You visit any public forum and there are a few thousand people offering FREE FINANCIAL ADVICE. From which credit card to buy, which ulip to buy, which mutual fund to do a SIP, whether compounding works, whether compounding works only for debt instruments – today everybody has a view on everything.

Great. Only that most of it is USELESS for you, because it is noise as far as YOU are concerned. Now let me give you MY view on what an investment side financial adviser should do for you:

  1. He should spend a lot of time with you in finding out about your financial history. Your portfolio is the best financial footprint that you can share with your adviser.
  2. He should get you relaxed about your current financial situation, so that you really open up.
  3. Give you a blunt, frank, free summary of your current situation.
  4. Suggest appropriate financial action.
  5. Choose the appropriate financial products suitable for you.
  6. Tell you how he is compensated. In the short run he needs you to pay a fee. In the long run the Amc pays him.
  7. If he chooses products like PPF, bank fixed deposits, real estate, etc. REMEMBER he does not get compensated.
  8. He should bring up the conflict of interest situation and explain steps to handle it.
  9.  Show you the action plan and discuss the same.
  10. Ask you clearly what level of involvement you wish to have with your investing and plan accordingly.
  11. Speak to your spouse (partner), parents, kids, etc. as you think appropriate.
  12. Once the investment strategy is decided choose the appropriate funds.
  13. Help you with the clerical part of the investments – kyc, form filling, etc.

There are just too many people who think that you should go to an IFA and ask him the following questions:

Please suggest appropriate schemes: I am 35 years of age and I can do SIP worth Rs. 50,000 per month.

My answer: I am presuming that you know what you are doing. You know how much to put in equity, debt, hybrid or whatever. I have read in a book that it is nice to have a mix of large cap, flexicap, midcap and microcap. I will pick up 5 funds in each category and put it in front of you. You could pick a fund. Or your daughter could pick a fund. Or even better let your dog put its paw on the appropriate fund. Chances of me being ‘right’ about the best fund over the next week, month, year, 4 years, 5 years or decade is perhaps the same as your dog. Sad no? Most people think you pay an adviser for him to recommend the best fund.

Sadly you may judge me over 3 months, but I fancy my relationship to be over the next 3 decades. Nothing that happens in the short run gives you data to judge me. I could turn out to be brilliant in the 5 month return but terrible in the 13th month review. It is my job to explain how equity works, and more importantly how it DOES NOT. Equity is not a PPF with a higher return. It is a real gut wrenching variance. It is YOUR ability to assimilate my experience and knowledge that will decide on the returns that you get. You may need a nice mix of large cap, flexicap and mid cap – and believe me even the ratios between how much of each is more guess work. How often will we review the portfolio? Maybe 6 months. How often will we do something about equity portfolio? No clue. Creating wealth through equity is a multi decade, multi generational activity. Just because you are doing a Rs. 1 L per month for say 30 years it does not mean YOU WILL GET rich. Getting rich is an attitude, not a sum of money.

Honestly, if you think you are paying me money for a ‘fund picking game’ you do not need me. I have a far bigger game to play with you. It is called holding your hand in a upswing and in a down fall. Explaining that money is not made in asset classes. It is made in YOUR BRAIN. Your ability to control your emotions..and doing some amazingly dull and boring stuff.

Go Create Wealth.

 

 

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  1. Very pertinent article for the present financial times. As an Investment Advisor, choosing the best fund and offering the client is not the only task. It is how you make the client understand the vagaries of the market, tempering his expectations, focusing on the eventual goal, making efforts to avoid the client getting into unnecessary products which is not going to serve his financial goals. Sadly how many advisors does it or allowed the time to do it?.

  2. Sir,
    Thank you for summarizing the job profile of an IFA. Best Fund choices and best Returns should not be the only thing expected from IFA. IFA has something much beyond the finances which he/she can do for an investor. Keeping a tab on the emotional behavior of investor with regards to money is probably the most important thing that an IFA does and should do.

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