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The Role Of An Advisor

There's no doubt that Advisors who do their job well provide a valuable service indeed. As a client, what are the basic expectations you must have from your Advisor? Let's find out

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The Indian investor community stands divided. There are clients who, fingers burned, have sworn off the support of a Financial Advisor for life. The other camp consists of clients who still believe that Financial Advisors create tangible value and are an importance aspect of their investing life. There's no doubt that Advisors who do their job well provide a valuable service indeed. As a client, what are the basic expectations you must have from your Advisor? Let's find out.

A Brief Background

The rampant mis-selling of ULIP's and target oriented, product push led Advisory roles crafted by many banks in the early-to-mid 2000s led to a significant erosion of investor confidence in the Advisory function as a whole. Since then, there has been a step up in industry initiatives (such as capping of commissions and more transparency) that are geared to lead to a 'survival of the client centric' of sorts. While this has caused pain to many financial intermediaries, it has also spawned a new breed of Advisors who believe in mutual value creation through conflict free advice.

The Advisory Role
The role of an Advisor really begins with an expectation setting exercise. To borrow from Financial Planning parlance, this would be the "Establish Client Planner Relationship" step in which the Advisor clearly articulates the nature of services he or she would be providing to the client, discloses conflicts of interest and lays the foundation for the planning process that lies ahead.

Post this, an Advisor can be expected to draw up a holistic picture of your finances (debts, assets, ongoing savings, etc) so that they can be put in perspective with your financial objectives. There may be certain investments or life insurance policies which were not well thought out, and an Advisor could assist you in performing a cleanup of these fruitless outflows or blocked moneys. Your Advisor may also come up with a debt repayment plan which forces you to take a long hard look at your current lifestyle and make rational short term compromises, if necessary.

Having evaluated your current picture, your Advisor should go about helping you plan for your future goals (such as retirement, child's education or a home purchase), mapping appropriate instruments to each goal and getting you started with them.

The handholding commences thereafter, wherein an Advisor should protect you against your own instincts to take wrong investment decisions when markets play their alternating role of spoilsport and temptress, as they always do.

Shyam Sunder, Managing Director, PeakAlpha Investment Services (Bengaluru) sums up the role of an Advisor succinctly. "Broadly speaking, the Advisor's function is to help the client clearly articulate and plan for financial goals, bring discipline to saving and investing, and most importantly, protect the client from their natural instincts of greed and fear", he notes.

The Trustworthiness Test
More often than not, a lack of trust at the client's end prevents them from fully engaging with their Advisor; or dealing with multiple Advisors, which can have its own pitfalls. As a client, how do you know if you can trust your Advisor? To begin with, you can explore what values your Advisor embodies and what kind of language he or she speaks. Also look for clues within your Advisor's client base and online testimonials. Seek out references, if possible.

Unfortunately, trust building is a time consuming exercise and doesn't have a fast forward button. You may be better off starting with smaller amounts to assess your Advisors attitude to client management, proactive reviews and due process. Use your intelligence to assess if your Advisor is behaving in a 100% conflict free manner before you jump in with both feet.

"The spoken word must be backed up by evident behavior. The client will acquire such confidence if he observes the advisors demonstrating fiduciary intent in everything they do", says Sunder of PeakAlpha. "Further, the investing process and instrument selection must be demonstrably objective".

The Question of Fees
To conclude, let's explore the issue of Advisory fees. Typically, in developed markets such as the US, many Financial Advisors work on a fee based model. These fees can be charged in many different ways - fixed/ flat rates, percentage of assets, hourly consulting rates or annual retainers, for instance.

In India, we've observed a lower propensity to pay fees to Advisors. However, that's ironic; as it is the fee based Advisors who are quite possibly aiming to create a win-win scenario which results in a sustainable business model - one that has no conflict of interest and doesn't come at the expense of their clients.

Rather than running away from fee based Advisory models as a client, you'd be making a smart move by actually engaging with them. Find out more about what services they are offering in exchange of the fees, and weigh them alongside the money you'll be foregoing.

Sunder believes that the trend is shifting, and clients are now starting to consider paying fees to their Advisors if they see value in the services being rendered to them. "Historically, Indians are used to seeking out and respecting advisors, from our ancient gurus onwards. Today, the Indian client is perhaps more value oriented than her peer", he says. "But clients will and do pay advisory fees, if they believe the advice is making their lives better"


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