Is this financial planner right for you?

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Shyamal Banerjee/Mint

Do you want to buy a house, a car, build a retirement corpus, save for your child’s educational needs, but have no idea how you are going to do it? When you have multiple goals and don’t know how to plan for them financially, you need expert advice. If the goal is small, say, buying a car, you don’t need professional help; self-help will suffice.

To take the help of a financial planner depends on your goals and not really on your income. Whether you earn Rs.40,000 a month or Rs.2 lakh, you may need professional help if you don’t know how to manage money for multiple goals. Getting the right financial planner can set your money matters on track as she will help you fulfil your specific financial goals by telling you the best way to save and invest appropriately. But this will happen only if you have the right planner. Here’s what to do.

Avoid a salesperson

When you are seeking professional help for your finances, you don’t want a person who is going to fool you into buying products that work for her and not necessarily you. First, do remember that the line separating financial planners, advisers and agents is blurred. An agent’s aim is to sell a product; and an adviser’s focus is on investment products. A financial planner should give you a full suite of services from cash flow management and creating emergency funds to managing debt. If a person calls herself a planner but comes across as a salesperson, you know there is a problem. If she talks more about a product and less about your financial goals, stay away.

A good dentist, for instance, will not suggest a root canal treatment within 15 minutes of your visit. She will first examine the details to find out the cause of the dental problem and then ask you to come back for more sessions. Only when she is sure that you need one, will she start with the root canal treatment. Similarly, a person who claims to be a financial planner but starts talking about products in the first 15-30 minutes of a conversation with you is not who you need. You could argue that the planner may be trying to bring your financial life on track immediately. This can’t happen in a day. A good planner’s first few questions will not be how much money you have; they will be about your goals, cash flow and the like.

The first interaction itself will help you figure out the difference between a person pushing a product and someone who wants to build a plan for you.

Ask for credentials

Always ask for the planner’s credentials such as educational background and experience. Unlike engineers or doctors, a financial planner’s credentials are not well known. Though not mandatory, a suitable qualification such as Certified Financial Planner helps as it is globally recognized. Financial Planning Standards Board (FPSB) India is the licensing body that gives this certification in India through an agreement with FPSB Ltd. If the financial planner quotes credentials from other institutes, make a note of it and check for genuineness. However, the best way to choose a planner is through reference.

Picking financial planners through referrals from family, friends or colleagues is easier and will also give you some background on the planner’s style of functioning, fees, etc. And this brings us to the important topic of payment.

Pay for advice

Remember that like a lawyer or a chartered accountant, a financial planner provides professional service. And as we all know, there are no free lunches in this world. Hence, you should be willing to pay for any advice you take. Says Anil Rego, a Bangalore-based financial planner, “Fee structures vary for all financial planners, but there are broadly three ways in which they charge a fee—fixed, based on commission and based on return on investment.”

Fixed fee is a pre-decided amount and can range from Rs.5,000 to Rs.50,000 annually depending on the suite of services that you opt for. Some planners charge a fee based on the number of investments you make while some charge based on the returns of investment where a certain percentage of your returns will go as a fee. Then there are those who charge based on commission. If this is the case, always ask for the break-up of the commission. A good financial planner will be upfront about disclosing all the charges.

Performance matters

To get a sense whether the planner can add value to your portfolio, you need to know whether she can perform. If she is not able to explain to you her past performance in words and numbers that you can grasp, don’t waste your time with her; look for someone else. Decide on a planner only if she has not only understood you but has also been able to convince you of her own past performance.

However well trained a planner may be, it is nearly impossible to have indepth knowledge of all the problems and the required solutions that can have an effect on an individual’s financial affairs. So, it is important to know the planner’s expertise—it could be estate planning, tax planning among others—and match that with your requirements. If she doesn’t have indepth information in a certain field, she should at least be able to consult with experts concerned.

Should your financial planner be a Sebi-registered adviser?

Last year, Securities and Exchange Board of India (Sebi) brought out the Sebi (Investment Advisers) Regulations, 2013 regarding registered and regulated advisers. It stated that anybody who charges for investment advice to clients in India will need to be registered with Sebi. A Sebi-registered investment adviser should have a certification on financial planning or fund or asset or portfolio management or investment advisory services from National Institute of Securities Markets (NISM) or accredited by NISM. A Sebi-registered adviser cannot receive any compensation from anyone other than the client in any form. Further, she has to collect information such as objective of investment and existing investments. She also has to do a proper risk profiling to ensure that you will be able to accept the level of risk embedded in the products being recommended using a questionnaire or any other suitable tool among others. Though it is not mandatory for a financial planner to be a Sebi-registered adviser, it gives an extra layer of accountability and qualification. However, qualifications don’t guarantee how much your investments will return, but they will at least give you confidence 

shailendar kumar 

pgdm 2nd sem 

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