Is your money in safe hands? 4 questions to ask your financial advisor

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Published: January 22, 2019 11:20:56 AM

Someone who has the insight into a range of financial instruments and the understanding of your financial standing and requirements can help you meet your financial goals in time.

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The tax season has set in and you must be exploring investment options last minute to reduce your tax outgo. While some of you may be planning your own finances, some of you may be hiring financial advisors to get your finances in place. And effective financial planning is much needed to attain good financial health. So, someone who has the insight into a range of financial instruments and the understanding of your financial standing and requirements can help you meet your financial goals in time, save taxes and build wealth. However, before you blindly rely upon this financial advisor of yours, here are a few crucial questions you must find answers to.

Have you understood my financial profile?

Financial profiling is an important aspect of financial planning, as it helps determine the right investment avenues for a person. And the elements that are taken into consideration to assess your profile are your investment capacity and risk appetite. Discuss your financial goals with the advisor to understand how realistic they are and the investment tenure you have in mind. You can then sit together to assess your investment capacity and whether it’s feasible to attain your goals by the due date you have set for attaining your goals. Your financial advisor will help you pick the appropriate asset classes to attain your goals given your financial standing.

How often will you review my portfolio and asset allocation?

Your portfolio needs to be reviewed from time to time, basis change in investment capacity, goals, risk appetite and market movements. And you may not be able to keep track of things each time, so you must ensure that your financial advisor will do the needful whenever it’s relevant. Asset allocation is another important aspect of financial planning and you must ask your advisor how frequently he/she is going to revisit your portfolio. Typically, a financial portfolio needs reviewing every year or after a big event. Any changes recommended need to be implemented accordingly right away.

What are the risks associated?

There is some amount of risk involved in every investment asset, be it market movements, interest rate changes, currency fluctuations or geopolitics etc. Also, investing involves some amount of speculation which adds an element of risk to it. Hence, the riskier asset classes are often the ones that offer higher returns. For example, equity mutual funds have higher return potential compared to recurring deposits. So, make sure your financial advisor understands your risk appetite before he recommends an investment instrument to you and is transparent about the same.

How can I exit the investments?

Not all investment instruments are liquid. In fact, most tax-saving instruments come with lock-in periods, exit loads, penalties and withdrawal limits etc. Before you put your money in an investment asset, make sure you are aware of the exit formalities to avoid rude surprises.

(The writer is CEO, BankBazaar.com)

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