Before hiring a financial planner, ensure he has the capabilities and practices sound business ethics.

   A Financial advisor may recommend you a unit-linked insurance plan (Ulip) or a mutual fund. Does a lot of thought process go into it before he recommends one for you? May be, may be not. With so much at stake, you can’t afford hiring a bad advisor or one who is commission-hungry. By following these thumb rules, you can safeguard from being given a short shrift. First of all, ask this question.


• Selling financial plan or a product?    

A genuine financial advisor will try to sell a plan and not a product.


• Correlate input and output    

If the advisor sells a product or a financial plan just try and modify your requirements and watch his reaction. For example, you could say that you need sufficient liquidity for next year. If he still insists on high equity component than a judicious mix of debt and equity, you know your answer. Change in inputs should lead to appropriate change in the output, which is the financial plan.


• How often do you churn your portfolio?    

Does you financial advisor ask you to replace the underperforming funds every third or the fourth month with the performing ones? This doesn’t seem illogical. However, you need to calculate the 2.25% entry load which you have to pay every time you sign for a new mutual fund with a different asset management company. Changing an AMC would cost you an entry load of 2.25%, which would, in turn, benefit the advisor as he will get a sizeable commission. So, ask the right questions before churning the portfolio and assess its cost efficiency.


• Run a quality check    

Read about your advisor before giving your portfolio to him. If he or she recommends some mutual funds or policies, cross check the information online or with some credential source. If there are discrepancies, question him.


• Educational background    

Today, the spectrum of financial advisors is not regulated. A commerce graduate, chartered accountant or an MBA could be your financial advisor. While financial qualifications does not necessarily be equated to sound financial advice, having it also gives some comfort factor for an investor. So, look at the advisor’s education background to find if he is competent enough to handle your portfolio. While having a financial planner is good, it is always a good practice to also review portfolios on your own. The investment related portfolio such as equity could be reviewed once in every quarter. The other non-investment ones, like insurance, should be reviewed once every year.


• What is the advisor’s commission?


   There are a number of investment/saving products such as mutual funds, Ulips, endowment plans, shares and post office small saving schemes available in the market today. Among that, Ulips are the most lucrative. While Ulips and endowment plans as such are good products, they are not meant for all investors. Typically, you should stay invested at least for 10-15 years to reduce costs. Ulips earn a high commission for a financial advisor. This motive should not influence his financial advice. So, do product checks before you sign the dotted line.