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Jayachandran/Mint
Jayachandran/Mint

How to select the right financial adviser

You need to be able to ask the right questions to your adviser

Late last month, I conducted a day-long workshop for financial advisers seeking to grow and develop their non-resident Indian (NRI) business. When I saw that nearly 90% of my audience already dealt with NRIs, I decided to speed up the initial part of my presentation which covered the aspects of residency rules in India, income subject to tax locally and so on. A little while later, I was to rue that decision as knowledge about some of the basics in these areas were missing. It made me realize that investors not necessarily pick their advisers rationally. The question then is how do you choose the right financial adviser?

Normally, an NRI gets associated with an intermediary for a financial transaction. This could be for buying a property, or dematerializing and selling some shares, or filing tax returns. Many miles away from Indian shores, the NRI has suddenly found a link to financial nirvana as the intermediary acted on the problematic transaction with competence and built trust in the way she handled the relationship.

So far, so good. But now the problems that you had left behind in India have come back to torment you as you see a friend sharing how they solved a latent issue—and you do not want to be left out. As Indians, we tend to be judgemental. We therefore do not want to be judged—especially if the result is not in our favour. Hence, when a real estate broker is asked about a sale or a chartered accountant is queried about a financial planning matter, she normally raises and waves her hand vigorously to indicate that she is “competent" to handle all financial issues of the NRI.

Trust and ability or competence go hand in hand in building a long term, mutually beneficial relationship and if you do not own up to the lack of the latter, the former (trust) starts getting thrown out of the window. We have always believed that to retain the trust of the investor, we should be willing to admit that we lack competence in a particular area, locate a suitable authority to whom we can “outsource" the query, participate in the discussion so as to be able to ask the right questions on behalf of our client and develop an understanding leading to expertise in this area.

So as an investor, you need to be able to ask the right questions to your adviser to assess that she possesses both the trust as well as the competence for her to act on the subject matter in question. It goes without saying that the maximum time needs to be spent in this area prior to selection of your adviser. There is help at hand. The Securities and Exchange Board of India (Sebi) has notified the investment adviser regulations in 2013. Anyone who provides advice for consideration or holds herself out to be an adviser needs to register before 21 October 2013. There are some exceptions to this rule at present; but for those who are serious to remain in the financial advice industry there seems to be only one way to go. But do not expect magic in the short term. One final thing—as investors, you are much better off in paying fees to your adviser. That way, you can build on a relationship. There are costs that an adviser needs to incur to apply for and maintain her advisory licence. In short, you should know how your adviser is compensated and ensure that you demand and get value from your relationship. After all, being an adviser to an NRI demands updated knowledge of tax laws, factors that affect currency, operational processes and an honest and regular communication channel.

At the end of my workshop, faced by the seemingly insurmountable and vast scope of expertise required, some advisers confessed that they were ill-equipped or unprepared to do full justice to the requirements of dealing with their clients. As investors, you need to keep your ears close to the ground to ensure that your adviser is not one of those.

Lovaii Navlakhi is founder and CEO, International Money Matters Pvt. Ltd.

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