Saturday, September 27, 2014

Best Financial Advisor

 

Best Financial Advisor

 

So the next time someone tells you "looks are deceiving", "all that glisters is not gold", "it is not what it looks like", do not dismiss it as a cliche All that is a cliche stems from the truth. Even though we often dismiss that first impressions are not always last impressions, unfortunately, our mind does not. We tend to consider ourselves as rational objective beings that are capable of sound judgement. But these judgements are often based on certain "short cuts" or more often than not flawed. This psychological phenomenon is known as Cognitive Heuristics. Investors often tend to fall for cognitive heuristics, making judgements based on face value.

There are various kinds of Cognitive Heuristics. One of them is known as "Representativeness". It is the tendency to assume that just because a person belongs to a certain group, he is a typical member of that group. Why do you look for a financial advisor who is a Chartered Accountant? Or a CFP? Why would you prefer a professional over a person who does not hold such a degree? Because you think they are "qualified"? Let me tell you that it is not what you think. You have probably heard that people with these qualifications make better financial advisors. So a person holding a professional degree represents someone whom the masses think better financial advisors. So sub consciously you are always on the lookout for such advisors.

Here is the classic dilemma of Experience vs. Qualification. How do you know a financial advisor is good with what he does just because he has a degree? How do you trust someone who does not have a professional qualification and hence may not be "professionally" qualified? Well do not over think. Try gathering as much as information as you can with relation to his work experience, his existing clientele and required licences. Check whether he maintains a certain amount of transparency and lookout for his body language. Body language always gives away what speech never does. Speech can be controlled and modulated but our body is not that well trained to lie. When someone is talking to you check whether his eyes are in you or they are constantly wandering. If they are constantly wandering then it is not a positive sign.

Always try to analyse the persuasive techniques he is employing. How does he sell a product? Does he only say that there is a 50% chance of success? Or does he say there is a 50-50 chance of success and failure? If he says something along the line of the first instance then he is trying to hide something about the product and not maintaining transparency. If he says something along the line of the second instance then he is trying to sell you a product by showing you both sides of the coin. He is being honest and transparent with you. After all a product is never perfect and not without its risk and reward factors.

Never judge a book by its cover and never judge a financial advisor by his degrees. I am sure there are financial advisors who have professional qualifications and also excel at what they do best. However, the investors are urged not to undermine the value of experience while keeping in mind the importance of qualifications as well. When a balanced portfolio makes the best investment plan, then a balanced investment advisor would also make the best financial advisor.

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