Getting advice on your investment decisions may be worth it if you’re not comfortable putting together an investment plan or choosing investments on your own. For example, you may not have the time, interest or knowledge to build a portfolio that fits your investment goals and risk tolerance. In such situations you can employ the services of an investment adviser. He/she can help you set your investment goals, build an investment plan, design a portfolio, choose suitable investments, track your progress and help you adjust as necessary.
How do you find an investment adviser?
Start by asking for referrals from friends, family, work colleagues and professionals you trust. Keep in mind that what’s good for one person may not be good for another.
You could screen these candidates over the phone. It is important to be on the watch for investment advisers who are licensed by the Securities and Exchange Commission of Sri Lanka (SEC) as they are given adequate knowledge about the market.
Find out if they are taking on new clients and what type of clients they work with. Once you’ve narrowed your list, set up meetings with each candidate at their office. This will give you a sense of how they function. Gauge how comfortable you would be working with them (Do they listen to you and answer your questions clearly? Do you have a good rapport with them?).
Expect the adviser to have some questions for you as well. They will probably want to know what financial goals you want to achieve and what kind of services you’re looking for. Accordingly, both of you should agree on the level of service you can expect (How often will you meet to review your plan? How often will you receive progress reports? How quickly will your phone calls and emails be returned?). Most importantly check if the adviser has been warned, punished or compounded by the SEC for market malpractices in the past. If you receive such information, request for reasons from your advisor and take your decisions accordingly.
What do you look for in an investment adviser?
As professional investment advisers are guided by certain practices and conduct, awareness on these characteristics will enable you to select a suitable investment adviser and also maintain a healthy relationship with him.
Observe the highest standards of professional conduct and integrity
Any form of financial transaction is based on a financial relationship that comprises of trust, honesty and professionalism. Investors base their investment decisions on the advice given by investment advisers. Thus, it is vital that an adviser maintains high standards of professionalism and conduct with integrity. They will at all times act with responsibility. A smart investor will never compromise integrity in an advisor for quick returns or sales pitches as they know that it is short lived.
He should act fairly
Investment advisers should bear in mind to provide an equal service to all their clients irrespective of the value of their portfolio. Such an adviser will be in most cases patient, answer your questions regarding the investment and even go out of his way to provide his services even if you intend to invest a very small amount. He will be concerned in building goodwill instead of trying to encourage you to invest more money.
He will avoid any conflict of interest which may arise
When serving a lot of clients, they could be faced with a conflict of interest between clients. As per the regulations that govern the conduct of stockbroker firms, they should ensure that equal and fair treatment is given to its clients by disclosing such conflict of interest, by declining to act or by taking any other appropriate measures.
He should make sure that he carries out the client’s instructions
A licensed investment adviser’s role is to advise the client on investment opportunities. The investor makes the final decision. Think twice before you take the services of an investment adviser who invests your money at his free will. He might be smart and experienced, yet he cannot trade without your consent. Practices of this nature can result in the client losing track of the transactions and there is a possibility of making an investment that is not in line with your investment objectives.
However, it should be noted that if the client has signed a Discretionary Account the adviser will be given the authority to trade on behalf of the client without the client’s consent. It is advised that investors think twice before signing the Discretionary Account as it could lead to unwanted issues pertaining to your portfolio. A good investment adviser will always explain the advantage and disadvantage of signing a Discretionary Account before getting the client’s signature.
It is equally important for investors to be precise on their instructions, and give it in writing in order to prevent disputes.
He should exercise due skill, care and diligence
An investment adviser deals with the hard-earned money of their clients. It is important to select a professional who acts with responsibility over the money entrusted on him. He will be vigilant on suitable opportunities. These responsible advisers will always base their recommendations on facts and figures and not on luck and expose the client’s money to unwanted risk.
He should act in good faith
A stock market is fuelled by demand and supply (for stocks) which is influenced by external factors as the performance of the company, political environment, socio-economic factors, performance of global markets, etc. An unexpected change in any of these factors could influence the demand and supply for the stock. In certain instances, a stock that was recommended by your advisor might bring about lower returns than a stock that he had discouraged you to buy even after he advises you with utmost integrity and diligence. Investors should not blame the advisor in such a situation as it is beyond his control and he has acted in good faith.
A good adviser will never encourage an investor to purchase a share if he knows with certainty that it is not profitable.
At times it will be a tedious task to grasp if an adviser is acting in good faith as recommendations entail a certain degree of subjectivity. Hence, this problem could be overcome by requesting justifications for recommendation with facts and figures. This would enable you to add