How to find the Best Financial Adviser?

You might wonder if you really need a Professional Financial Adviser. It depends on your financial situation and psychological makeup. In some cases, you may not afford one. Or you may truly believe that you can afford one, but (you also believe) that you have the experience and knowledge in Personal Finance. In some cases, you may simply be uncomfortable sharing your financial situation with a III Party , even if a professional PFA.

In either cases, you can be your own best financial adviser. In fact, there can be none who can work as much in your best interests other than you (strictly speaking). I suppose you have minimal conflicts of interests with yourself (unless you self sabotage yourself), and best interests of yourself in mind.

If you are a high net worth individual and/or you believe you need expert advise on Personal Finance matters, it is definitely recommended that you have one. I mean a Good one. If you are convinced that you need one, you want to obviously exercise due-diligence in selecting a good one.

Unlike other professional relationships, you have to recognize that a Personal Financial Adviser (hereinafter PFA) is in for the ongoing possibly lifetime processes, and the stakes are quite high. This person is going to know and help you with possibly confidential Financial situation, and for the long term. Hence you want to build a long term relationship based on trust and good will.

In today's market, the word Financial Adviser is pretty loosely defined. How do you recognize a genuine PFA ? Can your PFA be a fee only planner? A qualified stock broker? Life Insurance Underwriter? A registered investment adviser?. The right answer could be one or more or none of the above. Here are some possible options

Reference from your other professional relations or friends or colleagues: E.g. Your attorney or accountant may recommend some one. Probe as to why they like the PFA.

Interview Potential Candidates as if it is a Job Interview. It is. Ask them a lot of questions. Here are some examples (in italics). You should add things specific to your situation.

(a) How long have you been in the Personal Financial Planning Industry, who did you work with previously, and for how long? Can I reach out to some of them to have a discussion? You should get multiple references and do thorough background checks on their credentials and follow through. You don't want to trust some one on face value and regret later. It could turn out to be a costly mistake.

(b) How many clients do you have? Note that you don't want to be a drop in a bucket full of clients. You run the risk of not getting much attention if the PFA has too many clients.

(c) Describe some of your clients (without names of course), their income, net worth and occupation. This is to get an idea whether or not you are a typical customer profile for your PFA.

(d) What is your investment philosophy? What type of vehicles do you invest in? What is your experience with life insurance, MF, Stocks, Real Estate, Tax Planning, Business Planning, Retirement Planning, Education Funding (and whatever other areas you are interested in) ?. This is to understand the breadth of skills of your PFA. Broader the better.

(e) What have been your highs of your career? How much wealth did you build for your typical client (without names), and/or how much did you help manage?

(f) What is your approach to black money? This will give you an idea of their overall personality and integrity.

(g) What are some magazines and journals/periodicals you follow? How do you keep with the latest trends? What are technologies you use?

Questions for background check with references:

(a) How long has the PFA handled your affairs?

(b) Is the PFA related to you or your personal friend? If so , for how long?

(c) In a scale of 1-10 how happy are you with her services and how would you rate her? (1 worst- 10 best)

(d) To what extent does she monitor your investments How frequently do you have reviews?

(e) Does the PFA call with good investment or ideas? Changes in tax laws up to date? What do you believe her investment philosophy to be?

Look for experience AND education: A PFA is not meant to just tip you with the hottest stock of the week. It is about committing you to a program and accomplish your objectives. They should be well rounded in various areas like education funding, retirement, business succession planning, gifts, insurance and investment management. You don't want an educated kid with no experience offering you theoretical advise. A PFA should have atleast a decade worth of experience before they are on their own to help you. As far education , a CA, CFA, MBA or some grounding in Finance is recommended. With a plethora of courses these days, there may be several others that may qualify.

Ask about compensation and fees for services: Some PFAs get paid for study,reviews and investment management on commission basis or fees. Fee only planning refers to planning only. These folks gather the information and present to you their findings and recommendations on an hourly basis or a flat rate based on your portfolio.

Fee based planning for example can be up to 2% for Rs. 1Cr. 1% for up to 10 cr. and 0.5% above that amount. The % should decrease with increasing portfolio size.

Commission based planning: These folks charge nothing for planning, but charge for product purchases through the planner on a commission basis. They may have arrangement with brokerages.

Some may be flexible about the payment terms. Make sure you truly are comfortable with the compensation model and amount.

Concentrate on building relationships: A PFA should be someone who will place your needs above their own. They have to be fairly compensated for their work but should not be someone who will wait to make money out of you no matter what.

Don't ever buy an investment over phone from someone you don't know. Do business with those who you choose to. At earlier stages of relationships let the business be done face to face only. If your comfort level improves, you can consider doing some business possibly on the phone.

Don't give anyone authority to trade your account other than your trusted Professional Invest manager with whom you have a written contract. Even then, retain the final decision making authority to yourself.

Focus on relationships, not the speed of transactions: Relationships, Integrity, Trust and sound principles are more important than the speed with which they execute your transactions.

If you are not fully convinced about your PFA, don't go with him/her. If you are partially convinced, and would like to proceed, expose a part of your portfolio and make a final decision based on how they manage that slice of your portfolio.

These are just some suggestions and starting points. By no means, these very specific questions are exhaustive. You have to build on these. Do your own research, and let me know who you find. Good luck!