What Are the Best Ways to Choose an Investment Advisor?

Managing money can be a challenge if you do not have sufficient knowledge and experience. This is when you can seek the help of an investment advisor who can advise you on money and investments.

People often wonder how to select an investment advisor who is right for their business. Here are the factors that they should consider while doing that.

An investment advisor should always act in the client's best interest, but at the same time, how they make money creates a conflict of interest with their clients. This is why you should clarify these with your advisor beforehand since it can affect the investment advice they provide. 

Moreover, many financial advisors specialise in different niches; thus, you should select an advisor based on your primary goals. If you need help selecting the right person, you can opt for the advice of experts who can steer you on the right path.

Here are some innovative ways to choose an investment advisor for your business.

1. Increase Your Own Awareness

You can only achieve the best results when you know your financial needs and goals. You can choose a specialist in the field when you are clear about your financial needs and requirements. 

2. Identify What Kind of Service You Need

After narrowing down your financial goal, determine how you want to work with your advisor. When you know what you want and how an advisor delivers their services, you can easily select the right person for your business.

3. Check Advisor's Regulatory Qualifications

Ensure that your advisor has registration from proper regulatory authorities and does not have a shady history. Check whether they are registered with trusted bodies such as SEBI or other reputed organisations.

4. Know Their Fees and Resolve Conflicts of Interest

Make sure that you know how your investment advisor charges his fees. Usually, they are paid by client fees (fees only), commission, or a combination of both (fee-based). When commissions are involved in the advisor’s fee, it becomes harder for them to work independently by putting the client’s interests before their own. 

5. Review Their Clients List

It is a good sign when an advisor has a list of renowned clients to whom they cater. However, if most of their clients are individuals or corporate giants with high net worth, they might not be able to give you advice suited to your needs. 

This is why ask about the kind of businesses the advisor works with to get a better idea about whether they are suitable to provide you with the advice you need.

6. Know Their Investment Philosophy

The person you hire should have a proper process-driven strategy that they can customise according to your personal needs and goals. Your advisor should have a pre-decided investment philosophy and make you aware before making any changes. 

Similarly, you should know the method of investment that your advisor is using and ensure that it remains the same throughout the time you are working with them.

7. Review Your Investor’s Performance

How your advisor's clients have prospered under them is proof of their performance. This is why when selecting an advisor, ask to see their performance data from the last five years. Look closely into what type of investment risks your advisor handles. 

If the advisor does not prove their performance data, it can be because they have not handled their past client's interests well. 

8. Avoid Suspicious Investment Schemes

Investment agencies or reputable individuals often promise better ROI to their clients. It is usually a warning sign when an advisor promises to double your investments in 12 months or less.

Although some high-risk investments offer higher profits than the usual rate, they require market knowledge and expertise. This is why being aware of the market average rates will let you easily identify when the results promised by your advisor are exaggerated.

9. Run a Background Check on Your Advisor

When selecting someone to be in charge of your finances, it is crucial to know whether they have a clean history. A thorough background check will tell you if they have ever committed any crime and, most importantly, if they have ever indulged in any malpractices in the financial market.

If you find out about any pending cases or crimes in your advisor's history, it is better to avoid them.

Now that you know how to pick an investment advisor for your business needs, learn what type of advisor will suit your needs.

Some investment advisors have a fiduciary duty towards their clients, which means they put the client's interests above their own. It would be best if you worked with a licensed fiduciary that functions on a fee-only rather than a fee-based format. There are two types of investment advisors.

1. Fee-only Advisor

This is because a fee-only advisor charges a flat fee, hourly rate or asset percentage from their clients for their services. In this structure, an advisor does not get commissions or any other payments from the providers of financial products that they recommend to their clients.

2. Fee-based Advisor

A fee-based advisor earns through sources such as commissions from various providers for recommending their product to their clients and from client's fees. It can lead to a conflict of interest since the advisor may try to steer the client to a specific product or service to earn commissions. 

An advisor can get paid in a lot of different ways. However, to avoid conflict of interest, you need to know whether that is pushing you towards a particular financial product.

This is why it is advisable to choose an advisor who works on a fee-only basis while following a fiduciary standard. 

Apart from the type of advisor, also consider their qualifications.

Carefully checking the educational qualifications, experience, and background is an essential step in selecting an advisor you should never skip. 

Independent and authentic advisors are often registered with their states or the Securities and Exchange Board of India (SEBI), where you can get detailed information about them. 

Furthermore, consider the individual's steps to keep themselves updated with the current market conditions. Please take into account the certifications they hold, and also allot some time to learn about the requirements needed to complete them. 

For example, investment advisors registered with SEBI often need to hold the post of Chartered Public Accountant (CPA), Chartered Financial Analyst (CFA) etc., which are considered excellent qualifications. 

The website and opinion articles about your advisor are a great place to learn about their qualifications, thought processes and investment style.

When you commit to an investment advisor, you should ask them some things to ensure you are hiring the right person. Here are a few such questions you should ask your financial advisor. 

• Are you a fiduciary?
• How will you receive your payment?
• What will be my overall costs?
• What kind of qualifications do you have?
• How will you make our arrangement work?
• What is your philosophy regarding investment?
• What kind of investment benchmarks do you use?
• Who will act as your custodian?
• What amount of tax hit will I face when investing with you?
• What asset allocation will you use?

An investment advisor can charge anywhere from Rs. 6,000 to Rs. 40,000. Moreover, many professionals charge a percentage of their client's assets per annum, usually around 1%. 

However, the charges of an investment advisor will depend on the location, experience and qualification of the individual.

An investment advisor can be an excellent decision for your business if you can find the right expert. Thus, always be extra careful when you are browsing about how to pick an investment advisor.