Choose The Right Investment Advisor – Few Important Tips For You


Usually people don’t choose financial advisors; they simply get in touch with them. Many a times in some private banks you will find a super consultant or super advisors who will sell you everything like insurance, credit card, and even mutual funds. Banks are distributor of mutual fund and not the advisors.

Mind it; if you are investing advice from any bank you actually take advice from a distributor and it that case it is not necessary that you get a fair and quality advice.

An adviser should be one who can provide his customers with real value based advice rather than simply pushing sales in order to earn a better commission. Advisor’s role assumes significant importance in an exuberant scenario like the present one, when it is easy for investors to lose track of their objectives and make wrong investment decisions. Conversely, Investor advisor an association with the wrong investment advisor can spell disaster for investors. We present a few pointers which will help investors gauge if they are with the wrong investment advisor.

If the Advisor is offering rewards in terms of payback.

Select an advisor for his ability to recommend the right investment avenues and manage your investments rather than his willingness to refund commission. By offering payback the advisor is not doing justice to his to his work as he is luring you towards doing that investment. This specifies that an advisor is putting your money at risk by giving you commission.

This practice (widely prevalent despite being explicitly prohibited) among investment advisors is to rebate a part of commission earned, back to investors i.e. the investor is ‘rewarded’ for getting invested. What investors fail to realize is that the commission offered by the advisor is actually reward for taking more risk. Wealth creation for investors should come from the investments made and not commissions. Select an advisor for his ability to recommend the right investment avenues and manage your investments rather than his willingness to refund commission.

The advisor only advices top few funds most of the time.

Most of the time an advisor will suggest you some fund and will show you its annual returns. Most of the top ranking funds are sectoral funds and they carry a certain amount of risk. Usually sector funds being a fund with major allocation to specific sectors they are high risk funds. Many times in order to generate large funds from the market the fund houses have fallen prey to herd mentality and launched similar offerings in quick succession. The banks and investment advisors have played their part by indiscreetly pushing these products since they get better commission.
Think again before you take suggestion from such advisors.

If the advisor always have an NFO to pitch for.

Investment advisors have earned well through the mutual fund New Fund Offer’s by convincing investors that it is cheaper to invest during the NFO stage. But be careful this is not the truth. Mutual fund distributors and advisors mostly take benefit of the lack of knowledge on investor’s part by pitching the mutual fund NFOs as stock IPOs, distributors have only discredited themselves by not being true to their investors. Advisor should only recommend a new fund if it add value to the investor’s portfolio or is a unique investment proposition. Any advisor who is true to the profession will pitch for an existing scheme which has a good track record and proven rather than a similar scheme in its IPO stage.

If Advisor’s role is restricted to delivery and pick up of forms.

Investment advisor’s primary role includes creating a portfolio for the investor based on his needs, risk profile and successfully managing the same. While maintaining high service standards is pertinent, it shouldn’t gain precedence over the advice part. Most of the advisors I have seen are usually working for big distributors such as banks, big brokerage houses. The main work for them is meeting the targets rather than provide value base advisory service. Independent individual Investment advisors prefer to make their work simpler by showing them selves only when they had to collect the form.


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