How to Select a Financial Advisor

If a person needs to pay a visit to a doctor, he / she would make sure that they go the best doctor which their mullah can buy. They would consult several people to check about the success story of the doctor, his specialist skills, qualifications, track record, etc. Obviously, the health of the body is of paramount importance and no one would want to risk their life in the hands of an incompetent bloke who may use his patients as guinea pigs. What I fail to understand is that the background check process stops here !

Financial advisors would be the last person who would be on top of your mind, specially if you would have to pay to get your finances reviewed. India is a land of free advise – and financial advise is no exception. Ask your friends, your colleagues, near by paan wala, retail banker, loan handler, cashier, post office manager and so on – the list is endless. Every one will give you an expert advise which worked for them or their known counterparts. You will get  20 advices from 5 people, some consistent and other conflicting and the end product – you are sitting with a financial time bomb which may explode in case you execute such advises.

The objective behind this article is to stress upon how to identify a competent financial advisor who would assist you in drafting your financial goals, executing & monitoring them. Lets start with the first quality :


1. Qualification

This is the first and the most important criteria to look out for while searching for a financial advisor. The most common qualifications are Chartered Financial Analysts (CFA), Chartered Accountant (CA) and Certified Financial Planner (CFP). However, this should be taken with a caveat. I have seen excellent financial planners who are engineers – nothing to do with their qualifications and on the extreme end CFAs, CAs, etc. who can’t even manage their finances. You must be wary of the fact that there have been many instances where a person may flaunt home cooked certifications or diplomas which he may have earned in a one day seminar, providing him with no additional technical knowledge.

A basic justification behind looking out for a qualification is that academics provide a strong foundation to a person which helps in analyzing financial data and financial position such as balance sheets, product information, tax impact etc. How much does a person use his qualification is a seperate question !


2. Relevant Financial Experience

Financial experience of a financial advisor shapes the future advices provided by him / her.  It is not wrong to say that  financial advise is more of an art than a science. Hence the more relevant experience a financial advisor has in the field of finance, the more effective would the advisor be in planning the finances of his client. You may want to notice the word ‘Relevant‘. The field of finance is very wide ranging from an accountant, cashier, banker, financial analyst, financial planner, etc. You should ask about the past financial experience of your advisor to identify if his experience is relevant for providing him with tools to plan your financial future.


3. Practise What You Preach

There are many financial advisors around who would love to sell the generic cook book of a financial advisor to all of their clients but wouldn’t apply that in their own personal life. Every person is different and so are the financial conditions surrounding that person. However, you must ask if your advisor has implemented any of the advise which he is offering you in his personal life. I won’t be surprised if you hear the word ‘No’. Wouldn’t that force you to think if the financial advisor really believes that his advise would be a good idea, considering that he hasn’t applied the same in his own case.


4. References

If you buy a mobile phone, I am pretty sure that you would spend several days / hours in identifying all the features associated with the handset. You may also consult any one and every one who would have used that handset to identify if there are any pitfalls associated with the gadget. Why should the selection process of a financial advisor be any different ? It is best if you are referred to a financial advisor by a known person who has used their services. Alternatively, if you have found a financial advisor on internet, you must ask them about a couple of references whom you can contact to know more about the quality of services offered by the advisor. Any references provided in such a process should be treated with a pinch of salt considering the fact that no one would provide references who would speak foul about the services offered by the advisor. Try searching on the internet with the name of the financial advisor to identify if there has been negative publicity associated with his work.


5. Product Knowledge

The ammunition which an advisor has is his financial knowledge about the financial products available in the market and their associated pros & cons. As a part of your meeting with your financial advisor you should ask him about different products which are available in the financial industry, alternatives, pros & cons of each product and the practical applicability of a financial product to your specific personal situation. This inquiry process will give you a valuable insight on the technical knowledge of your advisor. If he is not able to satisfy your queries or gives irrational details about the products which don’t make logical sense then it may give you warning signals to switch your advisor. If a soldier has a rusted gun, his capability to win or participate in a war is very limited !


6. Source of Income

Never ask a lady how many years she is.. and never ask a man about his earnings ! However, when it comes to your financial advisor, it makes perfect sense to ask him his sources of income and his disclosures related to commissions which he earns from the financial products recommended by him. This would give you very valuable insight if he is providing you an advise which is independent of the commissions which he would get from selling that product to you.

As a matter of principle, never ask an advisor for a share from his commission income which he would get from the products sold to you. This would promote him from hiding details from you and hence promoting mis-selling ! A practise very prevalent throughout the length and breadth of India. On the contrary, encourage the habit of paying the fees charged by a financial advisor. This would remunerate him well to help you in charting your financial goal.



Do not understate the importance of getting a good financial advisor who would play a vital role in helping you choose a right set of financial products to suit your goals. A wrong advisor can harm your long term financial well being much more than what you can perceive. Hopefully this article may help you in selecting a right financial advisor.

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2 Replies to “How to Select a Financial Advisor”

  1. Tim Bodnar says:

    It is an interesting post, and really appreciable. The clearness in your post is simply spectacular and i can assume you are an expert on this subject.

  2. Thanks Tim. Glad you enjoyed it.

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