Do I need a Financial Adviser?

Everyone seems to have an opinion on the economy, usually an extrapolation of how they are doing financially. If they are getting lots of jobs offers or business clients, the economy is good. If they are struggling to cover their household expenses, inflation is too high. But is this enough to know what to do with your finances? How do you know if you need a financial adviser?


Financial advisers play different roles


Financial advisers can play different roles. It’s up to you to decide what you need help with. The three main roles are -

Personal coach – Most people procrastinate about both physical and financial fitness. Just like you hire a personal trainer to help with physical fitness, your financial adviser can help with financial fitness. Research shows that the main reason for procrastination is not knowing how/where to start. A personal trainer not only helps us getting started but also motivates us to build good habits. So if you are young and don’t have any major physical or money issues, a personal coach is enough to keep us in shape.


Family doctor/adviser – You go to your family doctor when you have an illness or accident. She can diagnose your problem and refer you to a specialist if you need one. As you get older, it’s a good idea to see your doctor for an annual health-check even if you don’t experience an obvious problem. Being more experienced, doctors can diagnose issues before they become acute. Similarly, you should definitely have a financial adviser if you have a financial issue, but it’s also a good idea to get an annual financial health-check when you take on financial responsibilities, even if you don’t have an obvious issue. You adviser will work with you on your financial goals and diagnose if you are falling behind. She can prescribe simple financial products like mutual funds to help with achieving your goals.


Medical/investment specialist – Once your family doctor identifies an issue, she refers you to a specialist, such as in cardiology or neurology. Similarly, a financial adviser should refer you to an investment specialist who has deeper expertise in investments, a lawyer to help with estate planning, or a family governance expert etc. A lot of times a financial adviser works with in-house specialists so you don’t have to go to a different clinic/firm. But once you have an acute problem or a complicated situation, you may want to get a second opinion from another specialist.


How to choose a financial adviser?


You should select your financial adviser on different criteria depending on your circumstances and the role you want the financial adviser to play -

If you are young and generally financially fit i.e. you don’t have dependents or liabilities, you should look for a personal coach to help you get started on good habits and keep you on track. While some technical knowledge is necessary, what you are really looking for is whether you like them and their coaching style. Do they explain the basics and generally motivate you? If you reasonably self-motivated, you can consider 'robo-advice' services; these are online tools and investment services aimed at the young and financially fit who don’t require personal attention. They are not really robots; mostly, they serve up predetermined portfolios suited to your age and risk profile.


Once you get into financial responsibilities, you need someone who takes the time to understand your personal circumstances and tailors a financial plan just for you. Remember family doctor is supposed to preempt issues by asking you a lot of questions; similarly your financial adviser or financial planner should ask you a lot of questions to really understand your goals, emotional relationship with money, risk profile etc. 

Some advisers use complicated-looking tools and calculators to estimate the cost of your goals; make sure they can explain the assumptions. Ask them if they have access to specialists in investments, tax/legal for wealth protection and estate planning etc.

Look for the globally recognized Certified Financial Planner (CFP) qualification, but a word of warning – it appears the CFP has varying standards in different countries so it’s not a completely reliable indicator of expertise.


If your financial adviser starts recommending anything more than simple mutual funds that invest into blue chip or diversified stocks and government bonds, you should insist on getting a copy of their 'investment philosophy'. The investment philosophy should summarise the adviser's or advice firm’s core beliefs about how financial markets behave, whether and how it’s possible to extract returns above market indices, their research approach to selecting funds and stocks, and how they measure performance and manage risks.


If you are don’t understand something in the investment philosophy statement, you should meet the investment expert who wrote it. Remember the saying - if a person can’t explain it simply, it probably means they don’t understand it themselves.


Look for the globally recognised Chartered Financial Analyst (CFA) qualification, considered the gold standard in investment qualifications, or at least a Master’s degree in finance. Based on my experience, I don’t believe an MBA in finance degree covers investment issues deeply enough, but individuals may well make up gaps by reading widely. Interestingly, investments is an area that anyone can enter at any age and master on their own, without any formal qualifications, if they have the right temperament.


General checks


In addition, to the specific suggestions for various roles, I recommend asking any adviser for their service offer (what’s included and what’s not), all fees and commissions, disclosure of conflicts of interest (including any international trips for 'research purposes') and client references. You can also ask if they work with a particular type of client so they are likely to understand your circumstances better.


I insist on any advice, medical or financial, be in writing. Written advice is mandatory in some countries like Australia but not in others like India. I think it’s a good practice; it allows you to study it at your own pace without pressure. It’s also good in the case of disputes.


Note financial advisers can either operate as broker/dealer/distributor or as ‘registered investment adviser’ - the former get paid through commissions, the latter through client fees. The choice of business model doesn’t make them superior in itself, but the RIA does have to follow a higher ‘fiduciary’ standard which means they have to put clients’ best interests ahead of their own.


I think if they disclose all commissions and conflicts of interest, and provide written advice backed by a coherent investment philosophy, the broker/distributor model can work.


Financial advice is a bit tricky because it’s a relatively new profession compared to medicine, and therefore doesn’t have global standards. But if you think about your own needs and choose a financial adviser accordingly, you can form a rewarding partnership with them.




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