What information and services should you seek from your financial advisor?

An investor education & awareness initiative.

When looking for a suitable financial advisor, there are a number of things that you should bear in mind. Here is a checklist of the basic advice your advisor should provide.

Transparency is key to the advisor relationship

From the very outset, you should determine what sort of business relationship you will have with your financial advisor. Does he have commission agreements in place with particular fund houses, other referral firms, a revenue share agreement with any provider whose products he sells, or is your fee the way that the advisor is reimbursed for working with you? The financial advisor should be transparent and share this information, in written form; however, if none is forthcoming, you should request to see the documents of engagement with fund houses and other relevant entities.

What the advisor should provide

The cornerstone of investment advice and financial planning that any financial advisor should cover includes the following elements:

- Financial status - Your financial status is the snapshot of your current income and expenses, savings, investments and upcoming major financial milestones. This should be established by your advisor before any planning and investing is undertaken. This is also the first step to understanding your risk profile.

- Financial goals – Your financial goals are what you would like to achieve with your savings and investments. The advisor should explore with you what your goals are to ensure that your finances are structured in a manner that will help you achieve them. The advisor should gain an understanding of your lifestyle and circumstances; for example, details about your family, your marital status, your age, etc. These aspects will influence the planning of your financial goals.

- Financial planning – This is the part of financial advice that deals with optimizing your current and future finances. The advisor will evaluate your finances to help you identify where you can cut costs. He will then recommend how much you should invest and in what kind of investments in order to achieve your financial goals; he will also recommend how much you should save for emergencies.

- Lifestyle changes - Your advisor should help you to plan not just for the present but also the future. Your financial advisor should assist you deal with changes in your life situation – when you are getting married, changing jobs, moving house, etc. All of these things trigger financial change and needs; your advisor should help you to invest for these.

- Risk profile – A very important aspect of the advisor’s role is to check how much risk you are able and willing to take. To evaluate this, he will need to assess your risk-taking capacity, which covers objective parameters such as your age, income levels, number of dependants, etc. and your risk tolerance, which covers the subject parameter of how comfortable you are with taking risks. This will then help the advisor work out your asset allocation (how much you should invest in equity and how much in debt).

- Fund recommendations - When the financial advisor has a full picture of your goals, risk appetite and finances in general, he will be able to draw up a shortlist of funds for you to consider as investments. These should reflect your financial goals and your risk profile. For example, bond funds should be recommended if you have a low risk appetite while equities can be recommended if you have a medium to high risk appetite; a mixture of both can reflect different goals and time horizons.

- Frequency of advice – After the initial advice has been made and implemented, it will be necessary for you and your advisor to meet periodically to re-evaluate your financial situation based on changes in your life circumstances. Your advisor will also need to keep you updated on how your investments are faring. You must set up a schedule for this meeting depending on your comfort.

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Key Takeaways

  • Before you engage a financial advisor, make sure you are aware of how he is compensated for working with you.
  • Your financial advisor must help you with assessing your financial situation, create a financial plan for you, assess your risk profile and work out your asset allocation before recommending investments.
  • After the initial advice has been made and implemented, it will be necessary for you and your advisor to meet periodically to re-evaluate your financial situation based on changes in your life circumstances.

Disclaimer: All Mutual Fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (‘RMF’). For more info on KYC, RMF & procedure to lodge/redress complaints, visit This is an investor education & awareness initiative by DSP Mutual Fund.