Financial planning has always been difficult for Gurugram-based professional Geetanjali Shivdasani, 29. Juggling a full-time job and family that comprises her 10-year-old son and grandmother often leaves her drained in terms of managing finances and making conscious investments.
She did have some savings but at the same time, she realised that her monthly income was not being channelised through prudent investments and conscious savings behaviour. “I felt the need to provide a definite structure to my finances and regain confidence, so that my career path and associated earnings would enable me to achieve my goals,” said Shivdasani.
It was then that she started looking for a financial planner. For her, it was important that her financial advisor truly understood her life’s journey, successes and challenges as well as her money psychology.
Similarly, Bengaluru-based professional Sarath Chandra Gudlvaletti, 40, felt the need of appointing financial planner after the birth of his daughter in 2014. While the couple had already started their journey in terms of soft financial planning, they geared up to seek professional help upon becoming parents.
“The need for a financial planner or an advisor is there all through one’s life. It is just that we realise it when we become concerned about our future, like when we are married, have children or nearing retirement,” said Chenthil R Iyer, Founder and Chief Strategist, Horus Financial Consultants. However, ideally, one should seek financial advice as soon as one starts earning. Starting early always helps rather than approaching a financial planner after having made a few financial mistakes, added Iyer.
The need for financial planning is different for different people. Selecting the right financial professional is, however, a process that needs some introspection and definitely a lot of research. And there are few things that one needs to keep in mind before choosing a financial planner. “One may approach a financial planner for a one-time financial plan or enter into a long-term relationship with him. The desired outcome decides how one wants to engage the professional,” said Amit Kukreja, SEBI-registered Investment Advisor and certified Financial Planner.
“It is very important to be very clear about your objective. When I decided to seek professional help in my money matters, I was very clear that I wanted to do it for the long-term. Getting higher returns was not my primary goal,” said Gudlavaletti.
Some financial advisors may also advise in specific areas such as insurance or investments in stocks. However, Iyer recommends having a comprehensive plan rather than going for piecemeal advisory service. “Unlike a doctor who can treat patients based on symptoms, a financial planner can never give a stand-alone solution without considering other aspects. If anyone is providing such a service, I would call it an incomplete solution,” he added.
The next most important aspect is to check the credentials of the financial planner. “You would like your financial advisor to have knowledge on the subject,” said Dhruv Mehta, Chairman, Foundation of Independent Financial Advisors. Hence it is important to check the individual’s qualifications along with credentials. The most important aspect to check is whether one is a SEBI registered investment advisor or not. Any other qualification is just an add-on.
When it comes to qualifications, the Certified Financial Planning (CFP) certification offered by the Financial Planning Standards Board is accepted as a standard in financial planning that meets the global benchmark. Commenting on the same, Ranjeet S Mudholkar, Vice Chairman and CEO, FPSB, said, “When a professional is a CFP, you may be assured that he is regulated by a strict code of ethics. This also ensures that a fiduciary is being established between the planner and the client and the planner will act in the best interests of the client.”
How much experience a financial planner has is equally important. “He should have lived through at least a few investment cycles and have the knowledge of how asset classes have behaved during those periods,” said Mehta. Agrees Sadique Neelgund, Founder and Director, Network FP, a pan-India professional membership organisation for personal financial advisors in India, and added, “It is always good to work with a financial planner who has roughly three to five years of experience of advising clients.”
Credentials of a financial planner are usually followed by understanding the fee structure quoted by the professional.
Just like there is no free lunch, there is no free financial advice. To put it clearly, financial advice which comes for free may end up costing you a lot. It is crucial that you clearly understand how the financial planner is charging for his or her services. “The only way a financial planner can charge his clients is through fees. If an advisor is primarily dependent on commissions, the motivations are suspicious and the advice could be biased. So you need to sit down with the financial advisor and discuss the fee structure as there are no standard rules for it,” confirmed Iyer. Some may charge a flat fee, others may charge as a percentage of the Assets under Advice (AUA). Both ways are acceptable, but transparency is most important in such transactions.
Shivdasani chose Amit Kukreja as her planner because of his fee-only model. “This fee-only model gives me confidence that Kukreja will always work in my favour, rather than any financial institution trying to push their products.”
Iyer pointed out that a flat fee may sound lucrative, but it may entail a commission route in most cases, which needs to be ascertained and built into the calculation. “If someone charges on the basis of AUA, the chances of commission income are very thin.” he advised.
Financial planners may also charge you a flat fee for or charge on an hourly basis. Typically, the fee may range from Rs5,000 to Rs50,000 a year. In the AUA model, the fees may work out to be 0.25 to 2 per cent. However, ensure that you stay away from free or cheap advice. Do not forget to do your due diligence before finalising someone. Remember, after all you will have to trust him with your hard-earned money. Hence do not leave any room for speculations.
It might come as a surprise but trusting your gut in terms of choosing a financial planner can often come to the rescue. While this argument could be subjective, Mudholkar said that an intuitive approach is also necessary when evaluating whether a financial planner is right for you before you make the final decision. Meet in person a few times and try to gauge his body language.
You should instinctively be able to trust your financial planner and only then will you be taking his advice seriously. A good rapport and a temperamental match with him or her are also important. “Look for someone who will ‘tailor-make’ your financial solutions after understanding you as an individual, your goals and successes, as well as your failures and fears,” said Shivdasani. A reference check is also important by talking to his or her other clients. Gudlavaletti zeroed down on his financial planner after a strong recommendation from a family friend. Based on your research, zero down three to four planners before you select one.
Choosing a financial planner is important because you trust him with your hard-earned money. Hence it’s essential to conduct a proper due diligence. A good financial planner would eventually become your friend in need.