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7-Step Checklist To Follow When Choosing an Investment Advisor

If you have considered using the services of an investment advisor, then you have made a smart move. Not everyone understands the importance and need for an investment advisor and probably that’s why they end up blaming others for mistakes in stock market trading that could have been avoided. While it is not easy to predict the outcomes of the stock market, one can steer away from pitfalls by using back-tested data, research based analysis, and suggestions provided by experts who have spent years understanding the dynamics of the stock market.

Whenever you make an investment, you need to plan your moves very carefully as it involves your hard earned money and you would not want to risk losing all of it. This is where investment advisors can come in handy. Not only do they offer data driven recommendations, but also help you to understand the market based on your preferred trading or investment style. Your stock broker probably might not get so involved because every trade that they execute for you earns them a commission. But can you really trust their intentions? I guess not!

Before you go around taking investment advice from just about anyone (including your best friend, partner, love of your life, your boss, or even your neighbour), make sure you go through the following checklist which should give you an idea of the things to keep an eye out for while choosing the best investment advisor for you.

Are You Being Assured of Returns or Profits?

If you have been assured of any profits or returns in any manner, you should immediately walk away from the investment advisor. A genuine advisor would never even speak about any guarantees or commitments of returns because the stock market is highly volatile and risk is always evident in any investment that is made. It is impossible to assure any profits in the market. We can only work with existing data and use past performance as a metric for making predictions of future performance of a particular stock, sector, or industry.

Are You Being Made Aware of the Associated Risk?

No investment is free from risk. It is evident in various form irrespective of the length or period of investment. A genuine investment advisor would ensure that you have proper clarity on all the risks associated with your stock market investments and will help you to understand the available options to mitigate the risks (within feasible limits). If the advisor is reluctant in clarifying the associated risks, you should consider this as a red flag and back off from the deal.

Do You Genuinely Feel That The Recommendations Are Research Based?

Ideally, all investment advisors should base their recommendations on research data. Otherwise, it makes no sense to use the services of an advisor. We cannot just work on the basis of assumptions and instincts. When you ask for clarifications on the type of recommendations and the mode of recommendations provided, make sure you understand whether the recommendations are personal calls being given by sales executives or they are provided by researchers. If you feel that the recommendations are not coming from a proper source, then you should consider moving away from the deal.

Are You Being Offered Services Other Than Advice / Recommendations?

There have been cases where people have been duped by certain advisors into believing that their investments are being managed by them. Please understand that the role of an investment advisor is to only provide trading signals and recommendations, and they can never trade on your behalf. Advisers  are also not authorized to offer any other services apart from advisory services. If you have been committed or assured of a service which is not under the norms of advisory services, then you should back off and seek out other advisors. Never fall into such a trap and risk your investments.

Are You Being Forced Into Taking Services Not Suitable For Your Capital?

When it comes to sales, every salesman is after one goal – to extract the most benefits out of you. But very few sales executives work as consultants and focus on your goals, rather than meeting their targets. All investment advisors are required to provide you services that are in line with your risk appetite and capital availability. If you are being sold services that are beyond your accepted risk and available capital, then you should not proceed with any further engagement. This is a move that most advisors make to meet their targets without considering the financial health of their customers. However, a genuine investment advisor would ensure that the risk profile of the customer is evaluated properly before offering services or products to them.

Is The Investment Advisor Verifying Your Understanding of the Services?

While interacting with the investment advisor, you will be told about various features of their advisory services. Most of it will be quite interesting to listen to. However, it is important that you have utmost clarity with respect to the features of the services being sold to you. Ideally, the investment advisor will arrange a call back from their support team to check whether you have understood the features of the services that you have subscribed for. This check is usually done after a service has been sold to a customer. A good approach would be to get a confirmation of understanding of the features during the initial interaction with the advisor. This will help you to avoid possible pitfalls later.

Is The Investment Advisor Certified and Compliant?

It is important that you engage with an investment advisor that is certified and compliant with the regulations. Working with a certified advisor is a safer approach because it indicates that the processes are compliant with the guidelines and there is a possible recourse in the event that a mishap has occurred. There have been cases where advisors that are non-compliant have risked the investments of their customers by not following the protocols that have been defined. It is better to work with a certified and compliant investment advisor. While working with certified IAs, such mishap can also happen. However, the intensity or the degree with which the mishap hits the client is relatively low.

A Final Word Of Advice

Never go with the first advisor that comes your way. You would never settle for anything less than the best when you go shopping for a car or your home, right? Then why settle for the second best when it comes to choosing the best investment advisor for your investments. Interact with various advisors and evaluate their past performance before making up your mind. Try not to base your decision solely on reviews that you find online because some of them would be an angry reaction to a loss which might have occurred due to market volatility. Remember, an investment advisor should always work in your best interest and help you manage your investments rather than focusing on vested interests.

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Complaint Board
As On 30th April, 2020
Beginning of month Received during the month Resolved during the month Pending at the end of the month Reason for pendency
214 0 0 1 Closed by us, Filed ATR, SCORES approval awaited

Total clients served so far Total complaints received so far % complaint on customer base
70,000+ Customers 214 0.30%

Data is updated on 7th per month. It gets verified every quarter by independent auditor.

Data presented here is taken from company's inception

Importance given to satisfactory resolution as per prescribed TAT