Test your financial adviser before taking his counsel

Uma Shashikant, Economic Times 14/5/2012

source: http://articles.economictimes.indiatimes.com/2012-05-14/news/31701221_1_financial-planners-financial-adviser-product

The frustration with the advisory tribe-variously called relationship managers, financial advisers, wealth managers, financial planners or private bankers-is high. There is a serious lack of trust, which makes it difficult for investors to implement their personal finance decisions.

Creating a trust-inducing environment for financial transactions requires a new, bold, and fair policy framework. This is likely to be a long time away since regulators are only tinkering on the margin and refuse to see the need to come together in the interest of the investor. What can investors do in the meanwhile? You can put your advisers to test before you pay heed to their counsel.

Does the planner know enough about what he is offering you? How does he deal with questions whose answers are not found in the product literature he is carrying? Is he telling you that he will ‘get back’? Does he know why and how the returns he is promising will be generated? Is he able to explain the risks? Do not be reticent to ask, worrying about your limited knowledge of products and markets.

The adviser is expected to know. If your adviser brushes aside questions with generalisations-’our manager will take care of the risks’, ‘we have the expertise to do this’, ‘this guy is a star and he will do what it takes’-keep away. The quality of conversation about what is being offered to you is a clear indicator of how much the planner actually knows. A careless one does no homework and is not worth dealing with.

Is your planner throwing jargon at you to intimidate or impress you? Do not be led astray by his sound bites; seek simplification. If he knows what he is talking about, he will be able to explain in simple, clear terms what the product is about.

There are three basic things to know irrespective of the product you choose: how is the return going to be generated? What can go wrong? What would it cost? Even if you are told that ‘in the long run, things will be fine’, you need to be told why that will be the case. Desist overt simplifications-’this is a PSU company’, ‘this the largest offering’, ‘IPOs always list at premium’. Seek the ability to distill the core features of a financial product or service in a language that you can understand.

What are the alternatives? If an adviser is suggesting a single product or plan of action and returning to it too frequently, stop him to ask for another choice. Just one more option. Is he able to tell you why you should invest in the gold product he is selling? Is there another way to invest in gold? What is the difference?

If the conversation debunks every other option and holds up what he has come to sell as the best, end it there. Look for the ability to compare options and the choice to go with what you like better. Do not abdicate all decision-making to the adviser. Getting involved with the choices helps you learn over time. However, do not allow him to overwhelm you with too many options either.

You should also know about the work flow. What happens from the time you give the money to the point it is returned to you? Ask the adviser to explain to you the operational flow of the transaction. Many people only know that they have invested in a name. They do not even know if it is a mutual fund or a bank, or an insurance company. You have to know about the entities that will handle your money. Who will keep it? Who will allocate it? How will you access it? How does it come back?

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Do you take Pride in saying that a Bank is taking care of your Wealth?

If Yes, think again and read the article below:

http://www.tflguide.com/2011/01/bankers-biggest-mis-sellers.html

Anyone recommending you an Investment without understanding you, should be kept away from your hard earned money!

Nikhil Walavalkar, Economic Times 26/4/2012

source: http://economictimes.indiatimes.com/quickiearticleshow/12874523.cms

Goal-based financial plans are in vogue. However, getting a goal-based financial plan prepared by a planner or an advisor alone won’t guarantee achieving all your financial goals. "A financial plan is like an itinerary given by a travel agent to you. You have to take care of some operational issues to ensure a great holiday for you," says Lovaii Navlakhi, managing director & chief financial planner, International Money Matters.

For example, you have to get a visa on time or the air-ticket at the right price if you want to make the most of your holiday. A financial plan also needs such fine-tuning from your side. Most financial planners list people’s failure to get their goals right and implementation and review of the plan as the main reasons why most plans fail to deliver the goals.

Confusion about goals

"There are many instances of incorrect assessment of financial goals. Underestimating the money value of a financial goal is a big risk," says Mukund Seshadri, founder partner, MS Ventures Financial Planners. This happens especially when there are multiple family members involved in a financial goal and there is no communication among them. For example, an individual may think that 15 lakh is enough for his daughter’s wedding.

But his wife may be keen on gifting her daughter a foreign honeymoon package, which may not fit into this budget. "If you really want to quantify your financial goals right, better involve your spouse in the process, as he or she will have a say in each of your spending and saving decisions," adds Seshadri.

You have to fix a date by which you would want to achieve the goal along with the money value of your financial goal. In case the time available on hand changes, your financial plan may fall short of success. For example, an individual has decided to accumulate 15 lakh for his daughter’s higher education, and he assumed that he will pay 5 lakh per year for three years.

But what if she enrolls for 18 months course overseas, where her father has to pay 15 lakh at the start of the course. Such a development is beyond one’s control and one can do very little about it at the last moment. One probably has to use funds meant for some other objective to pay for the course. Even if you get your goals right, there are issues with implementation of financial plan.

Implementation blues

"Some individuals think they can do implementation themselves at cheaper cost," says Lovaii Navlakhi. But it may not be that simple. "Financial planners may recommend cheaper products. But distributors may not sell it at all given the low or no commission," says a wealth manager. A financial planner may recommend liquid funds to maintain emergency corpus. But not all distributors are keen to offer a liquid fund as they are not remunerative.

