Tuesday, June 3, 2008

Personal Financial Advisor - Part B

This is the second in the series on personal financial advisor. In part A, we discussed questions relating to the who and what of a financial advisor. Today's post will aim to discuss your role and how to choose a financial advisor.

What is your role when you have a financial advisor?
Well, this again depends on what role you want to play. While at the two extremes you could passively follow every advice given by your FA or choose to use your FA for just the documentation, what I would suggest is taking the mid way. Do not completely trust your FA to make decisions for you because you know your appetite for risk and capacity to save, not your FA. Do not dismiss your FA's recommendations, because the person talking to you has far more experience in this industry than you do. The underlined statement is 'this is your money' and you alone have to put in the time and effort to make it work for you.

All this said, if you are wondering about my first statement in the beginning of this series about how the lack of time deters people from active investing... Think about it... Is it really the lack of time or the lack of will? A trusted FA will make this process easier for you, will streamline the process so that you don't have to run from pillar to post to put your money in the right place... but the buck stops here... making the decision and signing on the dotted line has to come from you.

How to choose a financial advisor?
There are no hard and fast rules in choosing a FA. At the end of the day, despite having the right qualifications, the chemistry between the two of you may not work out. Personally, I have changed three FAs before discovering our current one. When my husband and I met her for the first time, we really hit it off. What impressed us the most was her knowledge on the subject and her absolute professionalism. In our experience with numerous other FAs, we've always found ourselves calling the shots and expecting the FA to just take notes. For once, we sat up to listen to her and even come back with a revised allocation.

Something I feel is important while choosing a FA, is understanding the investment options that the FA has to offer. Some FAs may only offer mutual funds while another may be specialized in insurance products. Choose a FA who is able to plan your entire portfolio, otherwise you'll find yourself dealing with 2-3 people for different products or may even end up heaping your investments in one asset category alone.

The most important quality to look out for in a FA is undoubtedly his knowledge in the field. But then you can't test this unless you know something about the field yourself. The second most important quality is integrity. This one is easier said than done. It takes a longer time to test integrity than to test knowledge and also has a higher impact. Don't ignore the clues of an unprofessional FA - recommends high commission products, personally uses one product but recommends another one for you, messes up documents, does not provide you with post investment updates, does not follow up on premium dues, ignores you once the transaction is complete.Nonetheless, at the end of the day it may be easy to blame your FA for a wrong turn in your investments, be aware that the loss is however yours alone.

Disclosure: I am not a financial advisor by profession or by practice.

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