What Is A Financial Advisor, And How To Choose The Right One

Summary Points:
 

1. Financial advisors guide your saving, investing, and insurance choices for life goals.
    
2. Choose advisors with experience, credentials, and unbiased advice tailored to your needs.
    
3. Avoid common mistakes like hiring captive advisors or skipping background checks.
    
4. Involving your partner ensures aligned financial goals and better long-term decisions.

Bonus Point: To become a financial advisor, one must hold a Level 4 qualification and be FCA-approved.

A financial advisor helps individuals plan, invest, and manage their finances wisely.

They offer expert guidance on savings, investments, insurance, and long-term financial goals.

Let’s understand it with the help of an example:

Meet Rohan, a 30-year-old marketing executive earning ₹70,000/month. He wants to buy a home in 10 years and retire by 60 with ₹2 crore. But with ₹40,000/month expenses, a ₹50,000 credit card debt, and no clue about investing, he feels lost.

He meets a financial advisor who helps him:

• Clear his ₹50,000 debt in 6 months with a ₹8,500/month payment
   
• Start a ₹15,000 SIP in mutual funds aiming for 12% annual returns
   
• Save ₹5,000/month in recurring deposits for short-term needs
   
• Secure life and health insurance worth ₹5,000/month

After 10 years, his SIP grows to around ₹34,80,000, enough for a home down payment.
He’s now debt-free, secured, and confident about the future. Isn’t it interesting how expert advice can change your life?

Now that you know how a financial advisor can make a difference, let’s explore how to choose the right one for your needs.

What is a Financial Advisor?

A financial advisor helps you make smart money decisions for future goals like buying a house or retiring. They guide you on budgeting, saving, investing, and insurance planning. For example, if you invest ₹10,000 monthly for 10 years at 12% returns, you can grow your savings to ₹23,00,000. Advisors use tools like SIP calculators and insurance planning to create a full financial roadmap. They don’t just give advice, they create practical, number-backed plans to help you reach your life goals.

Types of Financial Advisors:

There are different types of financial advisors, each with its own approach, fees, and interests. Choosing the right one depends on your financial needs and goals.

1. Independent Financial Advisors (IFAs)

They offer unbiased advice across many products, not tied to any specific company or provider. Clients get broader choices and better-customised solutions based on needs, not company sales targets.

Let’s understand it with the help of an example:

Ravi wants to invest ₹20,000/month but isn’t sure what’s best: stocks, mutual funds, or insurance.

An Independent Financial Advisor reviews all options in the market, compares returns and risks, and suggests:

• ₹10,000 in mutual funds with a 12% return
   
• ₹5,000 in PPF (safe, tax-saving)
   
• ₹5,000 in term life insurance

Ravi gets unbiased advice because the advisor isn’t pushing any one company’s products.

Read More –How to Select Stocks for Intraday – Beginner to Pro Guide

2. Restricted Advisors

They recommend products only from specific companies or a narrow range of providers. You get limited options, often favouring affiliated products regardless of broader market offerings.

Let’s understand it with the help of an example:

Priya wants a tax-saving plan and visits an advisor working with XYZ Insurance.

The advisor only recommends XYZ’s ULIP plans, even if better mutual fund options exist elsewhere.

So Priya ends up investing ₹20,000 in a ULIP with 6% return when 12% mutual funds exist. That’s restricted advice, limited, not always the best for the client.

3. Robo-Advisors

Online platforms use algorithms for automated investment advice with low fees and minimal human involvement. Good for simple goals, but lacks deep personalisation or human judgment in complex scenarios.

Let’s understand it with the help of an example:

Amit wants to invest ₹5,000/month but doesn’t want to talk to anyone. He uses a robo-advisor app. Based on his age and goal, the app suggests:

• ₹3,000 in equity mutual funds
   
• ₹2,000 in debt mutual funds

It’s cheap, fast, and automated, but if markets crash, there’s no human advisor to guide them.

4. Fee-Only Advisors

They charge a fixed fee or percentage from clients, not commissions from product providers. Best for unbiased advice, as no sales commissions create a conflict of interest.

Let’s understand it with the help of an example:

Neha hires a fee-only advisor for ₹10,000 to create a full financial plan. The advisor recommends:

• ₹15,000/month SIP in mutual funds
   
• ₹5,000 in health insurance
   
• ₹2,000 in term insurance

No products are sold. Neha buys them separately online. So, the advisor earns only from her fees.

5. Fee-Based Advisors

They charge both a service fee and may also earn commissions on products they recommend. Can offer good advice, but potential bias exists if pushing commission-based products.

Let’s understand it with the help of an example:

Soham pays a ₹5,000 fee and invests ₹50,000 in a mutual fund suggested by the advisor. The advisor also earns a 1% commission (₹500) from the fund company.

So while advice may be solid, the advisor has an incentive to recommend products that pay commission.

6. Commission-Based Advisors

Earn income only from selling financial products, like insurance or mutual funds. Often free upfront, but may push products with high commissions regardless of client fit.

Let’s understand it with the help of an example:

Divya meets an advisor who offers free financial advice. She’s advised to buy a savings-cum-insurance plan that costs ₹30,000/year.

The advisor earns 20% commission (₹6,000).

