Choose your Financial Planner with Care

Economic Times, 20/7/2011


Do your home work

Gone are the days when one would walk into the neighbourhood shop that sells mutual fund units and insurance policies and asked for advice on what to do with one’s money. Sure, the shop owner – who may sport disparate titles such as investment consultant, financial advisor, mutual fund advisor, insurance agent and so on — was always helpful.

He always knew the best mutual fund scheme, insurance policy, fixed deposit… everything you were looking for but didn’t know where to find them. However, individuals are increasingly abandoning this ancient practice of signing a financial advisor. These days everyone wants a holistic advisor, who would offer wholesome advice that is tailor-made for every individual.

Don’t go for generalised advices

"It is absolutely impossible for anyone to suggest a mutual fund scheme or an insurance plan by just looking at you. The so-called advisor or consultant was purely recommending schemes and policies that fetch him the maximum commission," says a certified financial planner (CFP), who doesn’t want to be named.

"It was a pure miracle if some of his recommendations really worked for the client. However, it would be foolish to opt for such a generalized advice anymore. The financial world is getting extremely complex and you should pick and choose investments that would suit you the best."

It is not competition that draws such derisive remarks. Even customers are waking up to the problem. "I wanted someone who would devote a lot a time to my investments. But, I realized only after a year and a half that I have to hire someone better if I want that kind of attention. A small time advisor won’t have that kind of time or resources," says Rajesh Sharma, an HRD professional.

One who can design as per your needs

Deciding to hire someone qualified just doesn’t solve the problem. In fact, hiring an advisor has become a problematic exercise for many investors. This is because depending on your pocket, you can get service of professionals who can offer your solutions that would range from simple to most complex.

For example, if you have a mere one or two lakh rupees at your disposal, you can get an advisor who would give you vanilla solutions. However, if your pocket is a little deeper, the expert can offer you products that would range from safeguarding your capital to offer your returns that would be so many times your capital. "It is all about the individual, his wallet and his goals. The advisor or the manager can always design a portfolio to suit his needs," says a wealth manager.

Sure, one can always argue that not everyone needs such customization of portfolio. Still, there is no denying the fact that if your advisor knows you a little better, he would be in a better position to guide you. That is why the first thing you have to do is to ask yourself whether the advisor knows you at all. This is because if you are one of those people who sauntered into an advisor’s office and bought a few products in a span of 15 minutes, chances are that you may have bought a few bad products.

Knowing you better is an advantage

To explain, you may think the equity mutual fund scheme you bought is a simple product. But that need not be the case. For example, if you are a conservative equity investor who wants to play safe (yes, there are people who prefer to play it safe even when they invest in equity), your advisor would have given you a scheme that invests predominantly in large cap stocks.

Alternatively, he would have given you a small or mid cap scheme if you are ready to take more risk. He would have even suggested a scheme that invests mostly in a sector that is witnessing a lot of action. In short, you need to communicate better. Okay, you have started speaking to your investment advisor as if he was your best buddy in school. What next? Obviously, he will start suggesting financial solutions to your problems.

Ask questions when confused

Keep your ears open and ask questions whenever you feel he is speaking Greek. Don’t be nervous. You are not a financial geek and don’t try to hide it. You advisor knows that you are hiring him precisely for that reason. "This is an usual problem faced by most people. They don’t understand the product but would still sign up for it because they think it is embarrassing to ask for more explanations," says an investment consultant. The rule of the game is very simple: don’t buy it if you don’t understand it.

Need a stick to beat the advisor who is speaking gibberish? Simple. Listen carefully whether he claims the returns are guaranteed, assured and so on when it comes to investing in the stock market. Always remember the stock market just doesn’t assure you any returns. So when the advisor is telling you the market has given 50% last year and the performance is going to be repeated this year, look him in the eye and repeat the statutory disclaimer to him that past performance is not an indication of future returns.

Keep away from tall claims

Another red flag is when your advisor starts speaking about quick gains. The moment you hear him promising huge returns (that is, substantially higher than the prevailing rates) from mutual funds and insurance plans in a quarter, head to the door. According to experts, these tall claims are used by some advisors to lure customers who wouldn’t sign him otherwise. If the advisor gets to know you are not looking to get rich overnight (and lose your shirt in the process), he may offer genuine solutions.

Is he experienced and qualified?

Always place emphasis on professional qualifications of the advisor, his client base and his performance record for at least five years. Remember, someone is always looking to change his profession and that person could be the advisor you have just spotted. Sadly, most of these wannabes shut shop in no time, leaving their clients in the lurch. So, it is always better to speak to one of his client first before engaging with him.

If he is new to the profession, it is always better to look for someone more seasoned. The exception to this rule is if he was previously employed in a solid financial institution and trying to strike it out on his own.

Negotiate the fee

Lastly, negotiate the fee with him. There are professionals who give you advice for a fee. Also, there are others who would do it free for you if you buy financial products from them.

"It is always better to pay for the fee as it would ensure that the person is not trying to push products that would earn him good commission," says an investment consultant. However, you can opt for mix of both provided you know when to say no to a product.


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