7 things to consider before hiring a wealth manager - Kotak Bank

There are two kinds of experts who offer financial services: brokers and advisors. Many people often get confused between the two. However, it's easy to differentiate and understand who fits the bill for you.

Brokers are either insurance sales people or stockbrokers that work on commissions. They either work for insurance or stock broking companies, or work independently as agents. They don’t help you manage your wealth, and are paid to sell financial products that their company has tie-ups with.

On the other hand, a wealth manager is a fee-based advisor who charges a certain percentage (typically 1%) of the total assets of the client. They offer advisory services for a wide range of products including mortgage, retirement plans, stock options, tax planning, bonds, inheritance, real estate investments and so on. Such advisors work closely with the client and modify their portfolio depending on the circumstances.

If you are looking for someone to manage your overall wealth while providing you with personalized support, a wealth manager would be the best fit for you!

What are the factors to be considered before hiring a wealth manager?

Regardless of what you might learn from hearsay, managing your own finances is never a great idea. It is a decision that directly affects your entire family, your overall finances and involves a number of considerations. Therefore, even if you have the knowledge, it is always advisable to hire an expert. Here are some of the most important factors that you must consider before hiring a wealth manager:

  • Qualifications and Experience: Knowing if they have the right educational and professional background in the finance industry can greatly help you in understanding if they’ll be beneficial to you or not. Do make sure to check their track record with their other clients as well. These are excellent indications that the advisor has met the necessary standards in education, experience and ethics.

  • Compensation: Many investors assume that financial advisors make money only when the client makes money. But this is not true. Compensation varies greatly. While there’s no standard model for wealth advisory, it is important to understand how your advisor is compensated. So don’t be shy about bringing up the money question early.

  • Personalized Service: A wealth manager will only be able to get you the desired results when your advisor is actively involved in all your financial decisions and serves as your main point of contact for all your financial queries. So do make sure that you hire a wealth manager that is regularly in touch with you. There must also be a person who will manage your wealth in case of their absence for any reason. So knowing the person who will be taking care of your account / portfolio (temporarily or permanently) better would be a great idea.

  • Frequency of portfolio reviews: Wealth management is not a product that you sell and move on. It requires the client and manager to stay connected regularly to review the performance of the portfolio and to understand the future course of action. It should ideally be done on a quarterly basis.

  • Personal investments of the manager: There’s nothing like a wealth manager who puts their money where their mouth is. Therefore, it is always a great idea to know the kind of personal investments your wealth manager is doing for himself. And if they haven’t invested in the products that they are offering, then working with them can be risky.

  • Past performance of their model portfolio: A model portfolio is a package of several underlying investments wrapped into a single one. It is done because smart and complex strategies cannot be simply implemented by algorithms; you need experienced financial advisors for them. Learning about the past performance will help you in knowing their level of expertise.

  • How did they handle 2008 world recession: This will help you get a lot of clarity about the advisor. Some of the questions that you can ask are - Were you in business then? Did you stand firm or succumb to the pressure? What were the changes that you made to your portfolios? What were your views when your clients asked you to do something or change the investment portfolio? How did you survive the phase?

Choosing a wealth manager may be one of the most important decisions you’ll ever make. They will not only act as an asset to manage your wealth, but will also work as a protection during your bad times. They hold the power to change the fate of your retirement. So make sure to choose wisely!

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.