Divya may not realise that better investment options exist, as the advisor is motivated by commissions.

How to Choose the Right Financial Advisor?

Let’s understand it with the help of an example:

Let’s say Priya is 30 years old, earns ₹75,000 per month, and wants help with her finances.

She has:

• ₹2,00,000 in savings
   
• ₹50,000 credit card debt
   
• A goal to buy a home in 10 years
   
• Wants to retire by 60 with ₹2 crore in savings

Let’s walk through how Priya chooses the right financial advisor step by step:

1. Define Your Financial Needs

Priya lists her needs:

• Get out of debt
   
• Start investing monthly
   
• Save for her future home and retirement
  
  So, she needs help with saving, investing, debt, and long-term planning.

By clearly identifying her goals, Priya sets the foundation for choosing the right financial advisor to guide her.

2. Pinpoint Your Goals

She writes down her goals clearly:

• Clear ₹50,000 debt in 6 months
   
• Buy a ₹50,00,000 house in 10 years
   
• Retire at 60 with ₹2 crore corpus
  
  She wants her advisor to help her plan how much to invest monthly for each goal.

With well-defined goals, Priya can now work with a financial advisor to create a focused, step-by-step investment plan.

3. Match Advisor Expertise

She searches for advisors who have worked in:

• Debt management
   
• Long-term investment planning
   
• Retirement planning
  
  She skips advisors who only sell insurance or just offer tax-saving plans.

By choosing advisors with relevant expertise, Priya ensures she gets tailored guidance for her unique financial journey.

4. Check Credentials

She looks for a CFP (Certified Financial Planner) and checks if they are registered with SEBI. She shortlists two CFPs and one Registered Investment Advisor (RIA).

Also Read - How to Choose a Financial Advisor Without Getting Scammed?

5. Review Experience

Priya checks:

• One advisor has 12 years of experience
   
• Second has 4 years
   
• Third has 9 years but bad reviews
  
  She picks the first one who has 12 years of experience and great client testimonials.

Priya selects the advisor with proven experience and strong client feedback, boosting her confidence in making the right financial choice.

6. Understand Fee Structure

The advisor offers two options:

• Flat fee of ₹15,000 for full financial planning
   
• OR 1% of Assets Under Management (AUM) yearly (if she invests ₹5 lakh, the fee = ₹5,000/year)

She chooses the flat ₹15,000 plan as she’s just starting and doesn’t have large investments yet.

7. Verify Background

Priya checks the advisor's SEBI registration number and finds no legal red flags. She reads reviews on Google, LinkedIn, and Quora. Clients say he’s transparent and helpful.

She also reviews a sample plan the advisor created for another (anonymised) client, which includes:

• SIP of ₹15,000/month in mutual funds (expected 12% return)
   
• ₹5,000/month debt-clearing strategy
   
• ₹10,000/month home fund in safe instruments
  
  This looks realistic and goal-based, so she feels confident.

Feeling reassured by the advisor’s transparency, credentials, and practical planning style, Priya confidently decides to move forward with his guidance.

8. Build Trust with Research

After one free consultation, she feels the advisor listens well and doesn’t push products.
He explains that investing ₹15,000/month in mutual funds could give her ₹35–40 lakh in 10 years, helping her with her home down payment.
She checks his credentials on the official CFP board website—everything matches.

So Priya finalises him as her trusted financial advisor.

Final Result:
 

• Debt paid off in 6 months
   
• ₹25,000/month invested across mutual funds, PPF, and RD
   
• Realistic roadmap for ₹50,00,000 home in 10 years
   
• Retirement corpus of ₹2 crore achievable with ₹15,000/month SIP over 30 years

This way, Priya doesn’t guess her financial future; she builds it with expert help. That’s the power of choosing the right financial advisor with a smart, step-by-step approach.

Mistakes People Make When Choosing a Financial Advisor

Choosing a financial advisor is a big decision that impacts your future goals and savings plan.
Avoiding common advisor mistakes ensures your money is in safe hands and grows with smart guidance.

Common Mistakes While Choosing a Financial Advisor

Below is a table that highlights seven common errors individuals make while hiring a financial advisor, along with why they matter.
 

Avoiding these mistakes helps you select a knowledgeable, trustworthy advisor who truly supports your life goals. Make informed decisions, ask the right questions, and ensure both you and your partner are involved.

Conclusion:

Choosing the right financial advisor can help you save, invest, and plan better for your future. A good advisor gives you clear guidance, not just big words. They help you avoid mistakes and reach goals like buying a house or saving for retirement. Always check their background, talk to more than one, and involve your partner. With the right help, managing your money becomes easier and more confident.

FAQs: 

Q: How do you change your financial advisor?

Review your current contract for exit terms, then inform your advisor in writing and transfer documents securely to your new advisor.

Q: What is a Rule 3 financial adviser?

A Rule 3 financial adviser gives independent advice to a company receiving a takeover offer, ensuring fairness and compliance.

Q: How to manage your advisor?

Communicate regularly, set clear deadlines, and be honest about other responsibilities to align expectations smoothly.

Q: How do advisors get clients?

Financial advisors often gain clients through community involvement, networking, and building trust via referrals and personal connections.
 

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LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?