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How to choose your investment advisor

July 28, 2004 15:42 IST

The role played by investment advisors has assumed significance in recent times. Factors like rapidly changing market conditions and availability of various investment options have necesseciated the presence of a sound and well-informed investment advisor.

We present a checklist of 'must haves' for your investment advisor.

1. Is your investment advisor qualified?

Advisors selling mutual fund schemes should hold the required qualifications. The Association of Mutual Funds in India accredits individuals who are successful in the qualifying exam as AMFI registered mutual fund advisors.

Find out if your agent holds the mandatory credentials. Similarly ensure that the advisor is not an individual who peddles investments as "on the side" activity. Acting on the advice offered by an individual who doesn't hold the requisite knowledge could spell disaster for your investments.

2. Will he provide investment solutions?

Providing investment solutions is a completely different ball game as compared to simply selling investment products.

Check if your investment advisor offers you the entire range of products ranging from mutual funds, bonds to fixed deposits i.e. is he in a position to offer you all the offerings to construct the ideal portfolio?

More importantly your investment advisor should help you attain the ideal asset allocation. The various investment options he offers you need to be customised to your needs, objectives and risk appetite.

On the contrary if your advisor uses the 'one size fits all' approach, then you are probably dealing with the wrong advisor.

3. Does your advisor provide value add services?

Entering the transaction is simply the starting point; investments need to be monitored and tracked on a regular basis.

Your investment advisor should be able to provide you with tools and calculators for online tracking of your investments. Also he should advice you on managing your investments in accordance with changing market conditions.

These value-add services should form an integral part of the advisor's offering.

4. Can your advisor provide timely after sales support?

The advisor should have the necessary infrastructure to provide you with prompt and reliable after sales support.

Liquidity is often a driving factor for mutual fund investors, and the advisor should be able to service redemptions, transfers, et cetera. An advisor who is easily accessible would generally make sense.

5. Does you advisor provide you objective advice?

While it may be difficult to assess your advisor on this parameter in the initial stages, over a period of time you will recognise his motives. Ideally your advisor should be putting your interests before his.

If your advisor tries to convince you (a risk-averse investor) to liquidate your bond investments and invest in mutual fund schemes, then probably his "commissions" are driving him as opposed to your interests.

Similarly if an advisor insists on you investing in only one mutual fund scheme as opposed to diversifying across various fund houses, there is a fair chance that the asset management company's brokerage structure is preying on his mind.

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