Free Based or Fee Based

A savings-only approach may not help you achieve your financial goals

SAIKAT NEOGI, The Financial Express 21/2/2012


A financial planner should not be in the business of guaranteeing returns, says Noel Maye, chief executive officer of the Financial Planning Standards Board (FPSB), a global organisation that offers the certified financial planning licence. In an interview with FE’s Saikat Neogi during his recent visit to India, Maye says, instead, the planner should help the client define financial and life objectives and needs, and develop a plan that takes into consideration the client’s current position, tolerance for risk and goals, and the current market environment and likely inflation.

How does an individual who is trying to secure his future get tailor-made solutions from a financial planner in a cost-effective way?

While managing costs is a key part of personal budgeting, it’s equally important to spend appropriate amounts of money on the right things. When it comes to choosing a financial planner, Indian consumers should interview more than one, obtain information, such as that listed on FPSB’s website, including information on compensation, and, then, select a financial planner with whom they feel comfortable and who is qualified to address their needs. It may be that the consumer wants guidance on a particular area of his life, and he can manage costs by focusing the engagement on that particular topic. The planner in addressing that issue should take into consideration all areas of the client’s financial life before providing recommendations.

How do you think the role of financial planners has changed after the global economic crisis?

The global economic crisis has highlighted the drastic impact unexpected events and unknown risks can have on a person’s financial position and ability to achieve life goals. It has provided an opportunity for consumers to focus on their preparedness for various financial and life events, and highlighted the value of having a financial plan and working with a qualified, competent and ethical advisor, such as a certified financial planner professional.

Given the volatility in every asset class, how can a financial planner give inflation-adjusted returns?

A financial planner should not be in the business of guaranteeing returns. Rather, he should help the client define financial and life objectives and needs, and develop a plan that takes into consideration the client’s current position, tolerance for risk and goals, and the current market environment and likely inflation. The planner should understand the nature of the products that will be used by the client to achieve investment strategies and how those products are likely to perform in the face of inflation. Through regular meetings, the planner and client can agree on any adjustments needed to address inflation or other developments.

While savings is an integral part of Indian households, how can one gain financial security through smart choices of financial products?

The most important aspect, for both the financial planner and the client, is to understand the function of each financial product and how it supports the client in achieving financial and life goals. Equally important is for the client to understand how a savings-only approach may prevent them from reaching financial goals, and the role various financial products can play in helping grow and preserve financial stability and wealth. Financial products should be the means used by the planner to help the client achieve financial well being, and only appropriate products should be recommended to the client.

Most Indians are used to free advice and the intermediaries earn commission. How can the model change and what is the global experience?

Most Indians do not realise that when they are paying commissions and getting what they consider is ‘free’ advice, the cost of the advice/service from the financial adviser is already included in the commission. Advice isn’t free; consumers just don’t know that they’ve paid for it and the amount they’ve paid. FPSB advocates a fiduciary-like obligation for financial planners to put the client’s interests first, disclose costs and fees, and manage conflict of interests. Clients should know up front all initial and ongoing charges and fees relating to a financial engagement. Globally, consumers are increasingly prepared to pay fees for advice once they understand a financial planner works in the client’s interest.

With conventional ways of investing seeing a paradigm shift, how should one look at retirement planning?

Traditionally, financial advisers have seen a person’s work life as the time to accumulate wealth and retirement as the time to disburse wealth. But with many consumers spending more time in retirement than in workforce, it’s critical that clients approach retirement with strategies that can carry them through 30 years of retirement. Also, many retirees want to live active lives in retirement and may take up part-time jobs, so old assumptions of the percentage of prior income needed or withdrawal rates may not hold.


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