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7 Questions You Need To Ask Your Financial Guardian - Outside View by PersonalFN

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7 Questions You Need To Ask Your Financial Guardian
Jan 27, 2017

There is no dearth of financial advisors in the country. Every one represents him/her as a sensible, well-intentioned financial advisor. Relationship managers at banks are no different. They portray to have the clients best interest in mind all the time. But that's seldom the case!

Take for instance the case of Mr Shivraj Puri...

Not too long ago (in 2010) Mr Shivraj Puri, a relationship manager with Citibank's Gurgaon branch (now called Gurugram) duped his clients for Rs 350 crore. This was the least expected of a seven-year veteran from the wealth management team of an esteemed international bank. Mr Puri channelled hard earned savings of 30 investors into the stock markets without their consent. He was suspended after the bank lodged a police complaint. He was booked for suspicious transactions, forgery, and criminal activities. The Courts pronounced Mr Puri guilty under various sections of the Indian Penal Code (IPC) and was sentenced to 2 years & six months imprisonment, plus a fine of Rs 10,000.

There are countless cases across the world where investors/clients (including celebrities) have been duped falling prey to sweet-talk of financial advisors. Relationship managers / agents / so-called financial advisors, have put their vested interest at fore; hauled out the most from the clients vide incentives / commissions. They tiptoe around real financial planning, and as a result you, the investor suffers; as they don't stand as 'Financial Guardians' who handhold in the journey of wealth creation and achieving financial goals. Many financial advisors have just resorted to unethical practices and made hay when the sun shines. This is disrespect to a profession where a financial advice should be given with utmost care and prudence.

Besides, as an investor it is your responsibility to protect your hard earned money. So, before you sign on the dotted line, ask these 7 questions to your Financial Advisor/Financial Guardian:

  1. The professional fees charged - In the financial advisory business, there are mainly 3 business models in India: fee-based, fee + commission, and purely commission driven. Assess which category the financial advisory you're dealing with fits into. It is ideal to take services of a financial advisor/guardian who charge professional fees for the services rendered (just like architects, doctors, lawyers, chartered accountants do). Keep away from advisors who follow a purely commission driven approach and even be careful while dealing with relationship managers who're driven by incentives.
  2. The credentials - Be sure to check the professional qualifications of the financial advisor/ financial guardian. Few professional institutions have a rigorous curriculum for aspirants. These institutions ensure their members follow a code of conduct and abide by the principles of ethics and integrity of the profession. Also, recognise how they manage to keep themselves abreast with the developments in the profession and even regulations related to it. Make sure that the credentials of the financial advisor/guardian are in force, i.e. whether certifications/ professional memberships are renewed. This would assure a prudent approach, better advice, better service and the commitment of the financial advisor/guardian towards his craft.
  3. Transparency / disclosure norms - Financial guardians/advisors who have undergone professional certifications and who strictly comply with the regulations usually vow by transparency. They abide by the principles of ethics and follow full disclosures as needed. This also helps to earn respect, trust, and loyalty of investors.
  4. How will financial goals be addressed - S.M.A.R.T goals are the bedrock when building a solid financial plan. Your financial advisor/guardian should be able to slice and dice your financial goals into should short-term, medium-term, long-term, and thereafter in consultation with you, draw a financial plan. This approach ensures a synchronised effort and perhaps even handholding in the goal planning exercise with correct documentation.
  5. How will my risk appetite be gauged - Goal planning exercise without assessing the risk profile is pointless and risky. If a financial advisor/guardian does not ask you pertinent question to gauge the quantum of risk you are willing to take and can afford, recommendations could look cockeyed. A risk profile helps a financial guardian to understand your outlook towards money and thereby determine the financial risk you can take. A holistic approach can even help in gauging your insurance needs (be it life insurance, health insurance, personal accident insurance etc.), even if it is beyond the scope of his/her work.
  6. How investment avenues would be selected - Different investment avenues pose different risk-return trade-off. They cannot be generalised by any means. So, the investment strategy you need to follow will change depending on your risk profile, the time horizon to achieve your financial goals, income, assets, contingency reserve, amongst a host of other aspects.
  7. How often will the portfolio/financial plan be reviewed - A regular portfolio review can help you ascertain if you're on the right track to achieve your financial goals. The review can be quarterly, semi-annually or yearly depending upon the complexity of the case and the dynamics involved. A corrective course, if required, should be proactively suggested by the financial advisor/guardian. Besides, there's operational support which ought to be well co-ordinated. A proactive approach on the part of the financial advisor/guardian augurs well for your portfolio/financial plan.

A Certified Financial Guardians (CFG) abides by all these vital aspects. They stand for high fiduciary standards. Irrespective of where you stand in your finances, be wise and seek a second opinion from a CFG. It is time to search for one nearest to you and take an appointment.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

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