Yahoo, in association with Hansi Mehrotra, presents ‘#Ask Hansi’ a new series to help you get a better grasp of mutual funds and how you can invest smartly.
My advice – look at three things. The first is qualifications. The second is business model. And the third is ethical standards.
For qualifications, you need to check whether they are certified financial planner, (CFP), or maybe a Chartered Financial Analyst (CFA). Not only check their qualifications, but also of any support staff or research staff that they have, which is the brains of the firm.
The business model is extremely important. They are called either a distributor or an advisor – they’re a distributor when they get paid through a trail commission by the mutual fund that they’re selling, which means that technically sitting on the mutual fund side of the table. It’s possible that whoever pays them is what they sell. So, over the long term, it’s better to go through advisor, a fiduciary, which means they have to sit on your side of the table, and act in your best interest. The cost actually is pretty much the same over the long term. So, it’s a matter of who writes the cheque.
Then there are the ethical standards. Do they have a conflict of interest, do they disclose it, how do they handle it. What are the governance processes, do they have any. Most importantly, do you have a rapport with them? Do they talk to you in your language or do they talk down to you. The comfort factor is a very big thing as well. But imagine, if you’re only comfortable but you haven’t checked the qualifications, or the competence, or the business model, that doesn’t account for much so make sure you check all three things.
Hansi Mehrotra, a CFA with global experience and founder of The Money Hans, is a celebrity in the world of personal finance in India. A powerful influencer on in the corporate/banking/finance circles. She creates fine personal finance content that simplifies complex issues into easy-to-understand stuff which lay people can identify with.