If you want serious advice, pay for it. You will find plenty of financial advisors who will be willing to offer financial advice “free”. As you know such advisors are compensated by commissions paid by product sellers like Mutual Funds and Insurance Companies. While it may not always be the case, advice compensated by commissions is likely to biased by “Sales talk”.

Transparency is important. If your advisor is compensated by commissions and is transparent in terms of what he will get as compensation from Mutual Funds, Insurance Companies, etc., take that as a very positive sign. For your information, advisors get compensated in cash (by way of commissions) and in kind (by way of incentives like gifts, holidays and conferences). You will need to judge your advisor’s level of transparency if you opt to compensate him with commissions.

You pay (nothing is free). In either case, whether the product seller takes your money and pays a commission to your advisor or you pay your advisor a fee directly, it is you who is paying. In commission compensation you do not decide, in a fee scenario you decide.

Maximum Returns usually means Maximum Risk. If all that your advisor is talking about is Returns, Returns and Returns, walk away. Your returns are very closely linked to two variables. Time horizon and Risk. If you want to change your returns you need to change at least one of these two. A good advisor will not maximize your return i.e. maximize your risk and lengthen your time horizon, he will optimize the return so that you have reasonable certainty of achieving your goals and within the time horizon envisaged by you.

Sharing profits on your investments with your advisor does not mean alignment of goals. It may motivate the advisor to maximize your risk. If the risk materializes, you will be left with losses. Are you comfortable with that situation? You aren’t sharing losses, are you? If your advisor is guaranteeing a minimum return, is he backing that up with financial capital or financial guarantees?

A well performing investment and a well performing investor are not the same thing. For these two to mean the same thing, the investor needs to have made money from the investment, he needs to have made enough money to make some difference on his overall situation and the results need to be consistently repeatable. When stock markets are doing well, everybody knows of some investment that has done very well. The right questions to ask are – A. In last ten years, how many times has the investment returned above average and B. How much money was invested by that person in that investment in those years? In other words what matters to you are investments that can predictably and consistently add to your wealth. Else it is a directionless gamble.

Doing what everybody is doing does not insulate you from the consequences of your decision. We have a short public memory. Most investing population forgets the mass following of US 64 or technology stocks in the year 2000. Did it protect those investors from the losses in those investments? It did protect one thing thought – their ego. They did what everyone was doing, so they couldn’t have looked foolish. Do not invest in stocks because everybody is investing, do not buy advice from that big company because everybody is investing. If everybody is wrong, everybody will suffer. Multiplicity of errors does not make a wrong thing right.

Your common sense is your best advisor. Small children often ask the best questions. Where do you want to go? What are the various ways to get there? How will you choose the best way? What would you look for in your advisor? How would such an advisor earn from his service? Why do companies issue stocks? Why should I not buy gold?

A portfolio manager and a personal financial advisor are not one and the same. What’s the difference? It’s a big difference and an important one. To draw an analogy, it’s the difference between a furniture maker and an architect, the difference between a pharmaceutical company and a doctor, the difference between a software programmer and a systems analyst and to stretch the line a bit, the difference between a cook and your mother. A portfolio manager or Mutual Fund manager is an asset class (such as equity, debt, commodities, art, property, etc.) expert or specialist. A personal financial planner or advisor uses the former’s expertise to create solutions specific to your financial situation.

Make a will. None of us are going to live forever. For removing the guesswork out of our executors work, we really do everyone a favour by putting down on a piece of paper our thoughts for our estate. If you cannot afford it, at least put it on plain paper. Estate planning is a worth while exercise.