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How to choose the right financial adviser?

Financial adviser is a difficult job especially during recession period like this. When he gave out a good tip or advice, people will not really give him the compliment but when things don’t work well, he’ll have to shoulder all the blames. After all, it’s natural for people to blame others for the wrong things and to praise themselves for doing the right things.

For me, a financial adviser should never be blamed. He is, after all, just an adviser. And by saying financial adviser, I do mean anyone who is able to help you with your financial planning. The person does not have to be a qualified person or a CFA holder. He can be your stock broker, your family members, or even your friends. But no matter who the person is, it is not easy to find someone who can be your financial adviser….the right financial adviser.

So how do you determine whether someone’s financial advice is useful to you or not? Here are some of the characteristics that I can think of.

• Know and understand you well - the person needs to be someone who is close to you. It could be your stock broker for 10 years, or your dad, or your good friend. The main thing here is that the person MUST know you and understand you well. Are you a passive or aggressive person? Are you thrifty in your spending or you prefer to buy your WANTs? This point is particularly important because the last thing you want is to have a financial adviser who tells you to invest in risky petty stocks but you yourselves are not a big risk taker. Remember, a good adviser never ask his king to fight a naval war when his king cannot even swim.
• Not overly ambitious – a good financial adviser should be someone who goes for slightly above average return. There’s really no point getting those celebrity financial experts who can earn millions in a few hours. They’re not suitable for you. Also, higher the return, higher the risk. Your celebrity financial expert can earn you couple of millions in 1 hour and he can also make you lose the same amount within an hour. That’s why I feel a good financial adviser will advise you to go for a diversified portfolio – the safest and it also gives a decent return.
• Hardworking and knowledgable - what I mean here is that your financial adviser must be someone who loves to read, particularly business and finance related articles. One can actually learn a lot of stuff on a certain business by reading news about the business. If the person is very lazy to read or to do research, what makes you think his advice can be useful? Also, it certainly helps if the person knows as many type of investment as possible. It helps in creating a diversified portfolio.
• Unbiased - there are some friends of mine who are actually biased against certain businesses for no solid reason. There are also people who are strongly against certain type of investment like mutual funds or real estate investing. So for someone to become a good financial adviser, the person must be an open-minded person who can judge based on his research and knowledge, and not based on whether he likes or hates the business/investment. Because some of the best investment returns might come from areas which the person does not even care to explore.
• Cautious - I’ve mentioned in my previous post that an adviser should always go for the safest route or in other words, cautious. There’s really no point asking the client to jump into an investment which he or she is not sure about. For example, there are rumors that company A is going to acquire company B with a higher price than the current stock price…but this piece of news is unproven. A good financial adviser will always stay away from such rumors. Why? Because preventing the client from losing $1000 is always better than preventing the client from earning $1000. At least, the former allows the client to invest again.

From the look of things, it’s pretty difficult to find the right financial adviser nowadays. That’s why most people are their own financial adviser, myself included. I do occasionally get some opinions from my dad though. But other than that, most of the time it’s all up to me. Because the thing is, nobody can understand me better than myself, and maybe my family. Perhaps there are some very good financial advisers out there, but they don’t know me well and they don’t come cheap.

So my advice to you is, if you can get one, go and find the right one but if you can’t, then try to find among your family members or friends. And if you still can’t, you will have to be your own financial adviser. That’s the cheapest option after all.

Oh, and don’t ever blame your financial adviser for any mishaps/mistakes. In the world of investing, there’s no certainty. Anything can happen. So don’t start blaming people if things don’t go your way  – this includes don’t blame yourselves.

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