How to Choose and Evaluate a Financial Advisor

Maya is suddenly worth advising

Nobody offered Maya financial advice for the first decade of her working life. Then an inheritance arrived alongside a holding from her employer that has grown into a substantial part of what she owns, and within a few months she had been approached by a relationship manager at her bank, a friend of a cousin who does this professionally, and two firms she had never heard of.

All of them were courteous, all of them seemed knowledgeable, and she had no way of telling them apart. That is the ordinary situation, and it is why choosing an adviser works better as elimination than as selection — the things that should rule somebody out are checkable, while the qualities that make somebody good are mostly not.

Decide what the job is first

"Financial adviser" covers several different jobs, and the right person depends on which one Maya actually needs.

She might need a plan: a one-off piece of work establishing where she is, what her goals cost, what the gap is and what to do about it. This is often the highest-value thing an adviser produces, and it does not require an ongoing relationship at all. She might instead need ongoing management — somebody running the portfolio, rebalancing it and adjusting as her life changes. She might need help with one specific decision, which in her case is the concentrated employer holding, a narrow and technical question best handled by somebody who deals with it often. Or she might need behavioural ballast: somebody to stop her doing something destructive in a crisis, which is rarely stated out loud and is frequently the most valuable function of the lot, requiring a person she would actually telephone when frightened.

Being clear about which of these she wants prevents the most common outcome, which is paying an ongoing percentage forever for something she needed once.

Establish the category and the obligation

Different kinds of intermediary in India operate under different regulatory obligations, and those distinctions matter far more than the job titles do. An adviser registered to give advice, a distributor earning commission on the products they sell, and an agent tied to a single manufacturer are not the same thing, even when the conversation across the table feels identical.

Ask which category the person falls into, ask for their registration details, and verify them independently with the regulator rather than accepting a screenshot. Ask whether they are obliged to act in your best interest, and ask for that in writing.

This page deliberately does not tell you what the current registration categories require or permit, because those are statutory, they change, and a rule quoted from memory is exactly the kind of thing this site refuses to publish. The regulator maintains a public register, which is the authoritative source and takes a few minutes to search.

The questions that actually discriminate

Most interview questions produce whatever answer the adviser knows you are hoping for. A few are harder to rehearse, and the reaction is often more informative than the reply.

The most useful is how they are paid, and specifically what they would earn if Maya did nothing at all. The gap between what a recommendation pays them and what inaction pays them is the incentive operating on every conversation they will ever have with her.

Then ask them to describe a client they told to do less. Good advisers have these stories readily available; somebody who cannot produce one may be in the business of activity rather than advice. Ask what would make them say they are the wrong person for this, because everybody has limits and somebody claiming none has told you something important. Ask how they handled the last big market fall with clients in a similar position — not what they predicted, but what they did, and what they said to frightened people.

Ask what they charge in rupees in a typical year, and insist on the currency figure rather than the percentage. A percentage of a portfolio is an abstraction; the same number in rupees, multiplied across ten years, is a decision. Ask what happens if she wants to leave — exit costs, lock-ins, and what becomes of the investments — before joining rather than after. And ask who else is involved: who has custody of the money, who executes trades, and what happens if the firm closes. Assets should be held somewhere that does not depend on the adviser's business surviving.

What should end the conversation

Some signals are serious enough to stop at rather than probe.

Any assured or guaranteed return on a market-linked product is the clearest. Returns from market investments cannot be guaranteed, so a promise of one is either a misunderstanding of the product or a misrepresentation of it, and neither is acceptable from somebody proposing to manage your money.

Pressure to decide today is the next, because legitimate financial decisions survive a week's thought and urgency is a sales technique — its presence tells you more than anything else said in the meeting. A recommendation arriving before any conversation about Maya's obligations, horizon and existing holdings means somebody is selling, whatever the meeting was called. Reluctance to put costs in writing has no legitimate explanation. Discomfort at the question about commissions is itself informative, since the question is an ordinary one.

Two are closer to outright danger. Advice to route money through a personal account, or to pay an individual rather than a regulated entity, is where fraud lives. And insurance presented as an investment — particularly a product combining the two, particularly at the end of a tax year when the urgency is manufactured by a deadline — is the most heavily distributed bad outcome in Indian personal finance.

Judging one you already have

The test is not whether the portfolio went up. Markets move for reasons unconnected to any adviser, and judging them on last year's return simply rewards whoever took the most risk.

Better questions are whether you understand what you own and why, whether anything has been recommended that you could not explain to a friend, and whether costs were stated plainly or you had to dig for them. Ask whether they contacted you when markets fell, and what they said. Ask whether anything has ever been recommended that reduced their own income — consolidating accounts, staying put, paying off a loan. And ask whether any recommendation has ever been to do nothing at all.

An adviser who has never once told a client to do nothing has either had an extraordinarily eventful few years or is being paid for activity.

Where no adviser is the right answer

If the situation is simple — one income, straightforward goals, no business, no complicated tax position — a low-cost, diversified, automated arrangement may serve better than paid advice, and our companion page on doing it yourself sets out where that line falls.

The honest version is that many people need a plan once rather than a manager forever. Paying for a one-off plan and implementing it yourself is a legitimate and underused option, and a good adviser will say so when it applies. Maya's situation is not that simple — a concentrated holding and a lump sum are exactly the circumstances in which advice earns its fee — but needing help with two decisions does not mean she needs a percentage of everything she owns taken annually and indefinitely.

What to take away

Work out which of the four jobs you are hiring for, then verify the category of intermediary with the regulator rather than with the business card.

Ask how they are paid, what they earn if you do nothing, what it costs in rupees each year, and what leaving would involve — all in writing. Stop the conversation at any guaranteed return on a market-linked product, any pressure to decide today, or any reluctance to state costs plainly. And judge an adviser you already have by whether you understand what you own, and by whether they have ever recommended something that earned them less.