What constitutes Good Financial Advice

The basic function of the advisor is the act as a bridge between the investor and the producer of financial products.  The eagerness and ability of the advisor to act in investor’s interest is important to evaluate an advisor.

Advisors should be able to show the investor how choosing an asset allocation or a set of investment options may benefit the investor in the long run.   They should then be able to advice how such an allocation can be implemented by choosing the right products.

Investment plans require several operational and procedural aspects, such as filling up application forms, completing formalities of opening an investment account or folio, completing the payment formalities,  and such processes. Advisors should be able to schedule, process and complete these steps efficiently

Investment plans require monitoring the performance of the portfolio.  Advisors should be able to generate periodic performance reports that show how the investment plan is working.  They should be able to advice investors for any tactical changes to be made.  Monitoring also involves reinvesting periodic cash flows from the investment, and planning to take care of redemptions and maturity amounts.

Investors will need information on dividends, capital gains, interest from their investment for purposes of tax return filing.  They will also need to plan for payment of advance taxes, capital gain taxes, carry forward and set‐off of capital losses.    

Advisors should be able to show investors how risks can be managed through diversification and be able to articulate the risks of a product with respect to the overall portfolio.  

If investor records are updated the procedural problems when investors need to access their investments are minimised.

This involves the clear communication of rights, duties and responsibilities, documented agreement on services and the fees, transparency in dealings and willingness to share information.  Advisors may be certified by regulatory agencies to perform their function, and become signatories to codes of conduct of their professional associations to win investor confidence.

Just as we return to the restaurant that we liked, or check with friends and others before trying a new one, or go by reputation, patronage and history, we need to apply similar yardsticks before choosing an advisor.