Some individuals lack discipline to meticulously implement the plan given to them. Procedural issues related to KYC, account opening and starting SIPs also adds to woes. "We come across situations where for months there is no progress on implementation of the financial plan, making a well drafted financial plan useless," says Mukund Seshadri.

Even if the individual is keen to implement the plan, some decisions at the implementation level may change the performance of the plan. Let us understand with an example. An individual estimated that he would require 15 lakh for his daughter’s wedding. This included 100 gram of gold. When preparing the financial plan in CY2006, gold prices were at around 8,000 per 10 gram and he had 15 years in hand to save the money.

Gold prices

But now, five years down the line, gold prices have shot up at a much higher rate than average inflation to around 28,000 per 10 gram. It resulted into wedding expense estimate going much above the 15 lakh mark. In 2006, there was no gold ETF around.

Had he started buying units of gold ETF at regular intervals after it was launched in CY2007, the gap between the estimate and the actual would have been less.

One can segregate wedding expenses under two heads – cost of gold and actual wedding cost. Gold ETFs can be used to accumulate gold; and financial instruments can be used to accumulate funds required for other wedding expenses. Not all individuals are aware of such techniques and may face difficulty in implementing the financial plan. Even if you implement the plan you have to keep visiting it at regular intervals.

Failure to review

"Buy-and-forget is the biggest risk. You have to review your plan at regular intervals to ensure that you are on track," says Lovaii Navlakhi. A review will bring forth any deviation from the expected progress.

"Reviews help you account for changes in priorities, changes in tax structure and performance of the existing products in portfolio. It also helps you validate your assumptions pertaining to inflation and expected returns from portfolio," says Ajay Kinjawadekar, CEO, Moneysafe Financial Services.

Some of the problem situations discussed above, could have been dealt better through thorough reviews at regular intervals. One review a year is a must, Kinjawadekar adds.

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Partha Sinha, Times of India 10/4/2012

source: http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=TOINEW&BaseHref=TOICH/2012/04/10&PageLabel=19&EntityId=Ar01900&ViewMode=HTML

    A financial adviser is a professional who would help you with your investments, keeping in mind the suitability factors of various products and the risks that come with them. And at the same time, he will help you recalibrate your portfolio to keep it on track to meet your long-term goals. Your adviser should be able to assist you in financial planning aimed at meeting various goals like savings, child’s education and marriage, retirement and, probably, wills.

    Usually, financial advisers would suggest you to have a mix of mutual funds, shares, bonds, insurance policies and gold meet your long-term goals. Unfortunately, however, not all financial advisers are capable of advising you on all these asset classes, for whatever reasons. So, it is necessary that you make the effort to choose the adviser who would best suit your long-term financial needs.

    You should look for a financial adviser who, among other things, is always concerned about maximising returns for you while trying to limit the risks associated with the investments being suggested.

    Top industry officials say there are quite a few things that stand between investors and advisers. For one, while listening to the customer, the adviser should be able to distinguish between what the customer is thinking, what his needs are and if there is any gap between his thoughts and the needs.

    As a customer, it is very important for you to understand what the adviser is talking about, and if there are any gaps between what he is advising and your understanding of it. “It’s important to understand if the adviser is skipping some steps and there is a tendency to jump to a solution (for you),” said a person who works with independent financial advisers (IFAs), training them to better their communication skills. For the adviser, the ideal approach is to go through the paces and not jump to conclusions, be clear about the solutions being proposed and offer a comprehensive basket of investment products.

    It is also important for the customer and the adviser to understand each other. Such bonding cannot develop over one single meeting, rather it can happen only when the customer and the adviser meet on several occasions and talk about the investment goals and other related things. An adviser should also use such meetings to build acceptability with the customer, a top mutual fund official said. “Comfort (between the customer and the adviser) comes from a series of meetings,” the official said.

    As a customer, it is very important for you to take references about advisers from friends and acquaintances and then move ahead to select the best one. Before selecting the adviser, you should meet a few of them, see with whom you are most comfortable and then take a decision. Also, as far as possible, look for an adviser who deals with clients with profiles similar to yours. Remember, selection of a good adviser is very important because usually the adviser would stay with you through several years of your life.

    Industry veterans also suggest some more things one should keep in mind, which are often referred to as hygiene checks. For one, you should ask them the number of years they have been in the business (choose the one preferably with an experience of five years or more), educational and professional background, etc.

    “Any person who is into continuing education relating to the advisery profession is considered to be the one who is in tune with the latest developments in the industry. It is seen as a strong positive for the adviser,” said the IFA trainer.

Must ask questions while selecting an advisor

1.What sets you apart from other advisors?
2.What is the advisory process you follow?
3.How do you evaluate investment products?
4.How do you monitor and review client portfolios?
5.How do you keep clients apprised of market developments?

What you should look for in an financial adviser

1.Experienced, capable of judging a good market from a bad one
2.Should be able to guide you with right investments as per your suitability
3.Should be trustworthy
4.Must provide you with comparison and analysis in your portfolio
5.His advice should not be just to suit own interests

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