offered then he may also charge a certain percentage of assets under management or advisory as the case may be.

  1. What is your investment philosophy?

Ask an advisor to explain the firm’s investment philosophy in terms you can understand. Some key points include:

Diversification: Some advisors are multi-asset class managers, meaning that they incorporate exposure to an array of diversified equity and debt products while giving advice. Portfolio diversification is essential to enhancing your returns while also reducing your risk over time.

Growth vs. Value: It has been seen many a times that advisors favor growth over value stocks. These investments will outperform or underperform, depending on the market climate. If only one style is favored, you could see your portfolio’s performance exceed or trail the markets at different times.

Market timing:  This is perhaps the most important point to ask your financial advisor. Ask if he tries to call or time the market rise or fall. Does he recommend appropriate shift in your portfolio to cope with the hunch.

  1. How often will we communicate?

Ask how frequently you’ll meet or hear from your advisor. Some may choose frequent meetings and always keep the communication channel open and you may call them up any time with your queries while others may hold meetings not so frequently, likely stick to the communication schedule only. It is important that the communication plan suits you and gives you a sense of comfort.

  1. How often will my financial plan be updated?

Sometimes a financial plan is only prepared at the onset of your relationship. Make sure you ask how your changing financial plans will be taken into consideration.

  1. What changes did you make during or after March 2020 crash?

We saw the market crash in March 2020 when the world got hit with pandemic. Many people lost a lot of money. Relatedly, you want to know whether they were recommending their current strategy prior to 2020. If not, why – and when – did they change their advice?

  1. How do you measure success with your clients?

Engaging with a financial advisor should be a value addition. How the financial planner answers this question, might be a deciding point for you. Your financial advisor main motive shouldn’t be running after high returns. It could be an ulterior motive but the main focus should be assisting you to achieve your financial goals.

Conclusion

The points that I tried to highlight are not exhaustive. These are the initial questioning one must do before engaging with a financial advisor. The financial advisor must be able to clearly articulate a strong point of view regarding how money should be managed and invested.

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