Earning and managing money for wealth creation and capital protection are two different aspects. With the explosion of information and plethora of products, you are spoilt for choice, and decision making in such a scenario becomes difficult. And that’s when you typically want to reach out for guidance.
In fact, taking this as a cue, the Securities and Exchange Board of India (Sebi) has brought in a regulation — Investment Advisers (Regulations), 2013, which provides a direction into the way and manner in which a financial advisor needs to carry out his duties with respect to advisory, documentation and qualifications.
For investors, an ideal advisor or a financial institution should be one which looks after your interests and will hold your hand when the going gets tough. Will ensure safety of capital and enable you to reach your stated goals, riding the volatility as well as the good times.
An entity with whom you can feel safe when the situation seems to be a roller coaster ride. So as an investor are you asking for the Moon? Well, the needs looks elementary and basic. But then why are we increasingly hearing horror stories about investors being taken for a ride and fewer stories of harmonious client-advisor relationship.
Deciphering the relationship
When you buy a house or a car or a television, you do a lot of research. You check multiple stores and sites and evaluate every detail. And not to forget, these are typically consumption needs, except for housing, which is also an investment. So why when you look at creating and maintaining wealth, you look for a discount from the entity which provides this service?
Before finalising your advisor, make sure your financial advisor asks you questions that forces you to think and plan for the investments. Some of them could be like — is it product-driven or return-driven or is it goal-driven? Have you noted down your investment process, vide a document called investment policy statement, which outlines the investment methodology to be followed? Do you know what you want to achieve in terms of wealth creation?
The first step is to choose your advisor with care and caution and once you have done that, trust him to do his job. The key factors that you need to consider when choosing your advisor is his experience, attitude and approach, qualification expertise and knowledge, his revenue model and above all trustworthiness.
All of the above are key, however, the elementary one is trust. Do you trust your advisor to enable you to reach your goal? Do you trust every letter/word of advise rendered? If not, then you need to find another one. An entity or a person, who drives your investment solely through products is not the person you are looking for. Does the entity get in touch with you only at times of investing and not on a regular basis or when you want to redeem your holdings?
Once you have identified your advisor, get into a written agreement, which clearly mentions the approach, the tasks to be performed, regularity of meetings, investment methodology, return expectations, and the remuneration of the advisor.
Choose your advisor with care. And once chosen, do trust him in the same manner a six-month-old child trusts his parents when he’s lifted above the ground and has no fear of falling, as the child knows that the parents are there for protection.
The writer is founder and managing partner of Zeus WealthWays LLP