Is your wealth manager trustworthy?

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When it comes to managing money amateurs generally prefer hiring experts for their valued investment advice. But before you sign up with any wealth manager you should be aware about the potential conflict of interest which can result in mis-selling. For instance, the wealth manager may sell you a product which earns him a higher commission but is completely irrelevant to meet your portfolio objectives.

Thus, while hiring professionals to manage money, one has to be reasonably confident that the advice that comes in is unbiased. The first job of the wealth manager is to understand the risk profile and return expectations of the clients before he begins the financial planning exercise. Only after that the asset allocation must take place to meet the portfolio goals. Risk profiling is important because financial advice needs to be customized for every client. However, that rarely happens in the Indian context. A septuagenarian can be mis-sold an equity product if that garners a higher commission to the distributor. Further, bundled insurance products are also sold to the clients when in fact they do not require insurance cover at all. It is unbelievable that sometimes equity products are sold as guaranteed return devices! Thus, rampant mis-selling persists in Indian markets.

However, sometimes it might be argued that the wealth manager's job is to provide the financial advice. And it is up-to the customer to accept the same. However, the rule of Caveat Emptor (Buyer Beware) does not apply here. Wealth management includes a comprehensive solution to all financial needs. And it is the fiduciary responsibility of the manager to educate the clients about potential pitfalls of investing into asset classes that violate their risk/return objectives. However, ethics are aloof to the financial industry in general.

So, how does a lay investor figure out the perfect wealth manager for him?

Well, the first thing the investor needs to do is to check the historical track record. Past claims should have valid proof. Also, never simply go by the adviser's mouth. Consult a few experts and compare their advices to get a judgment of what they are trying to sell and what you need. Conducting own research on raw basis is also helpful. It is also necessary to ask about the experience and qualifications of the wealth manager. After all it is your hard earned money. These steps can prove to be a good cross-check in selecting the right wealth manager.