Every now and then one comes across a media article that talks about innocent investors being taken for a ride by shrewd, scheming agents or advisors. It is so very unfortunate that because of a few bad apples in the financial services industry, the entire industry gets tainted. But I believe that at some level, even the Investor is to be blamed?1

The principle of “BUYERS BEWARE” applies as much to the financial services industry as it applies to any other industry, if not more…
One cannot expect all advisors to be unbiased, free from any wrong intentions. One or two black sheep will always find its way amongst a flock of white sheep’s. It is for the investor to be alert & sharp enough to identify the black sheep amongst a flock of sheep’s.
As I said earlier, partial blame lies with the Investor himself. Why does he/she not do a background check before he/she trusts the agent/advisor with his/her hard earned money?

Yes. I am a financial advisor too. Yet I am asking you to do the following check on your Advisor before you allow him to render any financial advice to you?

Ask following questions with respect to your Financial Advisor…

1.Is he QUALIFIED enough to give you financial advice?

In the times in which we are living, even the most qualified person finds it difficult to sail through the turbulent world of Investing. In such a scenario, the minimum that one can expect from his/her advisor is that he should have the requisite educational qualification to understand the intricacies of the financial world. A post-graduate degree in finance is a must. Thus, your financial advisor should at least be a CA, MBA (Finance)from a reputed college, a CFP or should hold some other post graduate degree in finance or economics, to say the least. Does holding a post-graduate degree in finance guarantee that your financial advisor is qualified enough to render you financial advice? No. But, if he does not have the bare minimum qualification, then there is a very high chance that he is not fit enough to render financial advice.

By the way, are you aware what is the minimum qualification required to start selling either an Insurance product or a mutual fund product or for that matter any other financial product in India? It is 12thstandard pass and a small exam with unlimited attempts. Yes, believe it or not, one need not be a graduate to become an insurance agent or a mutual fund agent? I have always believed that one’s financial advisor should be equally, if not more qualified than oneself. Imagine a non-graduate, recommending you buy a financial product, which even experts take time to understand….

2.Is he EXPERIENCED enough to give you financial advice?

The 2nd most important credential, besides education, is your Advisors’ work experience. This carries equal weight. What is his career background? How long has he been working in this field? Is it a mere family business that has been handed over to him? Has he had any corporate experience working in a well known financial institution?

I once came across a client who was previously being advised by an insurance agent cum Mutual Fund distributor who was previously a commission agent dealing in food grains. Yes, believe it or not, this guy used to trade in food grains before he started selling insurance and mutual funds, as he found them more remunerative (this was before Aug 1, 2009 when there used to be commissions in Mutual Funds and still fatter commissions in Insurance, although selling insurance products is still highly remunerative). And trust me; he has clientele who are highly qualified and rich businessman. This beats logic, but it’s true. Look around you and you will found more jaw dropping examples of agents with a background that hardly has any co-relation with the financial services industry but are still able to convince people into buying financial products from them, so that the agent can earn hefty commissions.

3.Is he NEUTRAL enough to offer you advice free from biases?

Let us assume that I am an agent of a particular company, say ABC Insurance Ltd. Now imagine that my company ABC Insurance Ltd comes out with a new insurance product, which though not a very attractive proposition for my clients, yet it offers a great incentive to me to sell it as my company intends to sell it aggressively. Now there is a XYZ Insurance company, my competitor, which has a much better product in existence. Now what is the chance that I will push my company’s product? 100%. What is the chance that I will even mention XYZ Insurance Cos. product to my prospect? Almost Nil! Do you get the point here? 

Financial Advisors are supposed to be like doctors writing you a prescription (designing your Investment Strategy) … You are then supposed to buy the medicines (Investment products) from a shop of your choice… now turn this around and imagine you asking the medicine shop owner to write you a prescription and suggest you which medicine to buy…which medicine will he recommend? The ones on which he gets a bigger cut, right…

Look, I have nothing against agents per se. They have worked hard to increase the reach of financial products and to bring them to our door-step . And one does not say that all of them have malafide intentions at all times. However, what one is questioning is their ability to write prescriptions for all patients…

4.Is he a financial advisor or a mere distributor of a financial product?

Now we are living in times when we suffer from the problem of plenty & not scarcity. 22+ Insurance companies with each offering 10 to 15 different insurance plans, 40+ Mutual Fund companies together offering 1000+ mutual fund schemes, 7000+ listed stocks and not to forget a whole host of traditional financial products offered by the banks & post offices. One needs unbiased, fair & specific advice to help one choose the best, value for money financial product that money can buy. A typical agent, representing a particular organization, and who is driven by his remuneration, will hardly be able to offer a free from bias, best in class advice that fits the investor’s profile.

Today, when there are enough financial products to suit all pockets, age & risk profile, one needs to be extremely choosy while buying a financial product and from whom we are buying that particular product. A wrong advice can land you in trouble. So beware from whom you are taking that financial advice?

5.Does he do his own research or does he rely on 3

    Well, imagine you being advised by an agent who does not take pains to update himself/herself on the latest happenings in the financial market in particular and economy in general.
     It’s a very dynamic investment environment out there, changing at break-neck speed. An investment advice that is proper today might require a re-look tomorrow as circumstances change. Your financial advisor must be a voracious reader and a thorough research oriented personality otherwise he does not stand a chance in today’s volatile investing environment.

6.Is your advisor transparent enough about his compensation?

It is your right to know what your agent &/or advisor is earning from you and there is absolutely nothing wrong in asking him about his earnings whether in the form of commissions or in any other way. And the agent &/or advisor should be frank enough about his earnings. If you suspect that your agent is hiding any part of his/her earnings from you, then consider changing your agent/advisor as he/she is not being transparent enough.  

7.Is he here to stay?

How often do you come across an RM/agent who is more than 5 year old with his/her employer? Now imagine buying a financial product that calls for a 10 or even a 15 year commitment from your side and you buying it from an RM who in all likelihood is not expected to remain with his/her employer for even half that tenure. Now, I am not saying that stop buying financial products from them but be aware that in all probabilities, the guy who sold you that product might not be there to service it  a few years down the line. the Institution will stay and you should be taking call on the institution and not the agent.

By the way, do visit this previous article titled “The Citibank fraud and the curse of the RM”,(in case you have not read it earlier)…

8.Check his integrity?

Well, all the above qualities are not enough if your financial agents/advisors’ integrity is in doubt.  Don’t you think so too?  There is nothing wrong with your financial advisor making some income from you. How will he earn his bread & butter otherwise? However, his income should not be at your expense. No way…
I have always believed that a financial advisor-client relationship should be a WIN-WIN situation for both parties.  The nature of the relationship should be symbiotic and not parasitic.

One cannot earn at the expense of another. If that is the case then the relationship will in all probabilities end in a painful death in which both parties eventually tend to loose from the relationship.

I also believe that an Advisor’s job starts and does not end with the money coming in. Unfortunately, for many so called agents, once they have received the investment chq from a prospect & earned their commissions on the same, they are least bothered with what happens to the client’s money. I believe a true financial advisors responsibility increases many-fold after the client has written a cheque and product recommendation is only a first step in the entire wealth management process.

To conclude, if we do as much research while buying a financial product and/or choosing a financial advisor as we do while buying soaps or a White good like a TV or a Laptop or even a mobile phone, we would be much better off. After all, a mobile phone can be replaced in 6 months but one usually gets penalised if one does a premature exit from a financial product that was wrongly bought ….


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