1. Know the difference
Distributors of financial products do not provide any advice and offer a bouquet of products for you to choose from as per your requirement. In return they get a commission which is generally built as part of product. This many a times makes them prone to pushing products that they have, often ignoring the real need of the customer.
Financial advisors on the other hand, go as per the customer need backwards. This means that they begin with a thorough need analysis of the customer by understating his/ her life goals, and then suggest products that are best suited to achieving those goals in a financially secure manner. In case they do not have the right product available with the financial advisor, he or she may even walkout of the discussion without selling any product.
2. Take into account their level of interest in gathering relevant information
Realizing the need to gather comprehensive information about your financial profile, is the cornerstone of good financial planning.
It is therefore important to ensure that the person you’re trusting with your finances, is eager to ask relevant questions about your aspirations, income, expenses, long and short-term goals, assets, liabilities, tax situation etc. He/ she must also propose need-based suggestions to achieve your financial goals, instead of product-based suggestions. While a financial distributor is prone to address your requirements with products they are commissioned to sell, a financial advisor is likely to make objective suggestions to fit your requirements.
3. There should be eagerness to discuss risks and returns
One of the most important things to look for in a financial planner is his/her extent of readiness to discuss the possible risks and returns with you. Rather than glorifying individual merit of products on offer such as having yielded supreme returns to clients in the past, a dedicated planner would be more interested in assessing your risk appetite, setting the right expectation with regards to returns on investment and possible risks you may run in the near and long term.
4. Willingness for a holistic discussion on various financial offerings is crucial
The right person for your finances is one who has high regard for whether a particular product fits your requirement and/or adds value to your portfolio. It is crucial to ensure that you go for someone who isn’t afraid to give you a holistic overview of all competitive avenues available in the market to help address your myriad needs from retirement planning to wealth creation, debt repayment to more. A financial advisor is well positioned to offer a wholesome guidance on how to best approach finances, even if it means withdrawing from a sales if the product does not fit your needs.
5. Choosing between institutional and individual advisor
Even within financial advisors, there are two broad categories – a personal financial advisor, who is a professional helping the financially under-equipped individuals manage their money and institutional advisors that are entities soliciting financial products advice. Both are designed to cater to specific needs of a customer. For instance, a regular customer would typically approach a personal financial advisor with whom he is personally comfortable but someone with a significantly larger portfolio, such as an HNI, would likely require the larger perspective of an institutional advisor.
Just as it is imperative to scrutinize potential candidates before you cast the deciding vote, it is equally important to consider various elements if polarized in your choice between a financial advisor and a financial distributor, especially when the lines between the two seem to be increasingly blurring. With careful consideration of simple deciding elements, you can change the course of your finances for the better.