How to choose the best mutual fund advisor?

Do concepts like ‘net asset value’ and ‘portfolio allocation’ seem foreign to you? These terms are often thrown around in the world of mutual funds investing. For laypeople new to investing in mutual funds, the technical terminology can seem daunting and push them away from investing. However, that doesn’t mean these concepts are all fluff without substance.

A mutual fund’s NAV is usually a key indicator of its performance, and figuring out how you wish to allocate your portfolio can help you attain financial goals. This is where the role of a mutual fund consultant comes in.

What does a mutual fund consultant do?

A mutual fund consultant or a mutual fund advisor offers tailored financial advice about which funds to invest in and how to allocate one’s mutual fund portfolio after assessing their clients’ investment horizons, risk appetite, and financial goals. For this, the consultant usually tracks a variety of mutual fund schemes that have different investment objectives while also keeping updated with crucial events in the financial market that could impact the performance of these schemes.

Hence, not only are MF advisors incredibly helpful to lay people wanting to dip their toes into mutual funds investing but can also offer seasoned investors guidance regarding their portfolio’s performance. As with any profession, you can find great and not-so-great mutual funds consultants. But what defines a good mutual fund advisor and how do you find one? Keep reading to learn more.

How to pick the best mutual fund advisor?

A few simple principles can help in determining whether or not you have found a good mutual fund consultant. They are as follows:

• Look at their experience in the field: The more experienced a mutual fund manager, the more likely investors will swarm toward that fund. The same applies to a mutual fund advisor. A mutual fund advisor who has been through at least one market downturn has a lot more to offer than one who hasn’t. Going through one crisis usually enables one to tackle future crises better. Hence, the more seasoned a mutual funds advisor, the more likely they will know what to do with different market scenarios. Some clients seek out a mutual fund advisor online who has been in the field for at least ten years.

• Assess their approach: The way your advisor approaches your financial planning is key in understanding how seasoned they are. Typically, the best mutual fund advisors opt for a holistic approach towards investment planning. They carry out a detailed risk assessment of their client, carefully consider the client’s financial goals and the timeframe available to achieve those goals, and curate schemes to allocate their clients’ portfolios accordingly. Good mutual fund advisors also acknowledge that clients’ goals change over time, so their portfolio and tolerance for risk change accordingly. Hence, risk profiling and reallocating one’s portfolio is a process that must constantly be revisited at different life stages.

• Ask for referrals: When evaluating multiple mutual funds advisors online, you have the option of reaching out to investors they have worked with or currently work with. By seeking out referrals from your mutual fund advisor online, you can talk to investors with similar financial goals as you. Hence, you can learn a lot about working with a particular mutual fund consultant.

• Request transparency regarding compensation: Since direct mutual funds have been introduced in India, different Sub-broker Business Model of commissions exist for MF advisors. A mutual fund investment advisor can earn commissions directly from a fund house or for being a distributor who sells the schemes of the house. Hence, some mutual fund consultants could target selling particular schemes to clients by putting their commissions first, rather than the client’s goals. This is why it is vital to understand your mutual fund advisor’s mode of compensation.

Key Characteristics of the Best Mutual Fund Advisors

Here are some of the key features of mutual fund advisors:

• Strong Market Knowledge: Most of the best advisors are knowledgeable about mutual funds, market trends, and the overall macroeconomic factors affecting investments.

• Client-Centric Approach: They remain client-focused and steer strategies that will enable them to achieve their clients’ financial goals, risk appetites, and time horizons.

• Transparent Communication: Relevant components include the succinct description of the investment plans, the charges, and the clear disclosure of the probable risks, which ensures that customers have confidence in the advisors.

• Professional Certification: Certification as a financial planner or CFP or registration as an AMFI (Association of Mutual Funds in India) indicates that the person is a professional.

• Proactive Updates: Consultants also monitor clients’ accounts and report on changes needed or market changes.

• Goal-Oriented Planning: It is about the accomplishment of particular targets like retirement, education, or wealth accumulation within a systematically planned way.

• Risk Assessment Skills: Good advisors also evaluate and manage risk factors to ensure that the client portfolio remains further diversified and appropriate to clients.

• Long-Term Perspective: They stress the logic behind the investment and do not indulge in hasty money-making sprees; instead, they essentially work for the generation of wealth.

The Bottom Line

The process of mutual fund investing and building a portfolio can become a lot easier through a mutual fund consultant. Knowing how to identify the best mutual fund advisor for yourself is key. Ensure you look for certain characteristics in your advisor like a holistic financial approach, open lines of communication, and proactiveness. You can also seek out referrals about advisors you are comparing to get a third-party investor’s perspective who has worked with them.

Frequently Asked Questions

Q.1: What are the criteria for a mutual fund advisor?

Ans: Mutual fund advisers need to possess a graduate degree, AMFI certification, SEBI registration, solid financial market knowledge, client-centric abilities, ethical standards, and technological proficiency to ensure they offer objective and expert investment advice.

Q.2: How do mutual fund advisors get paid?

Ans: Mutual fund advisors can earn money through subscription plans, hourly consultation fees, client fees (either flat or percentage-based), or commissions from fund houses. The payment mechanism and their level of experience determine their income.