Due to a lack of expertise and resources, many individuals rely on financial advisors for their financial planning and investment decision-making. It is essential to find out if your financial advisor is unbiased.
In uncertain times that we live in, it is necessary to have a passive source of income. Many individuals have turned their eyes towards the stock market and mutual funds to supplement their income and create a safety net of additional income.
Due to a lack of expertise and resources, many individuals rely on financial advisors for their financial planning and investment decision-making. It is essential to find out if your financial advisor is unbiased.
Here we list 5 ways to know if your financial advisor is biased:
Gives Undue Weightage to Past Performance
If your financial advisor is biased, they will give undue weightage to the scheme or product’s past performance to entice you to invest in it.
Whereas an unbiased financial advisor will also highlight the past performance figures to give you a gist of how the scheme has fared over the years. They will also highlight its rolling returns, performance during the best and worst periods, maximum drawdown, and other relevant characteristics.
Is Overpromising
Going by historical data, the Indian benchmark Index Nifty50 has provided annualised returns between 12 and 13% since its inception. A financial advisor who overpromises on returns by showing overly optimistic scenarios is a sign that they are biased.
A prudent financial advisor will always try to set realistic client expectations.
Promotes Only High-Commission Investment Products
A biased financial advisor who is only interested in their fees and commission will try to sell you investment products with scope for higher commissions, irrespective of whether the product is suitable for you.
Does Not Dig into your Financial Profile
A biased financial advisor will care the least about your financial profile and investment background and whether the features of the investment product are what you desire.
An unbiased financial advisor would discuss the client’s risk profile, return expectations, time horizon, and tax and legal considerations.
Only Interested in Initial Client Onboarding
Another feature of a biased financial advisor is that they will only be interested in initial client onboarding to achieve their monthly targets. However, they will provide very poor or no after-sales service if required. You can cross-check this feature by getting feedback from the advisor’s existing clients.
An unbiased and responsible financial advisor will remain in regular touch with you and update your Investment Policy Statement (IPS) if any material changes occur from time to time!
These are five significant differences between a biased and an unbiased financial advisor. It is essential that individuals deal with only SEBI registered Investment Advisors as it adds an extra layer of safety to the investment process. This is because the clients will have a redressal mechanism if some wrongdoings take place!
