What to look for in an Investment Advisor - In My View


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The second article in the "In My View" series. Please feel free to leave a comment.

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What to look for in an Investment Advisor - In My View

  1. 1. What to look for in an Investment Advisor – In My ViewI have been involved with investing, directly or indirectly, for nearly ten years now and something Ihave noticed during this time is how much investors depend on their investment advisor. Not allinvestors are finance savvy, many do not have the time to sit and study the vast amount ofinformation that is available and many leave their hard earned money at the “mercy” of theirinvestment advisor.Many have asked me, over the years, how to find a good investment advisor, whether the StockExchange has a “rating” system for them and about how they get information about listedcompanies and securities.Everyone realizes their mistakes a little too late. Investors find that they have not kept in touch withtheir investment advisor or with what is happening in the market, only when their portfolio value isplummeting rapidly.While a vast literature is available out there, which will help investors, both existing and potential,about how to find a good investment advisor; I would recommend the following five points to keep alook out for, when searching for an investment advisor. QualificationsPersonally, I do not think that they need to carry a degree from a particular field or from a particularuniversity but DO need to be properly licensed to carry out the functions of an investment advisorfrom the proper regulatory authority.If investors cannot determine whether they are properlylicensed, it is important to ask about it rather than being silent about it.It is also good if they have a degree or even masters’ in their area of study but the license isESSENTIAL. The regulatory authority, which issues the license, specifies the requirements that theyneed to meet including the continuous professional developments that they need to undertakewhile they practice as an investment advisor. ExperienceExperience matters, especially in the field of investing. Practical knowledge is paramount togetherwith the theoretical knowledge. Hence, it is good if they have been “around” the industry for sometime. I am not sure of the time frame of experience (whether the investment advisor should havefive or ten years of experience) but definitely choose someone with a “sufficient” level of experiencerather than someone who is just starting their career.The investor can be better “guided” if the investment advisor has been “around” as they have beeninvolved with the cycles, developments and other changes that are usually associated with investing.Page 1 of 2
  2. 2. Knows what is happeningIt is important that the investment advisor know “what is happening around” as almost anything andeverything can affect investment. This varies from issues such as political, economic, social andtechnological to individual company performances. It is important to know that he/she is on “top ofthings” as it may be a situation that needs decision making very quickly.Many a times, information that comes to the market needs to be understood and dealt with quickly(before it becomes yesterday’s news) as it can have a direct impact on the clients’ investment. Itcould be that the investment needs to be sold off fast or the amount invested can be increased toprofit from an opportunity emerged. Understanding the clientIt is essential that the investment advisor understands the client. I have come to the conclusion thatthe successful achievement of the investment objectives has a positive relationship with theinvestment advisors’ understanding of the client!The investment advisor needs to understand the investment goals or objectives of the client, bothshort term and long term, his willingness and ability to take risks and other issues such as taxes.Some clients may have special preferences, maybe due to their cultural or religious outlook. As such,it is important to understand the client thoroughly before the actual investing happens. CommunicationIt is important that the investment advisor and the client maintain an open dialogue. Opencommunication is needed if both (the client and the investment advisor) are to achieve theirobjectives. It is advisable that the investment objectives or goals are reviewed, at least once a year,and the changes, if any, be clearly communicated.Communication, which can be in any form such as email, text messages etc., should be initiated byboth parties. For example, the investment advisor needs to communicate about importantinformation, such as performance of particular companies or the impact of a macroeconomic factorsuch as taxes. The investor needs to be vigilant and ask about new products that come into themarket or how his/her portfolio can be rebalanced to take advantage of a tax reform.Hope this helps!Page 2 of 2