How To Choose A Great Investment Advisor

Everyone's an Investment Advisor these days: your Insurance Agent, your Chartered Accountant, your Bank Manager, your Real Estate Agent, and if the markets stay bullish for a few quarters more, it's likely that your local 'paanwalla' will mystically transmogrify into a specialist with key insights on the direction of the markets, or on the next big stock pick.

Face it - as a 'Financial Doctor' of sorts, your Investment Advisor is going to play an important role in your life. There are hundreds of financial instruments present in the market; each with distinct categories, subcategories and attached risks. You'll neither have the time nor the inclination to trawl through hundreds of brochures and documents, what with all the confusing small (and large!) print that most of them will carry. A trusted Advisor whose words you can take at face value is a blessing indeed. Here are some basic characteristics you can look for in an Advisor, to discern the great from the good - or the average ones.

Multi-Product/ Open Architecture
You don't want a 'one trick pony' as your Investment Advisor. As a matter of fact, the best Advisors are those that harbour no product biases whatsoever. Over the years, countless unsuspecting investors have borne the brunt of insurance agents masquerading are Investment Advisors or Financial Planners; they often wind up creating more problems than they solve. So-called Advisors who only recommend one category of products (such as Life Insurance, Mutual Funds, PMS or Bonds) are incapable of offering a conflict-free, comprehensive financial solution. Their advice will invariably be coloured by what is housed on their own shelves.
A great Investment Advisor will have the ability and architecture to make unbiased recommendations from the following product categories: Mutual Funds, Direct Equities, Bonds, Life Insurance (preferably Term), Health Insurance, Post Office Products/ Government Issued Products, Portfolio Management Services and Real Estate.

Fiduciary
Fiduciary means 'based on trust'. Your Investment Advisor should be working to serve you - and you alone. In other words, if your 'Advisor' is really just serving manufacturers of financial products by 'distributing' their products, he or she is an agent; not an Advisor.

The best Advisors are those that make no commissions from product manufacturers at all, but are instead compensated by you (the client) directly. The recent SEBI RIA (Registered Investment Adviser) norms will be a welcome step in this direction, provided they are thoughtfully executed. Building out a purely fiduciary, fee based advisory business is a bold step that is fraught with headwinds; Advisors who have ventured along this path deserve a share of your business. If you're looking for a fantastic investing experience, look for a fee-only Investment Advisor and be prepared to pay between 1% and 1.5% of your assets as fees - it'll be money well spent.

Financial Planning - Led
Investments can be made in an ad-hoc manner, or as part of a well-structured Financial Plan. The former approach is essentially products-sales led. The latter approach is time consuming, requires more hard work and will yield better long term results. Financial Planners show unwavering obeisance to following correct processes and investing practices; they do not take the process of making a recommendation lightly, but rather equate their role in making recommendations with the role of a Doctor in writing medical prescriptions. The hallmarks of a Financial Planning led approach are: a robust and sometimes lengthy technique of analysing your risk profile, an asset allocation based approach to investing with a disciplined rebalancing strategy, a focus on your unique financial goals and objectives, and a deep consideration of your existing investments, assets and liabilities. A Financial Planning led approach will not blindly cough up investment recommendations - sometimes, the end outcome might entail staying put and doing nothing at all!

An obsession with lean, low-cost business structures
I've witnessed this on more than one occasion - great Investment Advisers work lean. They don't have large or fancy offices, they don't employ more people than they need to, and their overheads and costs are minimal. They usually don't employ a 'second line' unless it becomes completely necessary, preferring to front end the Advisory aspect of the business themselves and remaining directly connected with customers.

By keeping their cost-structures minimal and diverting excess moneys towards the broader objective of enhancing client experience, great Advisers build lasting relationships with clients that endure market cycles. Also, the question of 'milking' client portfolios to fund exorbitant overheads never arises, meaning that customer interest always remains at the forefront.

Experienced
Make no mistake; when it comes to the Advisory profession, grey hair counts. A rookie Advisor, however brilliant, is yet to acquire the diverse bouquet of professional lessons that only painful market cycles are capable of imparting. An experienced Advisor is more likely to be able to separate the wheat from the chaff, the market noise from the genuine entry or exit signals, and the inescapable emotional decisions from rational ones. Experienced Advisors are also more likely to value their client bases, treasuring them as assets and not as engines for revenue generation.

Look for an Advisor who has witnessed - and survived - through at least two complete market cycles across multiple asset classes.

Referred
As clichéd as it might sound, there's no substitute for a referral given by another who has experienced the services of an Advisor. A word of caution here: make sure you find out just how long the Advisor has been working with the referrer. Many market wizards are short term products of bullish market cycles who fall flat on their faces when the tide reverses. If you receive the reference of an Investment Adviser who has been a trusted confidante to a friend, family member or colleague for at least five to seven years, consider the proposition.