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How do you determine that your financial expert is actually providing you with genuine or fake advice?

Can you easily trust any financial advice that you get?

Are you sure, whether the financial advice you have received, will fill your pockets or your advisor's?

There are a few questions that one must address, before going ahead and trusting someone as their financial advisor, mentor, expert, or money manager. Therefore, let us get an insider's view into some very important things to know, to let you differentiate between good and bad financial advice.

This sense of wisdom will help you in getting the right advice and value for money, and thus prevent you from being cheated.

Is your advisor walking the talk?

It is very crucial to check whether your advisor is exactly practicing what he is preaching. Always remember that you do not seek advice from an advisor, who has built his wealth from selling advices, rather than actually investing. Be careful from advisors, who primarily sell investment products like stocks, bonds, or MFs. Investment planning function should be separated from the product sales function.

In addition, one must also not seek his financial advice from academicians, or financial authors. These people may have a lot of fascinating theories, but very less real-world experience, thus seeking advice from them can drag you towards risky returns.

Lastly, one must never accept his financial advice from someone, who may be financially very successful, but lacks the requisite qualification. This may comprise of anyone from your friends or relatives, or anyone known and having an opinion. Remember that every viewpoint is not oriented to quality and results.

Concluding the first point over distinguishing between the false and legitimate fiscal advice, one must only go for experts, who have a personal investment experience with the advice they are providing and are honest.

Look for proof or evidence:

I am sure that you will agree to it undoubtedly, if I tell you that the actual proof are none other than the results. Evidences could include the past and present references from clients, and testimonials, that will help your future prospects to verify the quality of your services. It is an unquestionable fact that only the results, and nothing else than that, speak for the truth and one must always go with the same.

Research on your advisor's skills and experience:

In terms of your financial advisor's qualification, background, skill-set, training and overall investment experience, never compromise for anything less than the best. Personal experience and training add unique colours and shades to your expert's advice. There may be numerous knowledge levels in the financial advice industry, but it is a hard reality to accept that the bulk of useful advice comes from the core ground level.

Is your financial advice tested through various market cycles?:

Building wealth as well as preserving it, should be viewed as a full-cycle perspective. Creation of capital should not be just restricted to rising markets, rather one must also control his losses in order to preserve wealth during the depreciating markets. Thus, it is advisable to ensure that your financial advices have been tested through the inflation and deflation, a bull and bear market, or any other attempt that one can imagine. Therefore, it is safe to make sure that your fiscal advice is able to manage risks during the worst outcomes possible. Doing this will assure you profit, under all possible situations.

Know the drawbacks, along with the benefits:

No investment strategy is perfect. To understand any investment completely, it is necessary that you know all the ways of losing money with it. Knowing all the risks will only make you capable of avoiding the same. Once you know your investment plan's drawbacks, you will automatically know the potential rewards as well. Every financial strategy has certain pitfalls.

What would you prefer - learning the risks and avoiding them, or just proceeding being unaware?

Trust the facts, not opinions:

Consider facts as the only thing that matter in the financial advice, and opinions to be merely unnecessary clutter that just complicate your investment decision. Never confuse opinions with facts, as that may lead to wrong conclusions. Facts (that comprise of hard data and numbers) are what is true and knowable at this point of time. Opinions are simply our interpretation of the known facts.

Is your financial advisor advising based on the facts on opinions of the market?

Consider Risk Management:

How do you control the investment losses during adverse times? Risk Management is the simple and straight solution to this question. Managing risks and saving capital can let your investment portfolio, earn returns through wavering market conditions. Therefore, you should never believe any financial advisor, whose primary concern does not include capital preservation and risk management.

Is the advice specific to your personal needs?

Everyone and his/her life is unique, with different set of goals, resources, abilities and necessities, that cannot be compared with anyone else. Rather than going for a generic or computerized financial advice, one must look for something that is customized to his/her own personal needs. Do you think that the information provided to millions of people simultaneously, can be personalized to everyone's requirements?

Summarizing the above-mentioned things to remember, always check up on your advisor to find if he is actually practicing what he is preaching. Moreover, does he possess any documents that validate the successful trial-and-testing of his advice? 

Differentiating good financial advice from the bad is a technique must to learn, in order to make smarter and more profitable investment decisions independently.

The author is Ramalingam K, CFP CM is the Chief Financial Planner at, a leading Financial Planning and Wealth Management company


Published by

Ramalingam K
(Founder & Director - Holistic Investment Planners (P) Limited)
Category Others   Report

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