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Red Flags to Look out for when picking an Investment Advisor

by Tavaga Invest

With multiple investments across asset classes all offering different returns and having unique terms and conditions, investors may find it difficult to manage their investments and keep them in line with their financial goals and risk appetite.

It is therefore advisable to reach out for help from experts who can help determine the ideal investment strategy according to the needs of the investor. 

A good financial advisor can help improve your financial well-being, but finding a good financial advisor is often a difficult task. Even though there are plenty of financial advisors from insurance agents, mutual fund distributors, registered investment advisors, media experts, and some self-proclaimed experts on social media these days, a large number of so-called financial advisors are actually salesmen who sell financial products to earn commission from them.

With mis-selling of financial products so rampant in current times, it is often difficult to choose a good, unbiased financial advisor who is not just competent to advise on money matters but also keeps your interest above everything else.

How do investment advisors fool us?

Push inferior investments to earn commission

Mis-selling of financial products is a big menace these days. Financial advisors in the name of advisory often push plans and products to the clients to earn commissions from them without checking the suitability of such investments with the customers. It is therefore advisable to take advice from a fee-based advisor who only earns fees from their clients and can provide an unbiased advisory. It is imperative to check with the financial advisors on how they make money to identify possible areas of conflict of interest.

Ignore the concerns of the clients

If your investment advisor does not make an effort to understand your investment needs and ignore your concerns then you should stay away from them. It is the job of an investment advisor to understand the needs of the client and address his doubts. A client may be set on an idea but a good investment advisor will give their honest opinion to the client and should not push their agenda.

Avoiding you after receiving fees

Certain investment advisors tend to disappear once they have onboarded a new client and earned their fees. An advisor needs to continuously monitor his client’s investments, make changes so that they are aligned with the client’s risk profile and goals, and frequently update the clients with the investment performance.

They are not fiduciary

If your financial advisor does not have a fiduciary duty i.e. he or she is not legally bound to act in your interest, that is another red flag to watch out for. Advisors often push financial products which have higher expenses as they stand an opportunity to earn higher commissions. They often push schemes like close-ended mutual funds or pension-based funds which have longer lock-in periods and high penalties on early withdrawal by simply withholding information from their clients.

A good investment advisor on the other hand provides full transparency and disclosures and lays out all the pros and cons of the product they are suggesting and lets the client make an informed decision. An advisor who does not take the time to explain all the facts may have an ulterior motive and can misguide the investor for personal gains.

Driven by personal agenda

Sometimes, financial advisors, create multiple accounts for the same client to show that they have converted new clients, thereby creating hassles for the clients to track their investments. A financial advisor should try to streamline the process for the client keeping their personal goals aside.

Having a good investment advisor is important as they help the clients develop a healthy relationship with their finances A bad advisor on the other hand may lead to the client losing faith in the financial system. Investors need to be watchful of these red flags and if your financial advisor has exhibited any of these behaviours, it is best to have a clear conversation with them or even consider changing your advisor altogether. It is best to take help from trusted SEBI registered investment advisors who are competent and provide unbiased investment advisory services. 

Disclaimer: This write up is solely for educational purposes.

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