This is arguably the most important financial decision in your life you will ever make! Not too long ago life was simple. You wanted a bank account, you went to a bank. If you wanted to buy shares, you went to a sub-broker (a broker was out of reach till about 15 years back). If you wanted a life insurance, a LIC agent sold you some policy which you hoped was good.

Today you find bankers who actively discourage you from coming to a bank. Insurance agents who sell you many things including a life insurance product. Bankers who sell you mutual funds, life insurance, broking accounts, and real estate!

And the companies that sell you financial products are dime a dozen – Reliance (MDA) has a loyalty card, Reliance (ADA) has a credit card. A call from Reliance Money says “Reliance Bank” and offers you a loan! Airtel offers you money transfer, cell phones can be used for paying utility bills. Why do I need a bank, a cheque book, a relationship manager? I do not know!

Now into this mess comes in a financial adviser. He should tell you the difference between information and noise. He should encourage you to write down your goals. He should be able to understand the difference between a 3 month track record of a scheme and a 3 year performance. He should be able to FORCE you to buy life insurance MUCH BEFORE you need it. Your pension plans and medical insurance plans should be in place when you CAN rather than when you must. He should be able to help you prioritise your goals. He should have the guts to tell you that your goals make sense only when you allocate resources for the same.

HOWEVER, you have to decide how to compensate him. Putting his code in the mutual fund form is one way of paying him. Life insurance is a tied product, so there could be bias. However in case of mutual funds, he could be chasing a target. So if a mutual fund advisor had said ‘Invest in Mirae equity fund’ it would have been viewed with suspicion. It was surely easier to say Hdfc Top 200. However in the past one year, Mirae funds have done well, has it not?

But please, do not judge a FP on the basis of fund performance. That is incidental.

The other way of paying a FP is of course fees – some work with a combination of fees and trail commission…..take your pick.

It is like a rep of a pharma company – I cannot trust him like i trust my family doctor. Sorry, I know this is an old world view.