Thursday, January 10, 2019

Guide to starting with long term investment and selecting your financial advisor

Retail Investors normally invests to save their yearly income taxes and rarely their investments are made with proper strategy or planning. They try to look for quick and easy alternatives through which they can save the maximum of their income taxes and quite often with limited knowledge about the investment products, they are misled by the last minute cold calling done by the agents, who are obligated to sell their company's products to meet their targets.
Investments made with such discretion are a mismatch to investors expectations and as a result, they lose both money and trust on the markets and thereby they divert their investments to Bank FDs or life insurance policies considering LIC as the best and the safest option.

Investment, on the other hand, should be considered a full year process involving multiple discussions with their financial advisor on investment plan and strategies.
With Financial Advisor, I don't mean the brokers, I meant a person who is aware of the investment products and their associated risks and who should be able to guide you on your investment plans.
So the first task is to find the right guy, a.k.a financial advisor (FA), whom you can trust exposing your finances and he/she can accordingly guide you with your investments.

One of the best ways to evaluate a FA is to never finalize a FA in one meeting. Try to arrange the meeting with multiple FAs and ask questions and take notes and compare the responses of the different advisors you meet to help you decide whether the financial advisor is qualified and he/she is a good fit to help you with your investments.
Some of the questions that can be asked to a financial advisor are:
• Their education and professional experience and how long they have been working with the firm.
• How they decide on appropriate investments for their clients
• What is the compensation arrangement with the employer, if they are paid by salary, commission or other fees
• How often you'll meet and how they will keep you informed
• Try to get references from previous clients
• Has there been any restrictions, terms or conditions placed on their registration approval and if they are currently under investigation by securities regulators in the country where you plan to start with investments.

On the other hand, a Financial Advisor should be asking you below questions before creating your financial plan or recommending you any investment product.
• Age
• Total annual income
• Number of dependents
• Estimated net worth
• Income Tax paid in the last 2-3 years
• Monthly expenses
• Investment knowledge and experience
• Investment goals/objective
• Investment term or when you will need access to money you’ve invested
• And your risk tolerance or tolerable limit of asset corrosion in the event of recessionary trends.

Once you feel you have got the right advisor, it is time to schedule the further meetings with him/her and discuss your long term objectives, which you planned to achieve from your savings.
A piece of advice: Do not hesitate/hide about any of your investment constraints/risks tolerance thresholds with your advisor. Consider them to be your investment doctor :)

Job doesn't end here for the Investors. They need to regularly monitor their investments and ask their financial advisor to arrange meetings (almost monthly) to keep track of the goals and investment objectives.
They should ask for, at least quarterly, investment statements to confirm the strategy followed by traders is as per the investment plan prepared by the financial advisors.


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