How to Identify the Wrong Financial Advice

Almost a year back, the 3.2 million customers who had invested 6380 crores in the Agrigold group of companies were in for an ugly shock. The post-dated cheques which the company had issued to them had been dishonoured due to lack of funds. For most of these investors, their money came from hard day’s toil. The agents who had advised them had gone absconding.

Although Harshad Mehta, Satyam and Agrigold happen with unerring regularity, people continue to trust these self-appointed financial Gurus and that is the reason financial scams happen.

In this highly volatile world, how do you recognize financial acumen and separate it from self-interest? What is grain? What is chaff? The following pointers will help:

Is the Advisor trying to sell you something?

Some marketers brand themselves as financial advisors. But in reality, they try to sell a product. In such cases, investigate a bit. Find out if the so called financial advisor has vested interest in the investment he is asking you to make. Is he trying to sell you a financial product masked in the guise of financial advice?

Before you give in to the financial advisor’s advice, make sure he/she is genuine.

The financial advisor is self-appointed

The routes to financial scams are many. Did the financial advisor approach you via mail or phone? Was his/her talk so smooth and persuasive that for a moment you forgot that the advice was totally un solicited? Also be careful when your banker gives you investment advice. Most often that advice is suited to pushing their own products and earning commissions than your needs.

Some callers however claim that they are from the organizations, with which you had worked in the past. In such cases, you need to be doubly cautious. Disconnect the call and ask the organization if the so called person is indeed their employee. Look out for online reviews. Before following the advice of the financial planner, make sure that the person is genuine and adequately qualified to help with financial planning.

He/she makes tall claims

Does your financial advisor tell you that your investments will create magic? That they will fetch you returns which are considerably higher than the market average?

In such cases, you need to be wary. It means that your financial advisor is subjecting your investments to higher risk.

The financial advice is not tailored to your specific needs

No two persons are alike. Their needs and financial goals are different. Their tolerance to risk is different. If the financial advisor outlines an investment plan that is generic and does not take your personal profile into account, then you need to think twice before diverting your funds.

Other Red Flags

• The financial advisor is not adequately qualified and does not possess any certifications that endorse his ability to advise people in professional capacity.
• The financial advisor offers his/her services for free.
• He/she claims to manage your investments for you rather than with you.

Finally, remember the best way to safeguard your investment is to talk. Read the agreement thoroughly and ask questions if anything makes you uncomfortable. After all, bottom line is more about nurturing your peace of mind.

Sridevi Datta is a Cost Accountant. After working as a Business-SME in a leading E-learning centre, she now  blogs regularly at The Write Journey.