The financial advisor is a general term without an industrial definition and different kind of professions comes under the purview of this term, for example, a stockbroker, insurance agents, investment and financial planners.
He generally works in the individual fiduciary capacity in which interest of his own or institution where he works comes after his client’s. Only those advisors who are registered and governed by any law are held to be a true fiduciary financial advisor.
But in some situations, their compensation structure is such that they are bound by the contracts of the companies where they work even if they want to work in aforesaid fiduciary capacity.
“You have a full set of clubs when you go golfing. Without a financial planner, you’re someone who uses their driver all the time.” –Anthony Badillo, a lead planner at Gen Y Planning
First of all, we should know why and when we need an adviser to help us out and a financial one in particular. Here are some reasons or situation which can cause you to visit him.
In most of the cases, the change and in particular which is affecting your life or way of living makes us take advice from other or experts on the respective subject, for example, having a baby, planning to buy a house. All these changes affect your financial status or stability which requires you to have expert advice on the same.
Even if these changes are about to happen in some time it’s better to have your finances adapted to those changes. And for this, you need a plan a strategy such that you will welcome the coming change with open arms and with more flexibility.
They can help you in planning from fixing a childcare you can afford to his/her college, from getting estate documents to handling your tax status.
Change in income-
You may get promoted or inherit a windfall profit leading to an increase in your income and you will want to utilize every dollar for the bill, debt or savings. For this to be done you need a financial advisor to help you get your finances at the next level or making that utilization process more productive and smoother.
We should also consider the possibility of financial advisors doing more harm than good. Three answers you should know for questions about your financial advisor: about his experience, certification and how he is compensated?
Choosing a best financial planner and product
Now after knowing the answers to the above questions about your planner you should be taking care of following things demanding your judgment.
Provided you have given all the requisite details to your financial advisor he will offer you a plan which suits you the most according to his judgment. But if he is getting paid to sell that plan then could you believe that he is not doing the same for his personal gain? Because to have early benefits companies tend to push there employees to sell products that generate more revenue.
This happens mostly when a financial advisor is associated with only one kind of product category or firm. So it’s better to have multiple products matching your needs so that you can compare them to choose a best possible one.
Agent or advisors-
Recently SEBI released a paper differentiating financial agent and advisor. One who takes a commission from manufacturers has been called an agent and only those who take a commission from investors has been called advisors. However, these definitions have not yet enforced.
Nowadays there is no difference between regulations and guidelines. It’s better to have a hand on them to get notified by any red alert.
Knowing your advisor-
You must know certain things about your advisor for example whether he is a qualified advisor because to sell some products he needs a certification from respective institutions like IrDA, what is his main profession, judging his reliability by his size of the operation such as the size of the office.
A financial plan and in particular long-term plans like insurance and mutual funds need a periodic evaluation to check whether it’s going accordingly and will achieve the financial goals in the end. It will help you to come to a decision if you want to change an investment plan.