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5 tips on selecting the right investment adviser
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Investors often fail to appreciate the role played by an investment adviser in the process of financial planning. The adviser is responsible for bridging the gap between investors and their financial goals. The adviser'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, an association with the wrong investment adviser can spell disaster for investors. We present a few pointers which will help investors gauge if they are with the wrong investment adviser.
- The adviser only recommends the 'season's flavour'
The mutual fund industry has witnessed a number of trends in the recent past. Monthly Income Plans (MIPs), mid cap funds, flexi cap funds, among others, have all enjoyed their moments of glory (some still continue to do so, but then it is any body's guess how long this will last!). Fund houses have fallen prey to herd mentality and launched similar offerings in quick succession. Investment advisers have played their part by indiscreetly pushing these products.
If your investment adviser only recommends the season's flavour, disregarding your investment objectives and risk appetite, there's a fair chance he is more interested in his commission earnings vis-â-vis your financial goals. Steer clear of such advisers
- The adviser convinces you that a Rs 10 NAV is cheaper
Investment advisers have ridden the mutual fund IPO (now referred to as New Fund Offer) wave by convincing investors that it's cheaper to invest during the IPO stage. Nothing could be farther from the truth. By likening mutual fund IPOs with stock IPOs, distributors have only done a huge dis-service to their investors.
A good adviser will only recommend a new fund if it adds value to the investor's portfolio or is a unique investment proposition. Any adviser worth his salt will vouch for an existing scheme which is time tested and proven vis-â-vis a similar scheme in its IPO stage.
- The adviser's USP is 'commission offered'
A widely prevalent practice (despite being explicitly prohibited) among investment advisers is to rebate a part of commission earned, back to investors i.e. the investor is 'rewarded' for getting invested. Investors on their part should also shoulder the blame for demanding and accepting such commission.
What investors fail to realise is that the commission offered by the adviser could be a ploy to disguise his inefficiencies. Wealth creation for investors should come from the investments made and not commissions. Select an adviser for his ability to recommend the right investment avenues and manage your investments rather than his willingness to refund commission.
- Lump sum investing is the consistent advice offered
If your investment adviser has not initiated you to the practice of making investments using the systematic investment plan (SIP) route and continues to endorse lump sum investing, it's time to start looking at other options. An investment adviser who fails to promote the SIP form of investing when markets have touched record highs, is either driven by his earnings or fails to understand the nuances of market-related investments. In either case, the same could be detrimental to the investor's cause.
- Adviser's role is restricted to delivery and pick up of forms
Oddly for a bulk of the investment advisers, the service offered is restricted to delivery and pick up of application forms; the 'advice' component is sorely missing. An investment adviser'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.
personalfn.com is focused on providing research-backed personalised financial planning services.
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