Gaurav Chakraborty
Gaurav Chakraborty


Looking for a financial advisor? Make sure your advisor is offering these six things

Look for the following 6 things in your advisor: No conflict of interest, focus on your financial goals, focus on your risk appetite, solid portfolio construction, right instrument selection and continuous handholding.

Professional financial advice can make a big difference to your returns. However, not all advice is created equal. Follow our checklist to find out what you should be looking for in your financial advisor.

1. No conflict of interest: Before we even start, the first thing that investors should demand from their advisers is the complete alignment of interests. Would you ever consider visiting a “free” doctor who gets paid by the companies whose medicines he/she prescribes? Most people would immediately reach the (correct?) conclusion that such a doctor would prescribe expensive and often unnecessary medicines and say no. Unfortunately, when it comes to their financial health, investors are usually not as careful. All of us routinely fall for “free” advice coming from commission-based agents (See Invest in direct mutual funds for higher returns to understand more about financial product commissions), not realizing that just as with medicines we will land up with expensive products that are not suited to our needs. So we end up paying for advice through the products and still get handed sub-standard stuff. Always carefully consider the incentives of your adviser!

2. Help you invest for goals: A lot of investors often “just invest” their money in the hope that it will grow enough to meet their future needs. This approach is exactly what it sounds like – shooting arrows in the dark. Instead, the role of a good financial adviser should be to help clients understand their financial goals and help them build a separate portfolio for each goal. This is because both the nature of your goal and the time period over which you want to achieve the goal is crucial for the kind of investment portfolio you should hold. For instance, some goals such as retirement planning or building a safety net are more crucial to achieving than other goals such as building wealth. Hence you need to holder safer portfolios for such goals. Similarly, equities are expected to outperform debt over long horizons, but over shorter horizons, your debt investments are much more likely to be up (because you will earn regular interest) compared to equities. In general, the longer your investment horizon, the more risky portfolios you can afford to hold. By planning towards goals, and thinking of their full portfolio as just a collection of individual goal-based portfolios, investors can considerably increase their chances of achieving those goals.

3. Help you invest based on risk preference: A good financial plan is a necessary condition for achieving your goals but it is not sufficient. It is also important to stick to your financial plan when the going gets tough and your portfolio is not doing as well. However an individual’s ability to stick to the plan in the face of losses is determined by multiple factors – their income from sources other than investments and how certain that income is, the importance of the investment portfolio to their total net worth, their attitude towards risk etc. A good financial adviser recognizes the importance of these factors and hence also adjusts the goal portfolios for their client’s capacity to take a risk.

4. Construct the most appropriate portfolio: Once an appropriate risk level has been determined, the next step is to construct the best portfolio for that risk. Intuitively, most investors understand that safer portfolios should have more debt and riskier portfolios should have more equities. However, the role of a good financial adviser is to go one step further. Portfolio construction is only partly an art. There is also a lot of science behind it, which your advisor can employ to construct portfolios. In fact, Harry Markowitz won the Nobel Prize in 1990 for his work in the area of portfolio construction. Without going into too many mathematical details, portfolio construction should at least take into account the risk of each component and how those components interact with each other. Investors should demand this sort of expertise from their adviser.

5. Help with instrument selection: Once all of these steps have been achieved, then we finally come to instrument selection. Mutuals funds are a common and handy way for holding any particular asset class whether it is equities, bonds, money market, commodities or something else. A good financial advisor should help you select good funds. There are many metrics for identifying good funds, which an adviser can and should employ such as track record, AUM, expense ratio, consistency of performance etc. However, beware of advisers whose only value-add to you seems to be selecting the best fund. You are settling for too less!

6. Continuous hand-holding: While setting up your portfolio in the right way is a great beginning, a good advisor should also hand-hold you through the process of achieving your goals. This can include: adjusting your portfolio over time as you move closer to your goals or if there is a change in your life circumstances, updating advice on which funds to hold, help you in dealing with losses in your portfolio so that you can still achieve your goals etc. Some good advisors can also help you with timing the market (when to hold equities, when to hold gold, when to hold bonds) but this is up to personal preference.

At ORO, we try to provide all these six features to our clients at affordable costs. We offer clients only direct funds, therefore saving them 1-2% in commissions upfront and avoiding any conflicts of interest. From these saved commissions, clients need to spend a little bit to access our premium services which also includes advisory. Clients get a world-class portfolio completely suited to their goals and risk preferences. ORO advisory also takes care of regularly managing your portfolio.

Created by
Gaurav Chakraborty
Gaurav Chakraborty

Gaurav is an engineer-turned-digital marketeer. Also a personal finance blogger with experience in financial planning and crowdfunding sector. He is a part of the Marketing team at Orowealth.


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