Ask a Financial Advisor these 5 questions before the engagement

Just as you go to a doctor when you fall ill or you go to a lawyer when you need legal guidance, you may engage a Financial Advisor if you need financial advice. Before you start working with a Financial Advisor, you need to know what questions you need to ask a Financial Advisor. This will lead you to identify a professional that suits your requirements.

Even before you set up the first meeting with any Financial Advisor, you need to ask yourself a fundamental question, “Why do I need a Financial Advisor?”

This is an engagement where the Financial Planner and you (the Client) mutually agree to work with each other.

As a Certified Financial Planner in Kolkata, I hold that there shouldn’t be an expectations gap between the Financial Advisor and the Client. The Financial Planner needs to acknowledge what you are expecting from him/her. Likewise, you need to understand what the Financial Planner is expecting from you as a Client. You must be wondering why I am highlighting this aspect here. It’s from expectations the engagement may turn bitter.

A professional in the field of personal finance can call oneself a Financial Advisor only when he/she is registered with The Securities and Exchange Board of India (SEBI) as an Investment Adviser. Thus, it is a pre-requisite that a professional must be a SEBI Registered Investment Adviser to function as your Advisor in the personal finance space.

Here are a few fundamental questions you need to ask a Financial Advisor:

Question #1

What professional qualifications does the Financial Advisor hold?

The professional qualifications of the Financial Advisor matter a lot in practice. We operate in a dynamic environment. Clients may be in typical/unique situations. As a SEBI Registered Investment Advisor in Kolkata, I give credence to the fact that professional qualifications clubbed with skillsets and work experience empower a professional to guide you through different life stages.

Question #2

What is the practice model of the Financial Advisor?

As per regulatory guidelines, there are multiple models in which a Financial Advisor can operate. You need to understand the model followed by the professional. You can feel comfortable only when you can accept the practice model. This aspect needs to be discussed in great detail. The engagement between the Financial Advisor and the Client will entirely depend upon the practice-model followed by the professional.
The practice model will give you a fair idea about the kind of services provided and whether the service bouquet meets your exact requirements. You will get to know the service delivery process, how the meetings will take place, the mode of communication, how your queries are going to be addressed, etc.

Question #3

How does the Financial Advisor earn?

As a Fee-Only Financial Planner in Kolkata, I push for the fact that a Financial Advisor must be absolutely transparent when it comes to income. He/she must share the revenue model with every prospect.

If your Financial Advisor is not charging a fee to you directly, how he/she is being remunerated? Nobody works for free.

Where the professional directly charges a fee from you and doesn’t receive any hidden income by way of referral fees/commissions from any other source, fair dealing is expected to prevail.

Any agent or a product distributor is not entitled to take fees from you directly. He/she gets brokerage/commission from product manufacturers. This is also a business model.

Product manufacturers make the payments to the agent or product distributor by deducting the amount from your premiums paid/investments made. Therefore, you are paying indirectly to the agent or product distributor. But do you know how much are you paying them indirectly?

A Fee Only Financial Planner do not get commissions or other payments from the financial institutions whose products they recommend, and instead are paid directly by you.
This will enable you to figure out if the professional is going to follow an unbiased approach in delivering services or not. Any conflict of interest is certainly a red flag.

In order to clear any confusion regarding the roles of Advisors and product distributors, SEBI has also asked product distributors to refrain from identifying themselves as “wealth advisors” or “independent financial advisors” unless they are Registered Investment Advisors.

In simple terms, agents or product distributors cannot provide investment advice.

Question #4

What is the philosophy followed by the Financial Planner? Is it matching with yours?

This is by far the most critical yet interesting aspect of the engagement between the Financial Planner and the Client.
You may be okay with the professional’s credentials, practice model, fees charged to you, etc. But, if philosophies differ, then the journey is never going to last long.

Question #5

Will the Financial Advisor enter into an official agreement with you?

As a regulated intermediary, a SEBI Registered Investment Adviser is required to enter into an agreement with the Client.

The agreement specifies various clauses with respect to the services. It’s signed and stamped by the Advisor and countersigned by the Client as well.

This formality can show you that you’re hiring someone trustworthy and cooperative.

When you ask a Financial Advisor relevant questions, you understand the background better. You will be able to determine whether you feel comfortable with the professional overseeing your finances.

Likewise, a Financial Planner may not be willing to work with anyone and everyone. During interviews, he/she tries to understand whether the prospect is fit to be a Client for the long term.