The best relationships are those where both parties are aligned to accomplish a common purpose. But, alas, most relationships are not made in this mould and end up being win-lose or at the least, sub-optimal relationships.
In financial advisory too, two pillars matter most: trust and competence. Competence can be verified through qualifications or experience. Trust, however, is harder to test, yet crucial to lasting partnerships.
What makes a good advisor
A good advisor should be qualified—registered with the Securities and Exchange Board of India (Sebi), independent, vendor-agnostic, and experienced in handling clients across ages and profiles. But above all, they must be aligned with the client’s best interest.
That’s where the fiduciary standard comes in—an obligation to put the client’s well-being ahead of everything else. Such advisors act like doctors or lawyers, where professional ethics demand that the client’s interests come first.
The fiduciary advantage
In India, Sebi-registered investment advisers (RIAs) are legally bound by this fiduciary duty. They operate on a fee-only model, meaning they charge clients directly and do not earn commissions from products or distributors. Some charge flat advisory fees, while others link fees to assets under management—but in both cases, transparency is key.
Aligning interests
Even within a fee-only model, incentives can distort advice. Performance-linked fees may sound fair in theory. But, how much risk is taken to deliver that performance also matters.
An advisor compensated based on performance may be tempted to take on excessive risk to maximize returns—and, in turn, fees. This often leads to short-term thinking and frequent portfolio churn, which can disrupt a client’s long-term investment plan and increase costs through taxes and transaction loads.
Incentives within advisory firms can also distort advice. When payouts differ across products, advisors may favour those with higher commissions. Similarly, when new client acquisition is rewarded, advisors might bring on customers who aren’t the right fit—creating adverse selection.
Front-loaded or declining incentive structures can further trigger client churn once payouts fade. Such misalignments underline why investors must seek advisors who keep incentives simple, transparent, and aligned with client interests.
Conflict of interest
Conflict of interest can be the bane of an advisory relationship. While they may be unavoidable in practice, they should be minimized—and whatever remains must be transparently disclosed to the client.
For instance, an advisor recommending liquidation of real estate holdings could stand to benefit if the proceeds are reinvested into assets they manage for a fee. Similarly, suggesting that a client pay off a loan by redeeming investments might reduce the advisor’s earnings—creating tension.
Finding the right fit
Choosing the right financial advisor is never easy. Investors should watch out for potential misalignments and conflicts of interest, many of which are not immediately visible. That’s why trust and integrity matter as much as technical competence. References from existing clients can often reveal what credentials alone cannot.
Finding the right advisor, much like finding a life partner, takes time and diligence. But once you do, the relationship thrives on trust—because, in many ways, your financial well-being does depend on it.
Suresh Sadagopan, MD & Principal Officer, Ladder7 Wealth Planners, and author of “If God Was Your Financial Planner”
About the Author
