A lot of you might have made an attempt to hire a financial consultant to do your financial planning.
Today, you have relationship managers, wealth managers, insurance agents and mutual fund sellers calling themselves financial planners. All of them offer you some kind of solution for the financial goals you have in life. How do you separate the quacks from the genuine ones ?
Best Questions to ask while hiring a Financial Planner
Is he certified ?
According to me, this should be the top most question you need to ask when hiring your financial planner. There is a huge difference between uncertified planners who run shops with their own experience and those who have certified themselves and have a huge experience backing them up. Always prefer the latter – certification and experience combined.
When it comes to certification, the “ISI mark” equivalent in the financial planning industry is a CFP – Certified Financial Planner. In India, this is awarded by the Financial Planning Standards Board India. Read more about what this certification is all about here.
How he earns ?
Check whether your financial advisor earns from money that you pay him for advisory services or does he earn from commissions as well. If he earns from commissions on products that he sells, then he has a conflict of interest and he might not be in a position to offer unbiased advice.
The key here is to ask for a fee based planner who gets compensated by you only for advice.
Pay your planner his fees and he will offer advice that is good for your financial health.
How many clients does he have ?
The understanding most investors have is that the planner should have a huge clientele base in order for him to have a rich experience. But investors also need to realize that a huge clientèle base means less dedicated time for each client.
A financial consultant should have an ideal number of clients so that he is able to dedicate quality time to each of them to do their financial planning. So when you ask, remember that an optimum number of clients works to your advantage as the planner can then devote adequate time to you.
How long will he be in the business ?
If your planner is going to retire soon, he needs to have a transition plan in place for someone equally competent to take over. So when you are making a deal with the advisor today, you need to get a sense of how your future years are going to pan out and with whom.
If you realize you will shift to a new advisor within two years for example, you might be better off not signing up with the current planner who is going to retire.
If is better is you stick with one advisor so that he knows your case in and out. It’s like going to your family doctor. He knows your history too well for you to shift to a new one !
Can he put pen to paper ?
You always need to be explicit in what you are getting into when making a deal. Ask your planner to write down the services he plans to offer you.
This is important as different advisors have different basket of services. All of them structure their services and compensations differently.
For example, in India tax filing is not a service offered by many. So do not make an assumption that you will be offered everything you have in mind.
Ask for an explicit quotation with what will be offered and what will not be offered.
Is he a good person ?
My belief is that when you sign up with a financial advisor or hiring a financial planner, you should have signed up with a long term friend.
You will get many advisors who are like doctors – they look at your illness, prescribe medicines and just don’t talk. Unless until you strike a rapport with your advisor, you cannot ensure that you will be free to ask dumb questions and learn financial planning.
Check to see whether your advisor is an open person, has a slight sense of humor and talks to you like a friend. If you have to sign up for financial planning and be hand held in the process, you should be in a position to build a rapport with your planner. Check to see whether he will break the ice. Go Ahead – You are quipped to hiring a financial planner!
Hi Mayura,
Nice article. But I think planners charge a lot. I have seen them aksing anyting from Rs 5,000 to Rs 50,000.
How cna someone pay so much. This is too much money or someone to lose.
Planners shoudl prpvide free advice and look at other means to earn money.
@Rajeev, You are right about the costs.
I am not sure this is too much money. You lose that much or more when you buy products that are not suitable for you.
The amount of money one loses by buying products that one should not have bought could easily have been made had a financial planner been involved.
Free advice works only for one person – the one who is offering the advice not for the one who is receiving it.
Please do a cost benefit analysis on how much you will gain/lose if you were with a financial planner or without one and you will be surprised.
@Mayura – I’m looking for a financial planner for one of my clients, but he does not want to pay any fixed amount to that Financial Planner. He says that he is willing to work on profit sharing basis with the Planner. Is this possible ?
@CA Karan Batra, It is very much possible but then you would eventually be providing a financial planner an incentive to become a broker !! A financial planner should advice solely based on fees paid to him for advisory services.
If you bring profit sharing in, he will advice products that will make his profit grow as well. A brokerage house does that as well.
Possible but not good.